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  • IAS 37

    IASCF A803

    International Accounting Standard 37

    Provisions, Contingent Liabilities and Contingent Assets

    This version includes amendments resulting from IFRSs issued up to 31 December 2009.

    IAS 37 Provisions, Contingent Liabilities and Contingent Assets was issued by the International

    Accounting Standards Committee in September 1998. It replaced parts of IAS 10

    Contingencies and Events Occurring After the Balance Sheet Date (issued in 1978 and reformatted

    in 1994) that dealt with contingencies.

    In April 2001 the International Accounting Standards Board (IASB) resolved that all

    Standards and Interpretations issued under previous Constitutions continued to be

    applicable unless and until they were amended or withdrawn.

    Since then, IAS 37 and its accompanying guidance have been amended by the following

    IFRSs:

    IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

    (issued December 2003)

    IAS 10 Events after the Reporting Period (issued December 2003)

    IAS 16 Property, Plant and Equipment (as revised in December 2003)

    IAS 39 Financial Instruments: Recognition and Measurement (as revised in December 2003)

    IFRS 3 Business Combinations (issued March 2004)

    IFRS 4 Insurance Contracts (issued March 2004)

    IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (issued March 2004)

    Financial Guarantee Contracts (Amendments to IAS 39 and IFRS 4) (issued August 2005)

    IAS 1 Presentation of Financial Statements (as revised in September 2007)*

    IFRS 3 Business Combinations (as revised in January 2008).

    The following Interpretations refer to IAS 37:

    SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

    (issued December 2001)

    SIC-29 Service Concession Arrangements: Disclosures

    (issued December 2001 and subsequently amended)

    IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

    (issued May 2004)

    * effective date 1 January 2009

    effective date 1 July 2009

  • IAS 37

    A804 IASCF

    IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental

    Rehabilitation Funds (issued December 2004)

    IFRIC 6 Liabilities arising from Participating in a Specific MarketWaste Electrical and

    Electronic Equipment (issued September 2005)

    IFRIC 12 Service Concession Arrangements (issued November 2006 and subsequently

    amended)

    IFRIC 13 Customer Loyalty Programmes (issued June 2007)

    IFRIC 14 IAS 19The Limit on a Defined Benefit Asset, Minimum Funding Requirements and

    their Interaction (issued July 2007 and subsequently amended)

    IFRIC 15 Agreements for the Construction of Real Estate (issued July 2008).*

    * effective date 1 January 2009

  • IAS 37

    IASCF A805

    CONTENTSparagraphs

    INTRODUCTION IN1IN23

    INTERNATIONAL ACCOUNTING STANDARD 37PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

    OBJECTIVE

    SCOPE 19

    DEFINITIONS 1013

    Provisions and other liabilities 11

    Relationship between provisions and contingent liabilities 1213

    RECOGNITION 1435

    Provisions 1426

    Present obligation 1516

    Past event 1722

    Probable outflow of resources embodying economic benefits 2324

    Reliable estimate of the obligation 2526

    Contingent liabilities 2730

    Contingent assets 3135

    MEASUREMENT 3652

    Best estimate 3641

    Risks and uncertainties 4244

    Present value 4547

    Future events 4850

    Expected disposal of assets 5152

    REIMBURSEMENTS 5358

    CHANGES IN PROVISIONS 5960

    USE OF PROVISIONS 6162

    APPLICATION OF THE RECOGNITION AND MEASUREMENT RULES 6383

    Future operating losses 6365

    Onerous contracts 6669

    Restructuring 7083

    DISCLOSURE 8492

    TRANSITIONAL PROVISIONS 93

    EFFECTIVE DATE 95

    IMPLEMENTATION GUIDANCE

    A Tables Provisions, contingent liabilities, contingent assets and reimbursements

    B Decision tree

    C Examples: recognition

    D Examples: disclosures

    FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS EDITION

  • IAS 37

    A806 IASCF

    International Accounting Standard 37 Provisions, Contingent Liabilities and Contingent Assets

    (IAS 37) is set out in paragraphs 195. All the paragraphs have equal authority but

    retain the IASC format of the Standard when it was adopted by the IASB. IAS 37 should

    be read in the context of its objective, the Preface to International Financial Reporting

    Standards and the Framework for the Preparation and Presentation of Financial Statements.

    IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for

    selecting and applying accounting policies in the absence of explicit guidance.

  • IAS 37

    IASCF A807

    Introduction

    IN1 IAS 37 prescribes the accounting and disclosure for all provisions, contingent

    liabilities and contingent assets, except:

    (a) those resulting from financial instruments that are carried at fair value;

    (b) those resulting from executory contracts, except where the contract is

    onerous. Executory contracts are contracts under which neither party has

    performed any of its obligations or both parties have partially performed

    their obligations to an equal extent;

    (c) those arising in insurance entities from contracts with policyholders; or

    (d) those covered by another Standard.

    Provisions

    IN2 The Standard defines provisions as liabilities of uncertain timing or amount.

    A provision should be recognised when, and only when :

    (a) an entity has a present obligation (legal or constructive) as a result of a past

    event;

    (b) it is probable (ie more likely than not) that an outflow of resources

    embodying economic benefits will be required to settle the obligation; and

    (c) a reliable estimate can be made of the amount of the obligation.

    The Standard notes that it is only in extremely rare cases that a reliable

    estimate will not be possible.

    IN3 The Standard defines a constructive obligation as an obligation that derives from

    an entitys actions where :

    (a) by an established pattern of past practice, published policies or a

    sufficiently specific current statement, the entity has indicated to other

    parties that it will accept certain responsibilities; and

    (b) as a result, the entity has created a valid expectation on the part of those

    other parties that it will discharge those responsibilities.

    IN4 In rare cases, for example in a lawsuit, it may not be clear whether an entity has

    a present obligation. In these cases, a past event is deemed to give rise to a present

    obligation if, taking account of all available evidence, it is more likely than not

    that a present obligation exists at the end of the reporting period. An entity

    recognises a provision for that present obligation if the other recognition criteria

    described above are met. If it is more likely than not that no present obligation

    exists, the entity discloses a contingent liability, unless the possibility of an

    outflow of resources embodying economic benefits is remote.

    IN5 The amount recognised as a provision should be the best estimate of the

    expenditure required to settle the present obligation at the end of the reporting

    period, in other words, the amount that an entity would rationally pay to settle

    the obligation at the end of the reporting period or to transfer it to a third party

    at that time.

  • IAS 37

    A808 IASCF

    IN6 The Standard requires that an entity should, in measuring a provision:

    (a) take risks and uncertainties into account. However, uncertainty does not

    justify the creation of excessive provisions or a deliberate overstatement of

    liabilities;

    (b) discount the provisions, where the effect of the time value of money is

    material, using a pre-tax discount rate (or rates) that reflect(s) current

    market assessments of the time value of money and those risks specific to

    the liability that have not been reflected in the best estimate of the

    expenditure. Where discounting is used, the increase in the provision due

    to the passage of time is recognised as an interest expense;

    (c) take future events, such as changes in the law and technological changes,

    into account where there is sufficient objective evidence that they will

    occur; and

    (d) not take gains from the expected disposal of assets into account, even if the

    expected disposal is closely linked to the event giving rise to the provision.

    IN7 An entity may expect reimbursement of some or all of the expenditure required

    to settle a provision (for example, through insurance contracts, indemnity clauses

    or suppliers warranties). An entity should:

    (a) recognise a reimbursement when, and only when, it is virtually certain

    that reimbursement will be received if the entity settles the obligation.

    The amount recognised for the reimbursement should not exceed the

    amount of the provision; and

    (b) recognise the reimbursement as a separate asset. In the statement of

    comprehensive income, the expense relating to a provision may be

    presented net of the amount recognised for a reimbursement.

    IN8 Provisions should be reviewed at the end of each reporting period and adjusted to

    reflect the current best estimate. If it is no longer probable that an outflow of

    resources embod