Proposed Amendments to IAS 37

Date recorded:

Title of IAS 37

The Board decided to retain the existing title.

Definition of a provision

IAS 37 defines a provision as "a liability of uncertain timing or amount". Paragraph 11 of the current standard then attempts to explain that it is this uncertainty that distinguishes provisions from other liabilities, for example trade payables and accruals.

The Board decided that the wording should be changed and that staff would look into this. Some wording suggested during discussion was along the lines of defining a provision as "a liability for which the outflow of economic resources is of an uncertain timing or amount".

Probability recognition criterion

At the March Board meeting, the Board decided that the present application in IAS 37 of the probability recognition criterion to product warranties and guarantees is flawed, because the criterion is applied to the conditional obligation (contingent liability to repair the product/make a payment under the guarantee) rather than the unconditional obligation (present obligation) to provide a service for the duration of a contract that accompanies the conditional obligation. The Board noted that it would be inconsistent for an entity to consider recognition of a liability (unconditional obligation) by assessing whether the contingent liability (conditional obligation) would result in an outflow of resources. For consistency, the Board decided that the probability recognition criterion should be applied to the liability (unconditional obligation).

The staff recommended omitting the probability recognition criterion (paragraph 14(b)) from the amended IAS 37.

The Board agreed with the staff proposal and indicated that wording should be tightened in other areas to ensure that there is no misunderstanding of the intentions of the deletion. The main concern in this regard was the non-existence of a 'bright line' in certain scenarios, for example:

An unfavourable court judgement could give rise to an unconditional liability. Prior to that judgement, a conditional (contingent) liability exists. However, if the same issue were to be resolved by the passing of a law that has the same unfavourable effects, current interpretation of IAS 37 would result in an unconditional liability being recognised on passing of the law, with no disclosure of a conditional liability prior to that (in certain cases). The Board's general view was that in the scenario of the court judgement, that was enforcement of an already existing legal framework that constituted the past event whereas, in the scenario of new legislation, no prior law existed, hence the difference.


In the recently published ED of Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts Financial Guarantee contracts and Credit Insurance (the Guarantee ED), the Board proposed that financial guarantee contracts should be recognised initially at fair value and subsequently measured "at the higher of:

  • 1. the amount determined in accordance with IAS 37; and
  • 2. the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue."

The Board developed the Guarantee ED because of its concerns about the application of the probability recognition criterion in IAS 37 to guarantees-specifically, because Example 9 of IAS 37 explains that no liability is recognised for a single guarantee if it is not probable that a payment will be required under the guarantee. The Guarantee ED therefore clarifies that all entities that issue financial guarantee contracts should recognise a liability at inception (at fair value) regardless of the probability of payments being required under the guarantee.

The Board agreed the in amending IAS 37 in as far as the 'probability recognition criterion' is concerned (see above), the issue as regards guarantees would be resolved.


The Board discussed whether the amendments to IAS 37 warrant the revised pronouncement being issued as an IFRS due to the extent of amendments. The Board agreed to list all the issues that required revision and then to determine whether given the current agenda, it would be worthwhile dealing with all those issues and as a result, issue an IFRS and not a revised IAS.

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