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Liabilities — Amendments to IAS 37

Date recorded:

Staff presented a paper proposing more detailed specification of the measurement objective underpinning the proposed measurement guidance for IAS 37. The objective is to facilitate the use of the IAS 37 measurement model for other types of liabilities (for example, insurance). The Board agreed in principle to include more detailed guidance. Nonetheless, Board discussion suggested that reaching conclusion on the detailed guidance would be difficult, as many Board members have differing views. The most contentious issues relate to including profit in measuring of liabilities, with some Board members concerned that this would create 'a mess' in accounting. However, other Board members argued that a notion of risk margin must be included in the measurement guidance as it reflects the risk of investment and business (as the objective of business is not to earn a risk free interest rate). They saw the risk margin as the conceptually sound solution and understood is as a compensation for bearing the risk, not as a profit. Another Board member said that while he was happy to include the risk margin in the framework of a performance obligation of revenue recognition, he struggled to see the benefit for other liabilities.

After a prolonged discussion the Board agreed in principle that the measurement objective should be the lower of the value to entity of not having to fulfil the obligation and the amount that the entity would have to pay to cancel the obligation or to transfer it. The Board decided that the details will be drafted by staff with a group of Board members before the amendments to IAS 37 are finalised. Several Board members disagreed with this approach.

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