IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Synopsis

IAS 37 requires that a provision is only recognised where:

• There is a legal or constructive present obligation as a result of a past event, and
• Payment is probable, and
• The amount can be reliably estimated.

The amount of the provision should be the best estimate of the amount required to settle the obligation at the reporting date.

Contingent liabilities are not recognised, but are disclosed unless the possibility of an outflow of economic resources is remote.

Contingent assets are not recognised, but are disclosed where an inflow of economic benefits is probable.

• Read the unaccompanied version of IAS 37

The International Accounting Standards Board (IASB) provides free access to the consolidated unaccompanied international accounting standards for the current year through its website. Free registration is required.

This unaccompanied version does not include additional content that accompanies the full standard, such as illustrative examples, implementation guidance and bases for conclusions.

Which version of the standard?

Financial Reporting Faculty members who joined the faculty prior to 1 November 2022 have premium access to the consolidated edition of IFRS and amendments through the IASB's IFRS Standards Navigator service. Please log into IFRS Standards Navigator to access electronic versions of the standards through these links.

Please be aware that as part of the changes to ICAEW faculty membership, this service will be withdrawn after 31 December 2022.

Recent amendments

Full access to details of all the amendments is only available to Financial Reporting Faculty members. Find out how to join the faculty.

Current proposals

1. The Board is developing proposals for targeted improvements to IAS 37 in order to:

• align the definition of a liability and requirements for identifying liabilities with the Conceptual Framework, and
• clarify which costs to include in the measurement of provision, and
• specify whether the rate at which an entity discounts a provision should reflect the entity's own credit risk.

The following interpretations refer to IAS 37

• IFRIC 1 Existing Decommissioning, Restoration and Similar Liabilities 
  Addresses accounting for a change in the carrying amount of a provision that is included in the carrying amount of an item of PPE.
• IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
  IFRIC 5 provides guidance on how a contributor to a decommissioning fund should account for its interest in a fund, including its right to receive reimbursement from such a fund.
• IFRIC 6 Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment
  IFRIC 6 clarifies when producers of electrical goods must recognise a liability under IAS 37 for the cost of managing waste electrical and electronic equipment.
• IFRIC 12 Service Concession Arrangements
  Accounting guidance for arrangements where a contract is granted for the supply of public services such as roads.
• IFRIC 21 Levies
  Provides guidance on when to recognise a liability for a levy imposed by a government.
• SIC 29 Disclosures
  Prescribes disclosures required by a concession operator and concession provider joined by a service concession arrangement.

UK reduced disclosures – FRS 101

UK qualifying parents and subsidiaries can take advantage of FRS 101 Reduced Disclosure Framework. Find out more on which entities qualify and the criteria to be met.

Amendments to the standard for FRS 101 preparers

IAS 37 allows the non-disclosure of information about provisions and contingent liabilities where disclosure is expected to prejudice the position of an entity in a dispute. In these cases IAS 37 requires that the general nature of the dispute is disclosed. UK companies applying FRS 101 are required to provide additional specific numeric and narrative disclosures.

Disclosure exemptions for FRS 101 preparers

There are no disclosure exemptions from IAS 37.

Other resources

Factsheets

• 2022 IFRS Accounts
  Provides more information on Onerous Contracts – Cost of Fulfilling a Contract.

Reports

• FRC Thematic Review: IAS 37 Provisions, Contingent Liabilities and Contingent Assets (October 2021)

This page was last updated 30 August 2022.