International Accounting Standard (IAS) 37, Provisions, Contingent Liabilities and Contingent Assets, applies to liabilities not covered by other accounting standards, such as liabilities to decommission assets, environmental liabilities, and liabilities arising from legal disputes. The International Accounting Standards Board (IASB) previously published proposals to amend IAS 37, including revised measurement requirements. In light of the comments received, the IASB has issued Exposure Draft 2010/1, Measurement of Liabilities in IAS 37. The main goals of the project are to: (i) align the criteria in IAS 37 for recognizing a liability with those in other International Financial Reporting Standards; (ii) eliminate certain differences between IAS 37 and U.S. generally accepted accounting principles, primarily those related to the timing of recognition of business restructuring costs; and, (iii) clarify the measurement of liabilities in IAS 37.The main features of the proposed measurement requirements are summarized as follows:
- An entity must measure a liability at the amount that it would rationally pay at the end of the reporting period to be relieved of the present obligation.
- The amount that an entity would rationally pay to be relieved of an obligation is the lowest of:
- The present value of the resources required to fulfill the obligation;
- The amount that the entity would have to pay to cancel the obligation; and
- The amount that the entity would have to pay to transfer the obligation to a third party.
- An entity must adjust the carrying amount of a liability at the end of each reporting period to the amount that it would rationally pay to be relieved of the present obligation at that date.
- Changes in the carrying amount of a liability resulting from the passage of time are recognized as a borrowing cost.
The Exposure Draft is available for comment until April 12, 2010
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