Liabilities
Purpose of project
This project will amend IAS 37 Provisions, Contingent Liabilities and Contingent Assets (and make consequential amendments to IAS 19 Employee Benefits).
IAS 37 provides guidance on recognising, measuring and disclosing liabilities that are not within the scope of other Standards.
The main objectives of the amendments are:
(a) convergence with US GAAP. The Board proposes to align application guidance for costs associated with restructuring in IAS 37 (and termination benefits in IAS 19 Employee Benefits) with the more recent and conceptually superior requirements in SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities.
(b) improvements in the requirements relating to identification and recognition of liabilities. In particular, the Board proposes to reanalyse ‘contingent assets’ and ‘contingent liabilities’ in terms of assets and liabilities (ie in line with the IASB Framework). The initial prompt for reanalysing these items was the reconsideration of the treatment of acquired contingencies in Phase II of the Business Combination project. However, the proposed amendments affect all liabilities previously described as contingent liabilities (and assets previously described as contingent) not just those acquired in a business combination.
Is this project part of the Memorandum of Understanding (MoU)?
No. The MoU sets out a Roadmap of Convergence between IFRSs and US GAAP 2006-2008.
Click here for more information on the MoU.
Due process steps completed
Stage 1: Setting the agenda
Work on this project commenced in 2002 as part of the short-term convergence project. In 2003, the project scope was widened to reconsider the existing accounting model for contingent assets and liabilities.
Stage 2: Project planning
This project is being conducted by the IASB only.
Stage 3: Development and publication of a discussion paper
A discussion paper was not regarded as necessary for this project. This is because the proposed amendments to IAS 37 build on the principles already established in the current version of IAS 37 and the definition of a liability in the IASB’s Framework.
Stage 4: Development and publication of an exposure draft
In June 2005, the Board issued an Exposure Draft Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IAS 19 Employee Benefits. Click here for a copy of the exposure draft.
The main effect of the proposed amendments would be to require an entity to recognise items that meet the definition of a liability, unless they cannot be measured reliably. Uncertainty about the amount or timing of the economic benefits required to settle a liability would be reflected in the measurement of that liability.
The comment period for the exposure draft ended on 28 October 2005. Click here to view the comment letters received.
Stage 5: Development and publication of an IFRS
In November and December 2006, the Board held round-table meetings with constituents to discuss their views on the proposals in the Exposure Draft. Click here for more information about the round-table meetings, including the background materials, participants list, audio tapes and a summary of the outcomes.
The Board has also met representatives of the General Counsel 100 Group to discuss issues specifically related to lawsuits.
Current project stage
The Board is now reviewing the proposed amendments in the light of feedback from respondents to the Exposure Draft and participants in the round-table meetings. So far, it has discussed comments relating to the proposed requirements for identification and recognition of liabilities. It is now discussing comments relating to the proposed measurement requirements.
Estimated project completion
The current project plan envisages that a final standard will be issued in the first half 2010.
Related projects
There are important interactions between this and other projects, particularly revenue recognition, leasing, insurance and the conceptual framework. The work on IAS 37 will proceed in parallel with these other projects and will not wait for their outcome. This work may generate useful inputs for those other projects and conclusions reached in other projects may inform the Board’s work on IAS 37.
Further information
Click here to download the full project report. (This includes the full project history, a summary past Board discussions and the current status of redeliberations.)