Provisions—Targeted Improvements

The IASB met on 9 December 2025 to redeliberate proposals in the Exposure Draft Provisions—Targeted Improvements relating to the recognition and measurement of provisions, specifically:

• the proposed requirement for an entity to have a present obligation to transfer an economic resource as a result of a past event. The IASB discussed feedback on one of the three conditions within the present obligation criterion, namely the ‘obligation’ condition.
• the proposed clarification of the costs an entity includes in estimating the future expenditure required to settle an obligation.

Recognition—Legal obligations (Agenda Paper 22A)

The IASB discussed aspects of the obligation condition relating to legal obligations.

The IASB tentatively decided to revise the criteria proposed in the Exposure Draft for concluding that an entity has no practical ability to avoid discharging a legal responsibility. The revised criteria would require that either:

1. the counterparty have a right to ask a judicial body to force the entity to discharge the responsibility or to pay a penalty or compensation for failing to do so; or
2. the counterparty have a right to take another form of action against the entity for failing to discharge the responsibility and, as a result, the economic consequences for the entity of not discharging the responsibility are expected to be significantly worse than the costs of discharging it.

All 12 IASB members agreed with this decision.

In reaching this decision, the IASB:

1. tentatively decided that an entity’s practical ability to avoid discharging a responsibility represents a high hurdle.
   
   Ten of 12 IASB members agreed with this decision.
   
   
2. tentatively decided to retain the word ‘significantly’ in the proposal in paragraph 14F of the Exposure Draft.
   
   Eleven of 12 IASB members agreed with this decision.

The IASB also tentatively decided:

1. to add no application guidance on how to assess the economic consequences of failing to discharge a responsibility.
   
   All 12 IASB members agreed with this decision.
   
   
2. to make no changes to the requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets that apply to proposed new laws that have yet to be finalised.

Eleven of 12 IASB members agreed with this decision.

Recognition—Constructive obligations (Agenda Paper 22B)

The IASB discussed aspects of the obligation condition relating to constructive obligations.

The IASB tentatively decided:

1. to retain the criterion proposed in the Exposure Draft for concluding that an entity has no practical ability to avoid discharging a constructive responsibility—not to add a reference to the economic consequences of failing to discharge the responsibility.
   
   Eleven of 12 IASB members agreed with this decision.
   
   
2. to add no further guidance on the factors to consider in determining whether an entity’s public statement of its climate-related commitments creates a constructive obligation to fulfil these commitments.
   
   All 12 IASB members agreed with this decision.

Measurement—Costs to include (Agenda Paper 22C)

The IASB tentatively decided:

1. to retain the proposed requirement that the expenditure required to settle an obligation comprise the costs that relate directly to the obligation, which consist of both:
   1. the incremental costs of settling that obligation; and
   2. an allocation of other costs that relate directly to settling obligations of that type.
      
      All 12 IASB members agreed with this decision.
       
2. to restrict the scope of the requirement described in (a) to obligations to transfer goods or services, and to clarify that the requirement applies to the measurement of those goods or services.
   
   Eleven of 12 IASB members agreed with this decision.
   
   
3. not to add a requirement for an entity to disclose whether and how it includes ancillary costs in measuring a provision.
   
   Eleven of 12 IASB members agreed with this decision.
   
   
4. to add no application guidance or illustrative examples on the types of costs to include in measuring a provision.
   
   All 12 IASB members agreed with this decision.