Date recorded:

Education session — Scope of possible project to amend IAS 37 (Agenda Paper 22)


The IASB has been considering possible revisions to IAS 37 Provisions, Contingent Liabilities and Contingent Assets for many years. The IASB issued exposure drafts in 2005 and 2010 that would have replaced IAS 37 with a new IFRS or made significant revisions to IAS 37. Neither proposal was finalised. As a result of the 2011 Agenda Consultation the project was placed into the research programme. Work also continued on the definition of a liability for the Conceptual Framework.

Now that the IASB has published a revised Conceptual Framework, the IASB is considering again whether IAS 37 should be revised. The Board is already undertaking a narrow-scope project related to onerous contracts.

The purpose of this session was to discuss stakeholder feedback on the scope of a possible project to amend aspects of IAS 37, from outreach undertaken with the Accounting Standards Advisory Forum (ASAF), CMAC and Global Preparers Forum (GPF). An overview of the potential scope is set out in Agenda Paper 22A, which is a paper prepared for the most recent meeting of ASAF. The feedback from these interactions is summarised in Agenda Paper 22B: Extracts from ASAF, CMAC and GPF meeting notes.  

The staff are recommending that the Board align the definition of a liability in IAS 37 with the definition in the Conceptual Framework, including potentially replacing IFRIC 21 Levies with new requirements and illustrative examples in IAS 37. They also recommend that the Board clarify which costs to include in the measure of a provision and specify whether the rate at which an entity discounts a provision for the time value of money should include or exclude the entity’s own credit risk.

Additionally, as a result of feedback from recent outreach (see paper 22B), the staff want to investigate further the feasibility of clarifying the measurement objective in IAS 37 and whether there is a need to clarify which economic benefits to include in assessing whether a contract is onerous.

Staff recommendation

This session was educational rather than decision making. The staff asked Board members to comment on the stakeholder feedback and identify any additional information they will need to be able to decide the scope of the project.

Board discussion

The general tone of the comments made by the Board members who spoke was that the project should be narrow and focused.

The first Board member to speak suggested it would be better not to look at what costs to include in the measure of a provision. She thought this could not be addressed without addressing the measurement objective, and that was too broad an issue. She also thought that measurement could not be addressed without touching on the recognition threshold for litigation. In contrast, other members expressed support for looking at the measurement objective.

One member said the issue of levies elicited strong views at the CMAC meeting, and that is an area that should be explored as well as the treatment of credit risk. The staff said that constituents seemed wary of a project on IAS 37 because they thought it might address matters that the Board no longer plans to pursue.

One member views incorporating the new definition of a liability as being only editorial in nature and that the Board should not touch the recognition criteria in IAS 37. A member then expressed some concerns about how the new definition of a liability from the Conceptual Framework would fit with the IAS 37 recognition criteria. Another member echoed that concern and noted that the Conceptual Framework does not use “probable” in the recognition criteria. The staff response was that the Framework says the recognition criteria can be considered on a standard-by-standard basis. One possibility is to specify thresholds for low probability items in IAS 37 on the basis that recognising such items would not provide useful information.

Two members thought that consideration of the discount rate was important, and the issues were broader than credit risk.  The session ended with disagreement between some Board members. One member, who had spoken earlier in the session, restated that they thought it should be kept as a very narrow scope project. In response another Board member said that it would be a lost opportunity to open a Standard and not eliminate known divergence.

The staff will bring papers back at a future meeting with their recommendations.

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