09.09.2019 - Studies

Provisions as an instrument of influencing earning (?)


The DAX companies do not use the leeway in accounting for provisions for accounting purposes. Thus, there is only a weak correlation between the development of provisions and the earnings situation.

Management estimates at various points play a major role in the recognition and measurement of provisions. To a certain extent, these discretionary powers can be used by management to influence the reported results. Assuming that management has an interest in minimizing fluctuations in earnings, it is possible to build up hidden reserves in economically good years, which are released again in weak years. This would smoothen the reported results.

As the analysis based on the DAX companies for the years 2007 to 2018 shows, there is no significant correlation between the earnings situation and the allocation or reversal of provisions.

Please note: This study is available in German only.

Legal notice

The information contained and opinions expressed in this document reflect the views of the author at the time of publication and are subject to change without prior notice. Forward-looking statements reflect the judgement and future expectations of the author. The opinions and expectations found in this document may differ from estimations found in other documents of Flossbach von Storch AG. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. This document does not constitute an offer to sell, purchase or subscribe to securities or other assets. The information and estimates contained herein do not constitute investment advice or any other form of recommendation. All information has been compiled with care. However, no guarantee is given as to the accuracy and completeness of information and no liability is accepted. Past performance is not a reliable indicator of future performance. All authorial rights and other rights, titles and claims (including copyrights, brands, patents, intellectual property rights and other rights) to, for and from all the information in this publication are subject, without restriction, to the applicable provisions and property rights of the registered owners. You do not acquire any rights to the contents. Copyright for contents created and published by Flossbach von Storch AG remains solely with Flossbach von Storch AG. Such content may not be reproduced or used in full or in part without the written approval of Flossbach von Storch AG.

Reprinting or making the content publicly available – in particular by including it in third-party websites – together with reproduction on data storage devices of any kind requires the prior written consent of Flossbach von Storch AG.

© 2023 Flossbach von Storch. All rights reserved.