Cover paper (Agenda Paper 12)

The objective of this session was to: 

• Discuss stakeholder feedback on discount rates for provisions within the scope of IAS 37—specifically, feedback on whether the risks reflected in the rate should include non-performance risk
• Discuss whether IAS 37 should specify the types of costs to include in estimating that expenditure required to settle a present obligation in measuring a provision

Discount rates—stakeholder feedback (Agenda Paper 22A)

As part of its project to make targeted improvements to IAS 37, the IASB is considering developing proposals to specify in IAS 37 whether discount rates for provisions reflect non-performance risk, and if so, how.

The staff have sought views and received feedback on this matter from a range of stakeholders, including users of financial statements, preparers of financial statements and national standard-setters. In the light of the stakeholder feedback, the staff have identified four possible ways in which the IASB could propose amending IAS 37 to improve the comparability of measures of provisions. The IASB could propose:

• To standardise discount rates used by:
  • Specifying that the risks reflected in the discount rate include the non-performance risk specific to the provision; or
  • Specifying that the risks reflected in the discount rate exclude non-performance risk; or
  • Requiring a specified market-based rate that reflects the time value of money and some non-performance risk
• To enhance disclosure requirements without also standardising the discount rates used

Staff recommendation

IASB members were asked to comment on the stakeholder feedback as well as the four options and next steps suggested by the staff. The IASB was not asked to make any decisions.

IASB discussion

IASB members suggested to take forward option two (specify that the risks exclude non-performance risk) and three (require a rate determined by reference to a specified market rate) and to compare and contrast them. Both the options will in any case imply enhanced disclosure requirements.

Costs to include in measuring a provision (Agenda Paper 22B)

As part of its project to make targeted improvements to IAS 37, the staff asked the IASB to decide whether to propose an amendment to the measurement requirements in IAS 37 to specify which types of costs an entity includes in measuring a provision.

Staff recommendation

The staff recommended that the IASB propose to specify in IAS 37 that:

• The expenditure required to settle an obligation comprises the costs that relate directly to settling the obligation
• The costs that relate directly to settling an obligation consist of both the incremental costs of settling the obligation and an allocation of other costs that relate directly to settling obligations of that type

IASB discussion

IASB members supported the staff recommendation. This will be the next step to the amendment made to IAS 37 with regard to onerous contracts.

IASB decision

All IASB members voted in favour of the staff recommendation.