Provisions—Targeted Improvements

The IASB met on 25 April 2024 to discuss possible amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. These amendments relate to:

• the present obligation recognition criterion (Agenda Paper 22A);
• costs payable if a measure of an entity’s activity in a period exceeds a specified threshold (threshold-triggered costs) (Agenda Paper 22B);
• application guidance on determining discount rates (Agenda Paper 22C); and
• requirements for disclosure of information about discount rates (Agenda Paper 22D).

Present obligation recognition criterion (Agenda Paper 22A)

The IASB tentatively decided to propose:

1. updating the ‘liability’ definition and the wording of the present obligation recognition criterion applied in IAS 37 to align them with the Conceptual Framework for Financial Reporting (Conceptual Framework) definition of a liability;
2. clarifying the requirements supporting the present obligation recognition criterion by:
   1. separating out and explaining three conditions within the criterion; and
   2. expanding the decision tree in the Guidance on implementing IAS 37 Provisions, Contingent Liabilities and Contingent Assets to show the process an entity could follow to determine whether to recognise a provision, disclose a contingent liability or do neither;
3. replacing the requirements supporting the present obligation recognition criterion with new requirements based on concepts in the Conceptual Framework, and then withdrawing IFRIC 21 Levies;
4. improving the wording of the explanations of the application requirements for restructuring provisions, without changing those requirements;
5. adding new examples to the Guidance on implementing IAS 37 Provisions, Contingent Liabilities and Contingent Assets and updating the explanation of the conclusions for some of the existing examples, without changing those conclusions; and
6. adding no requirements relating specifically to net zero transition commitments.

All 14 IASB members agreed with these decisions.

Threshold-triggered costs (Agenda Paper 22B)

The IASB tentatively decided to propose adding application requirements to IAS 37 for threshold-triggered costs, specifying that:

1. a present obligation for a threshold-triggered cost arises as the entity carries out the activity that contributes to the total amount of activity on which the cost is measured; and
2. at any date within the measurement period, the amount of the present obligation is a portion of the total estimated cost for the measurement period—the portion being the amount attributable to the activity carried out to that date.

All 14 IASB members agreed with these decisions.

Discount rates—Application guidance (Agenda Paper 22C)

The IASB tentatively decided to propose:

1. clarifying that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate; and
2. providing no further application guidance on estimating the time value of money.

All 14 IASB members agreed with these decisions.

Discount rates—Disclosure requirements (Agenda Paper 22D)

The IASB tentatively decided to propose requiring an entity to disclose, for each class of provision:

1. the rate or rates used in measuring the provision; and
2. the approach used to determine those rates.

All 14 IASB members agreed with decision (a) and 13 of 14 IASB members agreed with decision (b).