IASB publishes proposed amendments to IAS 37 regarding onerous contracts
13 Dec, 2018
The International Accounting Standards Board (IASB) has published an exposure draft 'Cost of Fulfilling a Contract (Proposed amendments to IAS 37)' considering costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. Comments are requested by 15 April 2019.
Background
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 has today published an exposure draft of proposed clarifications.
Suggested changes
The changes proposed in ED/2018/2 Cost of Fulfilling a Contract (Proposed amendments to IAS 37)
- specify that the ‘cost of fulfilling’ a contract in paragraph 68 of IAS 37 comprises the ‘costs that relate directly to the contract’; and
- provide examples of costs that do, and do not, relate directly to a contract to provide goods or services.
The Board proposes no new requirements for entities to disclose information about onerous contracts.
Comments on the proposed changes are requested by 15 April 2019.
Effective date and transition requirements
The exposure draft does not contain a proposed effective date, which the IASB intends to decide on after the exposure. Early application would be permitted.
Entities already reporting under IFRS would be required to apply the proposed amendments to contracts existing at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated (‘modified retrospective’ approach). There are no specific transition requirements for entities adopting IFRSs for the first time.
Additional information
Please click for:
- IASB press release (link to IASB website)
- Access to the exposure draft on the IASB website
- Short In Brief introduction to the proposals (link to IASB website)
- Our UK Accounting Plus project page on IAS 37 — Onerous contracts
- Our related Need to know publication
