The staff noted that the purpose of the discussion was to inform the FASB of the main amendments to IAS 37.

Constructive obligation

The IASB proposes:

• Iintroducing into the definition of a constructive obligation the notion that the counterparty should reasonably be able to rely on the entity to discharge its responsibilities (rather than the counterparty having a valid expectation that the entity will discharge its responsibilities).
• Providing more explanatory material to assist entities in determining whether they have a constructive obligation.

Restructuring provision

The IASB proposes withdrawing the present guidance for the recognition of restructuring provisions in IAS 37 (paragraphs 70-83). In its place, they propose that the Standard specifies that liabilities arising from a cost associated with a restructuring are recognised on the same basis as if they arose independently of a restructuring.

The IASB proposes providing specific guidance for applying the above principle to costs that are typically incurred in a restructuring:

• Termination benefits.
• Costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity.
• Costs to terminate a contract before the end of its term.

Termination benefits

The Board proposes that:

• The recognition of termination benefits depends on whether those benefits relate to employees 'past service or are paid in exchange for employees 'future services (ie are a 'stay bonus').
• No liability for termination benefits is recognised until the entity has communicated its plan of termination to the affected employees. More specifically:
• Termination benefits that relate to employees' past services are recognised when the entity has a present obligation to provide termination benefits. In the case of involuntary termination benefits, this is when the entity has a formal plan of termination that it has communicated to the affected employees. In the case of voluntary termination benefits, this is when the employees accept the entity's offer of voluntary redundancy.
• Termination benefits that are payable in exchange for employees' future services are recognised over that period of future service.

Costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity and Costs to terminate a contract before the end of its term

The IASB proposes additional guidance to the existing requirements relating to onerous contracts. The guidance would make clear that if a contract becomes onerous as a result of an entity's own actions, no provision is recognised until that action occurs. They will also propose that the measurement of a provision for an ongoing operating lease commitment takes into account the estimated sublease rentals that the entity could reasonably obtain regardless of whether it intends to enter into a sublease.

Amendments from the Business Combinations Project - Definitions of Contingent Liabilities and Contingent Assets

The IASB proposes redefining contingent liabilities and contingent assets as follows:

• A contingent liability is a conditional obligation that arises from past events that may require an outflow of resources embodying economic benefits based on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
• A contingent asset is a conditional right that arises from past events from which future economic benefits may flow based on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

The IASB will explain that a contingent liability or asset (conditional obligation or right) is sometimes accompanied by an unconditional obligation or right that satisfies the definition of a liability or an asset.

As a consequence of the revised definition and analysis of a contingent liability, they proposed:

• Separating the requirements in IAS 37 that relate to determining whether an entity has a present obligation from those that relate to whether that present obligation should be recognised.
• Clarifying that in cases such as guarantees and warranties, the outflow of resources required to settle the provision (unconditional obligation) is the provision of services rather than the possible payment under the contract.

It was agreed that FASB would further discuss these issues.