Exposure Draft of Proposed Amendments to IAS 37 Provisions Contingent Liabilities and Contingent Assets and IAS 19 Employee Benefits

The amendments to IAS 37 would require entities to recognise in their financial statements obligations that satisfy the definition of a liability in the IASB’s Framework, unless they cannot be measured reliably. Uncertainty about the amount or timing of the economic benefits that will be required to settle a liability would be reflected in the measurement of that liability instead of affecting whether it is recognised. This change would enhance financial reporting because some liabilities previously only disclosed in the notes to the financial statements will now be included in the balance sheet. These proposed amendments to IAS 37 complement the Exposure Draft of Proposed Amendments to IFRS 3 Business Combinations, which the IASB has also published today, and would result in items previously described as ‘contingent liabilities’ being treated more consistently in and outside a business combination.

The proposals also mark another step towards convergence of international and national standards by continuing the IASB’s work in its joint short-term convergence project with the US Financial Accounting Standards Board (FASB) to reduce differences between the IASB’s International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP). Specifically, the proposals would align the accounting in IASs 37 and 19 for costs typically associated with restructuring an entity with the requirements of FASB Standard SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities. The proposals would require liabilities for costs associated with a restructuring—for example, termination benefits—to be recognised only when the IASB’s Framework definition of a liability is met. This would improve the comparability and representational faithfulness of financial information because like transactions would be accounted for similarly regardless of whether they are associated with a restructuring. More generally, the amendments would align the recognition principles in IAS 37 with those in more recent FASB standards on liabilities.