Cover note (Agenda Paper 22)

The IASB is developing proposals for targeted amendments to IAS 37.

The purpose of this meeting is to ask the IASB to decide whether and how to propose:

• to amend the definition of a liability and requirements supporting the recognition criterion that applies that definition;
• to add requirements that would apply to costs payable if a measure of the entity's activity in a period exceeds a specified threshold;
• to add application guidance to support the discount rate requirements; and
• to add requirements to disclose information about discount rates used.

Present obligation recognition criterion (Agenda Paper 22A)

The purpose of this meeting is to ask the IASB to decide whether to propose amendments to:

• the definition of a liability applied in IAS 37;
• the wording of the recognition criterion applying that definition (the present obligation recognition criterion); and
• requirements and illustrative examples supporting that recognition criterion.

Staff recommendation

The staff recommends that the IASB proposes:

• to update the liability definition applied in IAS 37, and the wording of the present obligation recognition criterion, aligning them with the definition in the Conceptual Framework;
• to clarify the requirements supporting the present obligation recognition criterion by:
  • disentangling three distinct conditions within that criterion—strength, nature and timing conditions—by identifying and explaining each one separately; and
  • expanding the decision tree in the implementation guidance accompanying IAS 37 to demonstrate the process an entity could follow in determining whether to recognise a provision, disclose a contingent liability or do neither;
• to replace the existing requirements supporting the present obligation recognition criterion with new requirements based on concepts in the Conceptual Framework, and withdraw IFRIC 21;
• to improve the explanations of the application requirements for restructuring provisions, without changing those requirements;
• to add new examples to the illustrative examples accompanying IAS 37 and update the explanation of the conclusions for some of the existing examples (without changing those conclusions); and
• to not add to IAS 37 requirements relating specifically to net zero transition commitments.

Threshold-triggered costs (Agenda Paper 22B)

The purpose of this meeting is to ask the IASB to decide:

• whether to propose to add application requirements for costs payable if a measure of the entity’s activity in a period exceeds a specified threshold (threshold-triggered costs)—to clarify when an obligation for such costs becomes a present obligation; and
• if so, what requirements to propose.

Staff recommendation

The staff recommends that the IASB proposes:

• to add to IAS 37 application requirements for threshold-triggered costs—to clarify when an obligation for such costs becomes a present obligation;
• that a present obligation for a threshold-triggered cost arises as the entity performs the activity that contributes to the total amount on which the cost is measured; and
• at any date within the measurement period, the amount of the present obligation is a portion of the total estimated cost for the measurement period, the portion being the amount attributable to the activity performed to date.

Discount rates—application guidance (Agenda Paper 22C)

The purpose of this meeting is to ask the IASB to decide whether to propose application guidance to support this requirement, and if so what guidance to propose.

Staff recommendation

The staff recommends that the IASB proposes to clarify that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate but proposes no further application guidance on estimating the time value of money.

Discount rates—disclosure requirements (Agenda Paper 22D)

The purpose of this meeting is to ask the IASB to decide:

• whether to propose requirements for an entity to disclose information about the discount rate or rates it has used in measuring a provision; and
• if so, what requirements to propose.

Staff recommendation

The staff recommends that the IASB proposes to require an entity to disclose, for each class of provision, the discount rate or rates used in measuring the provision and the approach used to determine those rates.

Indicative drafting—IAS 37 (Agenda Paper 22E)

This paper contains no questions for the IASB as it only contains indicative drafting for amendments to IAS 37.

Indicative drafting—decision tree (Agenda Paper 22F)

This paper contains no questions for the IASB as it only contains indicative drafting for a decision tree to accompany IAS 37.