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

Which version of the standard?

'Which version of the standard?' is only available to members of the Financial Reporting Faculty. Please note that to access electronic versions of IFRS through the links in these standard trackers you need to have first logged into eIFRS.

The Required Standards book for a particular year assumes that there is no early application of issued but not yet effective IFRSs; The Issued Standards book assumes early application of all issued IFRSs.

For the latest version of the standard, and where the amendments are to be adopted early, refer to IAS 37 2019 Issued Standards.

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.

*Not EU endorsed as at 30 January 2020. Read more on EU Endorsement.

Current proposals

1. The Board is working on a project to clarify the meaning of the term ‘unavoidable costs’ in the definition of an onerous contract. It intends to amend IAS 37 to clarify that these are costs that relate directly to a contract and to include examples of costs that do and costs that do not relate directly to a contract.  An exposure draft was issued in December 2018 and a final amendment is expected in the first half of 2020.
   • Read ED/2018/2 Onerous Contracts – Cost of Fulfilling a Contract
2. The Board has begun a research project to decide whether to develop proposals to amend aspects of IAS 37 and if so which aspects to amend. The project is currently at an early stage.

The following interpretations refer to IAS 37

• IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

  IFRIC 1 provides guidance on accounting for changes in decommissioning, restoration and similar liabilities that have previously been recognised both as part of the cost of a non-current asset and as a provision.

• 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 13 Customer Loyalty Programmes

  IFRIC 13 provides guidance on accounting for loyalty award credits granted to customers. Where the expected costs of meeting the award obligation exceed the consideration received, the resulting onerous contract is accounted for in accordance with IAS 37.

• IFRIC 21 Levies

  Provides guidance on when to recognise a liability for a levy imposed by a government.

UK reduced disclosures

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

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. From 1 January 2016, UK companies applying FRS 101 are required to provide additional specific numeric and narrative disclosures.

Disclosure exemptions

There are no disclosure exemptions from IAS 37.

This page was last updated 30 January 2020.