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Costs to be Considered in Assessing whether a Contract is Onerous (Narrow scope Amendments to IAS 37) [Research]

Next steps:

The Board expects to issue an Exposure Draft in Q4/2018

Last up­dated:

September 2018

Overview

At its meeting in July 2018, the International Accounting Standards Board (the Board) decided to undertake narrow-scope standard-setting to clarify the meaning of the term 'unavoidable costs' in the IAS 37 definition of an onerous contract.

The Board discussed the IFRIC’s recommendation to propose a narrow-scope amendment to IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The proposed amendment relates to the assessment of whether a contract is onerous, and would:

  • specify that the ‘cost of fulfilling’ a contract in paragraph 68 of IAS 37 comprises the ‘costs that relate directly to the contract’;
  • provide examples of costs that do, and do not, relate directly to a contract to provide goods or services.
  • make no new requirements for entities to disclose information about onerous contracts.
  • make specific transition requirements for entities already reporting using IFRS Standards. Such entities would be required to apply a ‘modified retrospective’ approach whereby they would apply the proposed amendments to contracts existing at the date of initial application—the beginning of the annual reporting period in which the entity first applies the amendments.
  • make no specific transition requirements for entities adopting IFRS Standards for the first time.

All Board members agreed with the recommendation.

Other de­vel­op­ments

July 2018

At its meeting in July 2018, the Board decided to undertake narrow-scope standard-setting to clarify the meaning of the term 'unavoidable costs' in the IAS 37 definition of an onerous contract.

 

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