The IASB considered a summary of comments received on the exposure draft Measurement of Liabilities in IAS 37.
The comments reinforced those that the Board had received while interacting with respondents and other interested parties during the comment period. In particular, respondents argued that:
- the 'expected value' of a single liability (the probability-weighted average of the range of possible outflows) is a less relevant measure of the liability than the most likely outflows.
- entities cannot measure reliably the expected values of some liabilities within the scope of IAS 37 - in particular some liabilities arising in legal disputes.
- the reasons for adding a risk adjustment-and the way in which an entity would measure the adjustment-are unclear. As a consequence, measurements that include risk adjustments might not be reliable or comparable.
- contractor prices are not relevant measures of the entity's future outflows, and, in the absence of a market, cannot be estimated reliably.
- the recognition criteria are unclear and would be difficult to apply - especially in situations (such as legal disputes) in which there is uncertainty about whether a liability exists.
- the proposals would be difficult to apply in the US legal environment.
- overall, the proposals would not improve IAS 37, which some respondents think works well in practice.
- given the time that has elapsed since the 2005 exposure draft, and the relationship between the proposed measurement requirements and other sections of the draft IFRS, the Board should re-expose the entire IFRS.
The Board decided to continue its deliberations on this project to replace IAS 37 on the grounds that parts of that standard are causing diversity in practice and need amendment. The Board expressed a willingness to consider ways of addressing the matters raised by respondents and will continue to interact with respondents.
The staff presented a plan identifying specific suggestions for further consideration by the Board. The plan would involve:
- considering whether to introduce different requirements for liabilities whose expected values cannot be measured reliably. One approach might be to specify simplified measurement techniques. Another approach might be to specify that the liabilities should not be recognised at all because they do not satisfy the 'reliable measurement' recognition criterion. Entities would instead disclose clearly the existence of, and information about, the unrecognised liabilities.
- considering adding more guidance to help entities decide whether they have a liability to recognise. One possible source for such guidance could be the staff paper Recognising Liabilities arising from Lawsuits, posted on the IASB's website in April 2010.
- reconsidering the requirement to identify the lowest of the fulfilment, transfer and cancellation prices.
- reconsidering the requirement to add a risk adjustment.
- reconsidering the requirement to measure future outflows by reference to contractor prices.
- considering whether to add more guidance on various other matters, such as discount rates (whether they should include non-performance risk), disclosure requirements, contingent assets and onerous contracts.
The Board also tentatively decided that, once it has reached decisions on the matters raised by respondents, any revised draft IFRS would be exposed in its entirety for further comment. The Board expressed a desire to avoid unnecessary delay, but noted that, because of other priorities and the need to give proper consideration to the matters raised by respondents, it may not be able to issue an exposure draft before the second half of 2011.