Cover note (Agenda Paper 22)

The IASB is developing proposals for targeted amendments to IAS 37.

The purpose of this session was to ask the IASB to decide whether and how to propose:

• to amend the definition of a liability and requirements supporting the recognition criterion that applies that definition;
• to add requirements that would apply to costs payable if a measure of the entity's activity in a period exceeds a specified threshold;
• to add application guidance to support the discount rate requirements; and
• to add requirements to disclose information about discount rates used.

This paper was not discussed as it was an overview paper.

Present obligation recognition criterion (Agenda Paper 22A)

The purpose of this paper was to ask the IASB to decide whether to propose amendments to:

• the definition of a liability applied in IAS 37;
• the wording of the recognition criterion applying that definition (the present obligation recognition criterion); and
• requirements and illustrative examples supporting that recognition criterion.

Staff recommendation

The staff recommended that the IASB proposes:

• to update the liability definition applied in IAS 37, and the wording of the present obligation recognition criterion, aligning them with the definition in the Conceptual Framework;
• to clarify the requirements supporting the present obligation recognition criterion by:
  • disentangling three distinct conditions within that criterion—strength, nature and timing conditions—by identifying and explaining each one separately; and
  • expanding the decision tree in the implementation guidance accompanying IAS 37 to demonstrate the process an entity could follow in determining whether to recognise a provision, disclose a contingent liability or do neither;
• to replace the existing requirements supporting the present obligation recognition criterion with new requirements based on concepts in the Conceptual Framework, and withdraw IFRIC 21;
• to improve the explanations of the application requirements for restructuring provisions, without changing those requirements;
• to add new examples to the illustrative examples accompanying IAS 37 and update the explanation of the conclusions for some of the existing examples (without changing those conclusions); and
• to not add to IAS 37 requirements relating specifically to net zero transition commitments.

IASB discussion

All IASB members agreed with the staff recommendations. Many IASB members noted that it was good to update the liability definition to align it with the definition in the Conceptual Framework. Some IASB members agreed with the distinct conditions and the concept of labelling them but were uncertain on the use of the proposed terminology, i.e. strength, nature and timing, and asked the staff to reconsider it. Many IASB members agreed that the decision tree was particularly useful and provided clarity on the requirements. Many IASB members also agreed that adding new illustrative examples would be useful and some suggested that these examples should be linked back to the conditions and their sequencing clearly. Many IASB members agreed not to add requirements relating specifically to net zero transition commitments as the cost was likely to exceed the benefit at this time. Some IASB members suggested that it was important to make sure that any statements on disclosures in the standard should clarify the intent and should be within the bounds of and/or refer to IAS 1 (which will be replaced by IFRS 18).

IASB decision

All IASB members voted in favour of the staff recommendations.

Threshold-triggered costs (Agenda Paper 22B)

The purpose of this paper was to ask the IASB to decide:

• whether to propose to add application requirements for costs payable if a measure of the entity’s activity in a period exceeds a specified threshold (threshold-triggered costs)—to clarify when an obligation for such costs becomes a present obligation; and
• if so, what requirements to propose.

Staff recommendation

The staff recommended that the IASB proposes:

• to add to IAS 37 application requirements for threshold-triggered costs—to clarify when an obligation for such costs becomes a present obligation;
• that a present obligation for a threshold-triggered cost arises as the entity performs the activity that contributes to the total amount on which the cost is measured; and
• at any date within the measurement period, the amount of the present obligation is a portion of the total estimated cost for the measurement period, the portion being the amount attributable to the activity performed to date.

IASB discussion

All IASB members supported the staff recommendations. Some IASB members said that the application guidance would be useful and progressive recognition, as proposed, would provide useful information to the stakeholders. Some IASB members said it was important to address the topic on threshold-triggered costs and not covering it would leave room for judgments and questions. One IASB member suggested not to cover pollutant pricing mechanisms under this project. Another IASB member asked the staff to reconsider the analogy drawn to IAS 19 and IFRS 2 as those standards may have some unclear wording.

IASB decision

All IASB members voted in favour of the staff recommendations.

Discount rates—application guidance (Agenda Paper 22C)

The purpose of this paper was to ask the IASB to decide whether to propose application guidance to support this requirement, and if so what guidance to propose.

Staff recommendation

The staff recommended that the IASB proposes to clarify that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate but proposes no further application guidance on estimating the time value of money.

IASB discussion

All IASB members supported the staff recommendations. One IASB member asked the drafting to be clear such that the requirement should not be asking every entity to adjust for liquidity. Another IASB member suggested that no examples should be provided for rate determination as that could mean providing application guidance.

IASB decision

All IASB members voted in favour of the staff recommendations.

Discount rates—disclosure requirements (Agenda Paper 22D)

The purpose of this paper was to ask the IASB to decide:

• whether to propose requirements for an entity to disclose information about the discount rate or rates it has used in measuring a provision; and
• if so, what requirements to propose.

Staff recommendation

The staff recommended that the IASB proposes to require an entity to disclose, for each class of provision:

• the discount rate or rates used in measuring the provision; and (Recommendation 1)
• the approach used to determine those rates (Recommendation 2).

IASB discussion

Almost all IASB members supported the staff recommendations on the basis that the discount rate and the approach used to determine those rates is useful and readily available information and it is not likely to be costly for preparers to provide this information. Some IASB members said that they would like to include these requirements in the exposure draft and assess the response. One IASB member did not agree with the recommendation to disclose the approach as it would not add much incremental information and that most of the other standards did not require this information. One IASB member suggested that the requirement be updated to provide the average rate or range of rates as there could be different rates for multiple liabilities.

IASB decision

On Recommendation 1, all IASB members voted in favour of the staff recommendation.

On Recommendation 2, 13 of the 14 IASB members voted in favour of the staff recommendation.

Indicative drafting—IAS 37 (Agenda Paper 22E)

This paper did not contain any questions for the IASB as it only contained indicative drafting for amendments to IAS 37.

This paper was not discussed as it was provided for information only.

Indicative drafting—decision tree (Agenda Paper 22F)

This paper did not contain any questions for the IASB as it only contained indicative drafting for a decision tree to accompany IAS 37.

This paper was not discussed as it was provided for information only.