IFRS Standard: IAS 37 Provisions, Contingent Liabilities and Contingent Assets

IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting for provisions (liabilities of uncertain timing or amount), together with contingent assets (possible assets) and contingent liabilities (possible obligations and present obligations that are not probable or not reliably measurable). Provisions are measured at the best estimate (including risks and uncertainties) of the expenditure required to settle the present obligation, and reflects the present value of expenditures required to settle the obligation where the time value of money is material.

IAS 37 Objective and Scope

Objective

The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount.

Scope

1 This Standard shall be applied by all entities in accounting for provisions, contingent …

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IAS 37 Definitions

10 The following terms are used in this Standard with the meanings specified:

A provision is a liability of uncertain timing or amount.

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

An obligating event is an …

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IAS 37 Provisions Other liabilities and Contingent liabilities

Provisions and other liabilities

11 Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement. By contrast:

  1. trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed
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IAS 37 Recognition of provisions

Provisions

14 A provision shall be recognised when:

  1. an entity has a present obligation (legal or constructive) as a result of a past event;
  2. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  3. a reliable estimate can be made of the amount of the obligation.

If these conditions are …

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IAS 37 Measurement of provisions

Best estimate

36 The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

37 The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of …

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IAS 37 Reimbursements

53 Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement …

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IAS 37 Changes in and Use of Provisions

Changes in provisions

59 Provisions shall 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 embodying economic benefits will be required to settle the obligation, the provision shall be reversed.

60 Where discounting is used, the carrying amount of a provision …

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IAS 37 Application of the recognition and measurement rules

Future operating losses

63 Provisions shall not be recognised for future operating losses.

64 Future operating losses do not meet the definition of a liability in paragraph 10 and the general recognition criteria set out for provisions in paragraph 14.

65 An expectation of future operating losses is an indication that certain assets of the operation may be impaired. An …

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IAS 37 Disclosure Provisions and Contingencies

84 For each class of provision, an entity shall disclose:

  1. the carrying amount at the beginning and end of the period;
  2. additional provisions made in the period, including increases to existing provisions;
  3. amounts used (ie incurred and charged against the provision) during the period;
  4. unused amounts reversed during the period; and
  5. the increase during the period in the discounted
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IAS 37 Transitional provisions

93 The effect of adopting this Standard on its effective date (or earlier) shall be reported as an adjustment to the opening balance of retained earnings for the period in which the Standard is first adopted. Entities are encouraged, but not required, to adjust the opening balance of retained earnings for the earliest period presented and to restate comparative information. …

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