Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Date recorded:

The Board considered a discussion paper relating to issues that arose at the last meeting when a pre-ballot draft of an exposure draft was considered. The Board discussed at length the definition of constructive obligations, and when, if at all, such obligations should be recognised. The Board agreed that provisions arise from a greater group of items than just contractual obligations, but that the dividing line between what should be recognised and what should not is not clear. The Board agreed that staff should consider this issue further, particularly with reference to the existing examples in IAS 37, and for consistency with decisions made to date in the revenue recognition project. It was agreed that a key characteristic of an item that should be recognised is that an entity have little or no discretion in the outflow of future economic benefits.

The Board discussed the issue of whether a difference in accounting should arise when a liability arises from a lawsuit as opposed to a possible change in the law. It was agreed that until the law is enacted, no resulting liability should be recognised. It was agreed that this point would be clarified in the basis for conclusions.

The Board agreed not to incorporate the requirements of IFRIC 1 into the revised IAS 37, as the requirements of IFRIC 1 are more relevant to IAS 16 and should be incorporated into that standard when it is next updated. The Board agreed to propose withdraw paragraphs 48 and 49 (considering the impact of future events on the measurement of a provision) from existing IAS 37 in the exposure draft.

The Board considered whether to ask a question of constituents to highlight that there is a requirement to remeasure a provision at the current discount rate. It was agreed that this is unnecessary as this requirement is made clear by IFRIC 1. The Board discussed the requirements of IAS 37 in relation to offsetting reimbursements, and agreed some editorial amendments to clarify that this is not allowed. The Board agreed to break the existing paragraph 53 into two paragraphs, one dealing with the recognition of reimbursement assets and the other dealing with their display.

The Board will consider the issues in relation to the reimbursement ceiling at its November meeting, as well as certain issues relating to IAS 19, with a view to issuing an exposure draft in the near future.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.