The IASB considered comments received on the recognition criteria proposed in the working draft IFRS that the staff had posted on the IASB's website in February 2010.
The first criterion is that a liability exists. The Board decided tentatively to specify that, in situations of uncertainty, this criterion is met if the available evidence indicates that it is more likely than not that a liability exists. This more-likely-than-not threshold is applied in IAS 37 at present.
The Board also considered requests for more guidance on applying the criterion to liabilities arising in legal proceedings. The Board tentatively concluded that it is more likely than not that an entity defending legal proceedings has a liability if the available evidence indicates that either:
- if the case progresses through the courts, it is more likely than not that the courts will rule against the entity; or
- it is more likely than not that the case will result in an out-of-court settlement.
The Board reviewed a staff draft of application guidance for entities defending legal proceedings. The Board asked the staff to invite interested parties to comment informally on the guidance.
The Board considered objections to its proposal to omit a 'probable outflows' recognition criterion from the IFRS. The Board noted that the probable outflows criterion, which is in IAS 37 at present, prevents entities from recognising some material liabilities in their financial statements. The Board also noted that its other tentative decisions (ie to add a more-likely-than-not threshold to the recognition criteria and to focus guidance for legal proceedings on the expected outcome of the proceedings) might help to address some of the practical difficulties identified by those opposing the omission of the probable outflows criterion. The Board re-affirmed its preference for omitting the criterion but acknowledged the need for further consultation and debate on this matter. The Board asked the staff to prepare, and to invite comments on, a paper setting out the arguments for omitting the probable outflows criterion and discussing the objections raised.
The staff intend to place a staff paper - which will address all of the matters discussed above - on the Board's website. The paper will invite interested parties to engage with the staff to help them determine how best to develop the proposals for further consideration by the Board after June 2011. If the Board reaches decisions on all aspects of the proposals, it will expose any proposed revised IFRS in its entirety for further comment.