4 Provisions - Targeted Improvements

OFFICIAL - PUBLIC 26 March 2026 Agenda Paper 4

Executive Summary

Project Stage

Project Scope

Moderate

Purpose of the paper

The purpose of this paper is to seek Board members' views on the most recent IASB tentative decisions made on the Provisions – Targeted Improvements project.

The March 2026 IASB's Accounting Standards Advisory Forum (ASAF) meeting will include a discussion on possible application of the requirements for levies. Therefore, Board comments on that topic will inform UKEB feedback at that meeting.

Summary of the Issue

The IASB has been redeliberating its proposals since September 2025, in the light of stakeholder feedback received on its Exposure Draft.

The IASB staff presented ideas for alternative levy application requirements at the IASB's October 2025 meeting and at the December 2025 ASAF meeting.

The UKEB's position at the December 2025 ASAF meeting was that the ED proposals did not adequately address the accounting for levies and therefore it should be addressed as part of a separate project, potentially with other non-reciprocal transactions.

At its February 2026 meeting, the IASB staff presented revised ideas for the IASB to consider in relation to possible application of the requirements to levies. These were tentatively approved by the IASB at that meeting.

ASAF members are expected to be asked for feedback on certain aspects of the possible application of the requirements to levies at the March 2026 ASAF meeting.

The IASB will continue its redeliberation and, once the IASB has reached tentative decisions on remaining aspects of levy application requirements, a decision on the project direction is expected in Q2 2026.

Questions for the Board

Possible application requirements for levies (including ASAF questions)

1Do Board Members have comments or questions on the proposed 'principle and presumption' approach?

2What are Board Members' views on whether the proposed presumption should be rebuttable?

1. If the presumption is rebuttable: 1. What should be the conditions for rebuttal? 2. Should rebuttal be permitted or required?

3Are Board Members aware of any UK levies that might meet the conditions for rebuttal described in paragraph 21?

4Do Board Members have comments or questions on other aspects of the possible requirements?

Recommendation

Not applicable

Background: Exposure Draft: Provisions – Targeted Improvements

In November 2024, the IASB published the Exposure Draft (ED) IASB/ED/2024/8 Provisions – Targeted Improvements proposing amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets¹.

In the ED, the IASB proposes targeted improvements to three aspects of IAS 37:

1one of the criteria for recognising a provision – the requirement for the entity to have a present obligation as a result of a past event (the present obligation recognition criterion); and

2two aspects of the requirements for measuring a provision – those relating to:

1. the costs an entity includes in estimating the future expenditure required to settle its present obligation; and
2. the rate an entity uses to discount that future expenditure to its present value.

The IASB is also proposing amendments to the Guidance on implementing IAS 37. These amendments would update the guidance on applying the present obligation recognition criterion to reflect the proposed amendments to the requirements.

As part of the ED, the IASB also proposes withdrawing:

• IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment,
• IFRIC 21 Levies,

and replacing them with illustrative examples in the Guidance on implementing IAS 37.

The UKEB submitted its Final Comment Letter in March 2025.

The IASB discussed stakeholder feedback received on its ED in June 2025. It commenced redeliberation of the ED proposals in September 2025 and continued to redeliberate aspects of the proposals in October 2025 and December 2025. The Board received updates about the redeliberation at its June, October and November 2025 and January 2026 meetings².

IASB redeliberation – February 2026

1At its February 2026 meeting, the IASB redeliberated two aspects of the proposed amendments to the present obligation recognition criterion:

1. the past-event condition, with a focus on possible application requirements for levies³; and
2. the transfer condition⁴.

2This paper focuses on the IASB's redeliberation of the past-event condition. An update on the transfer condition will be presented to the Board at a future meeting.

Recognition criteria

3Paragraph 14A in IAS 37 currently requires a provision to be recognised when the following three criteria (‘recognition criteria’) are met:

1. Present obligation recognition.
2. Probable outflow of resources.
3. Reliable estimate.

4The IASB's ED proposed amendments to the 'present obligation recognition criterion' in 2(a) above. As per the ED paragraph 14A, the IASB proposed that this criterion would be comprised of the following three conditions:

1. an obligation condition;
2. a transfer condition; and
3. a past-event condition.

5The following sections present further details on the IASB redeliberation, including some background information.

