IFRS Essentials

IAS 37 PROVISIONS, CONTINGENT LIABILITIES, AND CONTINGENT ASSETS

1 SCOPE

IAS 37 specifies the accounting treatment of provisions, contingent liabilities and contingent assets in the financial statements.

Executory contracts only fall under IAS 37 if they are onerous,1 i.e. if losses are expected. Executory contracts represent contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent (IAS 37.1 and 37.3).

Furthermore, IAS 37 does not apply to provisions, contingent liabilities, and contingent assets covered by another Standard. Examples are financial instruments (including guarantees) that are within the scope of IFRS 9, current and deferred tax liabilities (IAS 12), as well as provisions relating to employee benefits (IAS 37.1c, 37.2, and 37.5).

IAS 37 applies to provisions for restructurings (including discontinued operations). When a restructuring meets the definition of a discontinued operation (IFRS 5Appendix A), additional disclosures may be required by IFRS 5 (IAS 37.9).

2 DEFINITION AND RECOGNITION OF PROVISIONS

2.1 Overview

Provisions are liabilities of uncertain timing or amount. A liability represents a present obligation of the entity that arises from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. A liability is created by a legal or constructive obligation2 that results in the entity having ...