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Liabilities — Amendments to IAS 37

Date recorded:

The Board discussed the details of the measurement guidance for service obligations. The issue was discussed on the July meeting when several Board members expressed their concerns regarding the earlier tentative decision.

The Board agreed with the staff that 'if a market exists for such services, the amount is the price that the contract would charge'. Most of the discussion concentrated on the attributes concerning the existence of market. The Board considered the notions of efficient, functioning, competitive, and active market, but significant differences arouse between the Board members. As each of the words describing the attributes of the market posed a specific challenge, the Board finally decided to drop any of them in the definition itself.

In addition, the Board considered an illustrative example provided by the staff. After a long discussion the Board agreed that calculation should be based on the estimation of how much a contractor would charge today, estimated outflows and associated probabilities, adjustment for risk and uncertainty (risk margin reflecting the uncertainty about the future assumptions) and time value of money. Some members were concerned that by adjustment for risk and uncertainty the Board would create a double counting, but the majority of the Board disagreed.

The Board continued its discussion with assessment of the requirements when efficient market does not exist. The staff proposed a new guidance based on direct costs, allocation of overheads and required return on capital employed. The Board decided not to develop a new guidance based on the staff proposal but to base the measurement on the estimate of what a (hypothetical) contractor would charge based on the guidance on building blocks included already in the standard and the guidance on probabilities, risk margin and time value of money agreed before.

The Board without much discussion approved the consequential amendments to IFRS 3 and IFRIC 5. The Board asked the staff to try to incorporate all the guidance contained in the related IFRICs (IFRIC 1, IFRIC 5, and IFRIC 6) in the amended standard. The staff replied that they would include the guidance as far as possible.

Consequently, the Board agreed that it would issue the amended standard as an IFRS rather than amendments to IAS 37 in order to adopt the structure of an IFRS.

Finally, the Chairman asked about the overall support for the new standard. Six Board members dissented, with one of those saying he might reconsider his dissent once drafting was complete.

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.