The Board previously decided tentatively that liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets should be measured at the amount the entity would rationally pay at the end of the reporting period to be relieved of the present obligation, ie to settle it or to transfer it to a third party.
At this meeting, the Board discussed how an entity could estimate this amount using expected cash flow techniques. The Board decided tentatively to clarify that an entity would not automatically add a risk adjustment to the expected cash flows. A risk adjustment would be required only if, and to the extent that, uncertainty about the expected cash flows affects the amount that the entity would rationally pay to be relieved of its obligation.
The Board also discussed how an entity would use expected cash flow estimation techniques to measure an obligation to undertake a service, such as an asset retirement obligation. The Board decided tentatively that the relevant cash flows are the amounts that the entity would rationally pay a contractor to undertake the service on its behalf. In the absence of an efficient market for those services, the entity could estimate the amount it would rationally pay a contractor by estimating the amount it would itself charge another party to carry out the service. The latter amount would include the entity�s estimates of the costs it expects to incur in fulfilling the obligation and the compensation it requires for providing the service inherent in the obligation.
Disclosure of restructuring activities
The Board discussed the contents and wording of a disclosure requirement for restructuring activities, which it had tentatively decided to add to the standard in April 2008.
The Board considered the equivalent US standard SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities and decided tentatively to require disclosure of:
- a description of the restructuring activity, including the facts and circumstances leading to the expected activity and the expected completion date;
- for each reportable segment, the total amount of costs expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date;
- the expected timing of any resulting outflow of economic benefits.
The Board also decided tentatively to require the disclosure in the period in which an entity first implements a restructuring plan or announces its main features to those affected by it, and in any subsequent period until the restructuring is completed.
The Board will consider in June whether the proposed recognition, measurement or disclosure requirements need to be adapted for liabilities relating to major litigation, and whether to add guidance on measuring reimbursement rights.