Flashcards IAS 37
IAS 37 : What is the scope of the standard
Does NOT apply to :
1- executory contracts (contracts that are unperformed or performed to an equal content by the involved parties)
2- provisions addressed by other standards :
2.1- IFRS 3
2.2- IFRS 9 (incl fin guarantees)
2.3- IAS 12
2.4- IFRS 15 (except onerous contracts)
2.5- IFRS 16 Leases
2.6- IAS 19
2.7- IFRS 17
3- adj to carrying amounts of assets
Applies to :
1- liabilities of uncertain amount or timing
2- restructuring incl discontinued operations per IFRS 5
IAS 37 : Definition of provision ?
1 Present obligation
2 arising from past events
3 expected to result in outflow of economic benefits
4 of uncertain amount or timing
IAS 37 : Definition of present obligation
Present Obligation =
1 Legal obligation
contract,
law existing or
virtually certain to be enacted as drafted
2 Constructive obligation
1 past practice,
current stmt,
published policies
2 created valid expectations of other parties
3 that entity will take responsibility
IAS 37 : Definition of contingent liabilty/asset
From past events :
1 Obligation Possible
Probability =<50% + > remote
existance confirmed by
uncertain future event
not wholly in entity control
2 Present obligation +
Probability =<50% + > remote OR
Probability>50% + NOT reliably measurable
3 Probable asset (>50%)
NOT virtually certain
from unplanned/unexpected events
IAS 37 : Definition onerous contract
Unavoidable costs* that
cannot be avoided by future action
exceed the EXPECTED economic benefits
* least cost to exit/safisfy obligation - penalties for not fulfilling if lower than fulfilling
IAS 37 : Definition of restructuring programme
Planned + controlled
Materially changes
- scope of business
- manner conducting
IAS 37 : Recognition of contingent assets
1 Disclosed
2 Not recognised
3 Probability = Probable (>50%)
Exception :
receipt virtually certain
=> recognised
no longer contingent asset
IAS 37 : how to measure provisions (best estimates) ?
1- Judgement of management
2- supplemented by experience
3- ev. Reports independant experts
4- incl events up to approval of FS
5- most likely outcome for single event
6- expected outcomes for large population
(weighted avrg possible outcomes)
7- risk adj for uncertainties (variability of outcome)
eg. adj for future inflation
8- present value for material time value
discount rate : exclude risks included in cf
exclude own credit risk
9- future events -if sufficient evidence /virtually certain
10- excluded : future gains on disposal of assets
11- stated separately : reimbursement rights virtually certain
IAS 37 : how is the most likely outcome etablished
The outcome with the highest probability OR
if other possible outcomes are mostly higher or lower
such higher or lower amount shall be taken
IAS 37 : what are the criteria for a constructive obl from a restructuring, discontinuation, sale
1-formal plan that includes at least
- 1 business concerned
- 2 principle locations
- 2 termination benefits : location, functions, approx nbr employees
- 4 expenditures
- 5 impl date
2-valid expectation raised :
Restructuring, discontiuation :
2.1 starting implementation
2.2 intention (board approval) +
announcing main features
start date asap
within timeframe
that make sign changes unlikely
Sale :
2.3 upon binding sale agreement
IAS 37 : what cost are included in provision for restructuting, discontinuation, sale
Only cost associated with restructuring
excluded :
ongoing + future activities
-retraining/relocation continuing staff
-marketing
- investment in new systems + distrib networks
- operating losses up to restructuring
- expected gains of asset disposals
IAS 37 : what are the disclosures
By class* of provision :
A - reconciliation no comparative :
1 c/f + b/f
2 additional provisions
3 used provisions
4 unused provision reversals
5 unwinding discount
6 change in disc rate
B - brief descr nature, uncertainties, timing, amount
major assumptions
expected reimbursements recorded + unrecorded
By class* of contingent liab if practicable :
fin effect
uncertainties amount + timing
reimbursement possibilities
Not practicable or creating prejudice : general nature + why not disclosed
*eg. legal proceedings, warranties
IAS 37 : what is difference of provisions vs accruals
Accruals :
Goods/Services received
not invoiced or
not formally agreed
incl amts owed to employees
Timing and amount of accruals may need to be estimated but are virtually known and little uncertainty
Trade payables :
G+S recved + invoiced or formally agreed
Provisions :
have a significant amount of uncertainty
IAS 37 : When to record a provision ?
1 Present Obligation
Are cost unavoidable by future action
2 outflow of eco benef probable (>50%)
3 reliably measured
4 Significant uncertainty in amt + timing
IAS 37 : when to disclose a contingent liab + assets ?
1 Present Obligation
Probability of outflow =< 50%
Probability of outflow > remote
2 Present Obligation
Probability of outflow > 50%
NOT reliably measurable
3 Possible Obligation (probability =< 50%)
Probability of outflow > remote
4 Probable Asset (>50%)
NOT virtually certain
