This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IASB finalises amendments to IAS 37 regarding onerous contracts

  • IASB document (blue) Image

14 May 2020

The International Accounting Standards Board (IASB) has published 'Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)' amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous.

 

Background

The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and published an exposure draft of proposed clarifications in December 2018, which were finalised today.

 

Changes

The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

 

Effective date and transition requirements

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted.

Entities apply the amendments to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated.

 

Additional information

Please click for:

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.