IASB finalizes amendments to IAS 37 regarding onerous contracts

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May 14, 2020

On May 14, 2020, the International Accounting Standards Board (IASB) published "Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)" amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous.



The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37, Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and published an exposure draft of proposed clarifications in December 2018, which were finalized today.



The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).


Effective date and transition requirements

The amendments published today are effective for annual periods beginning on or after January 1, 2022. Early application is permitted.

Entities apply the amendments to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated.


Additional information


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