ACCA welcomes the opportunity to provide views in response to the IASB’s exposure draft (ED) for Provisions – Targeted Improvements. Our response has been developed with the assistance of ACCA’s Global Forum for Corporate Reporting.

Our general comments on the proposed amendments are as follows:

We support updating and aligning the definition of a liability in IAS 37 (the Standard) with the Conceptual Framework (2018) as using a single definition of a liability could reduce complexity for preparers of financial statements, as well as other stakeholders in the corporate reporting environment including auditors, users of financial statements and regulators.

We support using the three conditions – ie ‘obligation’, ‘transfer’ and ‘past-event’ conditions – to assess whether the entity has a present obligation and adding guidance to support the application of these conditions. Our comments in question 1 include some suggestions to enhance the proposed requirements.

We also support:

• specifying the types of costs an entity includes in estimating the future expenditure required to settle an obligation and aligning these costs with the measurement of onerous contracts.
• standardising the type of rates an entity uses to discount the expenditure to settle an obligation, ie a risk-free rate with no adjustment for non-performance risk.
• replacing the decision tree in Section B of the Guidance on implementing IAS 37. The new decision trees (B1 – B3) are clear and helpful in guiding entities to determine whether a provision needs to be recognised.
• amending and adding new examples in Section C of the Guidance on implementing IAS 37. The amended and new examples in this ED are helpful as they demonstrate the application of a particular requirement in the Standard. Our comments in question 6 include suggestions to improve individual examples.

The proposed modified retrospective approaches to apply the amended requirements are pragmatic. After the amended requirements are issued, we suggest allowing entities at least two years to understand the effects of the amended requirements and make the necessary preparations before the amended requirements become effective. Entities would need time to assess whether there are provisions that have yet to be recognised in accordance with the amended requirements and whether there would be changes to the amounts of provisions already recognised.

To read the response in full, please download the consultation document found on this page.