Liabilities - amendments to IAS 37
IAS 37 Provisions, Contingent Liabilities and Contingent Assets applies to liabilities of uncertain timing or amount (‘provisions’) that do not fall within the scope of other standards. These include liabilities arising from litigation, asset retirement (decommissioning) obligations, restructuring activities and onerous contracts.
The Board is reviewing the requirements of IAS 37, which it intends to replace with a new IFRS.
Why is the Board undertaking the project?
The Board is undertaking the project to:
• Improve the guidance on identifying liabilities - click here to read more
The Board proposes to give clearer guidance to address situations in which it can be difficult to judge whether an item meets the definition of a liability—for example, if the outcome depends on future events or any apparent obligation is not legally enforceable.
• Reduce differences between IAS 37 and US GAAP - click here to read more
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.
• Make the recognition requirements for liabilities in the scope of IAS 37 consistent with those for other liabilities - click here to read more
At present, liabilities within the scope of IAS 37 are recognised only it is probable that the entity will have to make a payment to fulfil the liability. This ‘probability recognition criterion’ is not applied to liabilities that fall within the scope of other standards. Instead, the likelihood of a payment being required is reflected in the measurement of the liability.
• Clarify the requirements for measuring liabilities - click here to read more
At present, the measurement requirements in IAS 37 are ambiguous. It is unclear whether an entity should be predicting the future costs (measuring the most likely outcome) or estimating the amount it would pay today to be relieved of the liability (taking into account of all possible outcomes). The Board proposes to clarify that the requirement is to estimate the amount the entity would pay today to be relieved of the liability, and to give further guidance on how an entity should estimate this amount.
Where are we in the project?
In June 2005, the Board published an exposure draft of the proposed amendments.
In November and December 2006, the Board held round-table meetings with constituents to discuss their views on the proposals in the exposure draft.
During 2007, the Board met representative of the General Counsel 100 Group to discuss issues specifically related to lawsuits.
Since then the Board has been reviewing the proposals in the light of comments received. It has tentatively decided to change some of the proposals in the exposure draft. Click here for a summary of the tentative decisions.
In particular, the Board has decided to provide more guidance on applying the proposed measurement requirements. On 5 January 2010 it published for public comment an exposure draft of the proposed new guidance. Comments are requested by 12 April 2010.
What will happen next?
To enable interested parties to see the proposed measurement guidance in the context of the proposed standard as a whole, the Board is preparing a working draft of the entire standard and aims to post a copy on its website in February 2010.
The Board aims to complete the standard in 2010.
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.