Proposed Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IASB has published an Exposure Draft (ED), to make certain changes to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Similar changes should be anticipated for Ind AS standards as well. In this article we discuss some of the important changes and an example of how the ED relates to climate commitments, with a simple example.

The IASB’s proposed amendments aim to clarify the requirements for the present obligation criterion, and to change the timing of the recognition of some provisions, in particular, levies. The IASB has proposed to update the definition of a liability to match the 2018 Conceptual Framework for Financial Reporting (Conceptual Framework). The updated wording would replace the current requirement for an obligating event with three distinct conditions: obligation, transfer and past-event.

The proposed amendments include separate sections of requirements to support each of the conditions. The proposed amendments would also replace the requirements in IFRIC 21 Levies, which would be withdrawn. The accounting for levies would be aligned with the general requirements for provisions. However, new requirements are proposed for levies when they are triggered only after two or more specific actions (or events) or once a specific threshold is exceeded.

Entities would need to recognise a provision after