Liabilities — Amendments to IAS 37

Date recorded:

Decision about re-exposure

The staff presented one issue to the Board: whether re-exposure of the IAS 37 amendments package was necessary or whether the Board could proceed directly to issue an IFRS. In doing so, they reviewed with the Board the criteria for re-exposure in the IASB's Due Process Handbook, paragraphs 46-48, and the decision summary of redeliberations.

Three options were proposed:

  1. Issue an IFRS without re-exposure;
  2. Undertake a limited-scope re-exposure of selected changes to the propels; or
  3. Re-expose the entire standard.

After an extended debate, the Board agreed that it would:

  • Ballot the IFRS and prepare the Basis for Conclusions for the IFRS other than the measurement guidance and release this as a Near-final Draft on the IASB's Website; and
  • Expose for public comment its proposed clarification of the measurement requirements. Those requirements, in the Board's view, are a re-articulation of the current measurement requirements in IAS 37, not a new measurement basis. Based on decisions reached in July and September 2009, the revised standard would state that:
    • the requirement is to measure the amount that the entity would rationally pay on the reporting date to be relieved of the present obligation.
    • the amount that the entity would rationally pay to be relieved of the present obligation is the lowest of:
      • the value the entity would gain if it did not have to fulfil the obligation;
      • the amount the entity would have to pay the counterparty to cancel the obligation; and
      • the amount the entity would have to pay a third party to transfer the obligation to that party.
    • If there is no evidence that the entity could cancel the obligation or transfer it to a third party for a lower amount, the entity measures the liability at the value it would gain if it did not have to fulfil the obligation.
    • An entity estimates the value it would gain if it did not have to fulfil the obligation using expected present value techniques. The calculations take into account:
      • the outflows of resources expected to be required to fulfil the obligation (the probability-weighted average of the possible outcomes);
      • the time value of money; and
      • if the amount or timing of the outflows is uncertain, any additional amount the entity would rationally pay to be relieved of risk.
    • An entity should measure the resource outflows at their value, not cost. If the obligation is to provide a service at a future date, the entity measures the service outflows at the amount it would rationally pay a contractor at the future date to carry out the service on its behalf.
      • if a market exists for such services, the amount is the price that a contractor would charge.
      • if no market exists, the entity would estimate the amount.
    Board members stressed that the ED of the proposed clarification of the measurement approach and the near-final draft of the IFRS should be available at the same time.
The Board gave notice that it intended to incorporate the guidance in IFRICs 1, 5, and 6 in the IFRS in accordance with its existing practice of incorporating IFRIC guidance in revised IFRSs wherever possible. The cap on the reimbursement right in IFRIC 5 would be abolished.

At least five Board members indicated that they would dissent to the ED on the basis of the measurement approach being adopted.

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