IASB re-exposes liability measurement proposals

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05 Jan 2010

The IASB has published for comment a revised exposure draft (ED/2010/1) of one section of a replacement for IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'.

That section deals with measurement of liabilities that are within the scope of IAS 37. IAS 37 applies to liabilities not covered by other accounting standards, including liabilities to decommission assets, environmental liabilities, obligations under onerous contracts, and liabilities arising from legal disputes. In June 2005, the IASB had published Proposals to amend IAS 37, including revised measurement requirements. In the light of the comments received, the IASB has decided to issue revised proposals that include more guidance on measurement. Comment deadline is 12 April 2010. The IASB intends to replace IAS 37 in the third quarter of 2010. Click for IASB Press Release (PDF 100k).

Main provisions of the revised liability measurement ED:

  • IAS 37 currently requires an entity to record an obligation as a liability only if it is probable (likelihood greater than 50%) that the obligation will result in an outflow of cash or other resources from the entity. The revised ED does not include the 'probability of outflows' criterion. Instead, an entity would account for uncertainty about the amount and timing of outflows by using a measurement that reflects their expected value, namely the probability-weighted average of the outflows for the range of possible outcomes.
  • Liabilities within the scope of IAS 37 would be measured at the amount that the entity would rationally pay at the measurement date to be relieved of the liability. Normally, this amount would be an estimate of the present value of the resources required to fulfil the liability, which would take into account the expected outflows of resources, the time value of money, and the risk that the actual outflows might ultimately differ from the expected outflows.
  • If the liability is to pay cash to a counterparty (for example to settle a legal dispute), the outflows would be the expected cash payments plus any associated costs, such as legal fees.
  • If the liability is to undertake a service (for example, to decommission plant) at a future date, the outflows would be the amounts that the entity estimates it would pay a contractor at the future date to undertake the service on its behalf.



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