On quantification FRS12 requires provisions to be a 'best estimate', again having regard to the information on assets and liabilities in existence at the year end available to the directors or business proprietors at the time that they prepare the accounts. FRS12 requires provisions to be discounted 'where the effect of the time value of money is material'. This will clearly be so for many long term liabilities such as the cost of decommissioning nuclear power stations, but the effect of time value of money may be material for shorter terms, in which case they too should be discounted. There is no rule of tax law that permits a provision to be brought in to account for tax purposes without a discount where the figure in the accounts has been, or ought to be discounted in accordance with FRS12. Different accountants may take different views on whether a provision should be discounted. FRS12 gives guidance on how the 'unwinding' of a discount (that is the way in which the provision build up from its discounted value to the eventual cash liability) should be recognised in accounts. For tax purposes the 'unwinding ' of the discount should be treated as a further provision; in particular it is not a financial item within the scope of the Loan Relationship legislation in FA96.
