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IAS 37 — Measurement of liabilities under IAS 37 within the context of emission trading schemes

Date recorded:

This paper addresses the request received by the IFRS Interpretations Committee in September 2013 to clarify the measurement of a liability arising from participation in an emission trading scheme under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The paper contains more detailed discussion of the background to, and summary of, the issue.

The staff recommended to the Interpretations Committee that it should not add this issue to its agenda. This is because this issue is too broad for the Interpretations Committee and should therefore be addressed in a more comprehensive project of the IASB.

Questions to the Committee

1. Does the Interpretations Committee agree with the staff recommendation that the Interpretations Committee should not add this issue to its agenda?

2. If the answer to Question 1 is ‘yes’, does the Interpretations Committee agree with the wording of the tentative agenda decision in Appendix A to this Agenda Paper?

Prior to the above questions being put to the Committee, the Chairman asked the staff for an update on the status of the IASB’s research project on Emission Trading Schemes.

The staff noted that there is not currently a staff member allocated to the project so progress is slow.

The staff further noted that it is clear from the work on the conceptual framework project that there are at least two related issues:

  1. A change in concepts in terms of what a liability is; and
  2. A unit of account issue – with some people thinking the scheme should be accounted for as a whole, which is not the same as taking an IAS 37 liability in isolation.

The questions in the paper were then put to the Committee members.

The members agreed with the staff’s recommendation that this issue not be added to the Committee’s agenda; however, there were comments from several members regarding the content of the proposed agenda decision.

One member commented that the agenda decision should make reference to the research project.

Another member had concerns about references to IAS 37 somehow giving the wrong answer.  If IAS 37 is the standard that currently applies, it should be applied.  The Board in withdrawing IFRIC 3 stated that it was an invalid interpretation of IFRS – and this should be noted in the rejection statement.  The member had concerns regarding the last sentence of the penultimate paragraph and its reference to IAS 37, noting that there are people using IAS 37 to measure these obligations and indicating that this is not an appropriate answer is not an appropriate thing to say.

Another member noted that what is missing is the issue of the unit of account and suggested that the wording be updated to say that this is not just a measurement issue, but also add ‘because we believe is a question of the unit of account.’

A further member noted that the Committee should avoid giving people a steer in accounting at all through the agenda decision.

The members agreed with the staff’s recommendation and wording of the tentative agenda decision, subject to the wording amendments as noted in the discussion above.

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