Past-event condition – Application requirements for levies

6IASB staff presented ideas on application requirements for levies for discussion at the October 2025 IASB meeting⁵. The December 2025 ASAF discussion highlighted that the IASB staff ideas in relation to levies would add significant complexity as well as presenting significant application challenges.

7ASAF members' views were mixed regarding whether the IASB should proceed with addressing levies in this project or address them separately (potentially with other non-reciprocal transactions).

8Subsequently, at the IASB February 2026 meeting, the IASB staff presented revised ideas on application for levies and the IASB made tentative decisions on this topic.

9A summary of the IASB's tentative decisions at its February 2026 meeting and background information is presented in the table below. Further analysis, including feedback from recent UKEB Advisory Group meetings and preliminary Secretariat views are presented in the paragraphs that follow the table.

Levies- application requirements

Current requirements

IFRIC 21 addresses the accounting for a levy liability, if that liability is within the scope of IAS 37, or if the timing and amount of the levy are certain.

The obligating (past) event that gives rise to the liability is the activity that triggers payment of the levy, as identified by the legislation. Therefore, if two or more activities are required for a levy to be payable, an entity recognises the liability for the levy when the last activity has been conducted.

The liability is recognised progressively if the obligating event occurs over a period of time (i.e. if the activity triggering payment of the levy occurs over a period of time).

If an obligation to pay a levy is triggered when a minimum activity threshold is reached, the corresponding liability is recognised only when that minimum threshold is reached.

Exposure Draft proposals

The IASB proposed to withdraw IFRIC 21 and replace it with amendments to IAS 37 and illustrative examples in the revised Guidance on Implementing IAS 37 accompanying the ED.

One of the IASB's objectives for this project was to improve the present obligation recognition criterion. There have been interpretation questions about this criterion, and stakeholder feedback to the IASB that the recognition of levy obligations under IFRIC 21 does not always provide useful information. The IASB aimed to improve the criterion by aligning it with the 2018 Conceptual Framework for Financial Reporting.

The proposed requirements affecting the timing of recognition of levy obligations are contained in the ED paragraphs 14M-14R, which address the proposed 'past-event condition' for recognition of a provision.

• Paragraph 14M states that the entity's obligation is a present obligation [emphasis added] that exists as a result of a past event.
• Paragraph 14N explains that an obligation becomes a present obligation [emphasis added] that exists as a result of a past event when the entity has obtained specific economic benefits or taken a specific action, and as a consequence will or may have to transfer an economic resource that it would not otherwise have had to transfer.
• Paragraph 14O addresses situations in which economic benefits are obtained or actions are taken over time, explaining that the past-event condition is met and the resulting present obligation accumulates over that time.
• Paragraph 14P addresses situations in which an entity has an obligation only if a measure of its activity in an assessment period exceeds a threshold. The paragraph explains that, in such situations, the action meeting the past-event condition is the activity contributing to the total activity on which the amount of the transfer is assessed, and that at any date within the assessment period, the present obligation is that portion of the total expected obligation for the assessment period attributable to the activity carried out to date. An example is given of a levy obligation based on a revenue threshold.
• Paragraph 14Q states that if the requirement to transfer an economic resource is a consequence of taking two or more actions, the past-event criterion is met when the entity has taken any of the actions and has no practical ability to avoid the remaining actions.
• Paragraph 14R explains that a decision to use the going concern basis of preparation for an entity's financial statements implies that the entity has no practical ability to avoid taking an action it could avoid only be liquidating or ceasing to trade.

More detail on the proposed amendments is included in previous UKEB papers⁶.

UKEB Comment Letter

The UKEB comment letter to the IASB in response to the ED:

• Expressed the view that the IASB's aims of combining a clarification of the general requirements for obligations in the scope of IAS 37 with a change in the timing of the recognition of certain levies appeared to be in conflict;
• Recommended that the IASB assess whether the accounting for levies could be addressed more effectively if considered separately from the accounting for non-levy obligations. Furthermore, it highlighted the risk of unintended consequences if the proposed amendments were applicable to all obligations in the scope of IAS 37;
• Requested that the IASB enhance the clarity of the requirements, including:
  • the meaning of the term 'action';
  • the distinction between action and measurement basis;
  • whether the proposed requirement on obligations arising only if an entity takes two (or more) separate actions was needed for all obligations or whether it could be limited to levies; and
  • the intended application of the threshold-triggered costs requirement where there is a balance sheet threshold rather than an income statement threshold.

IASB tentative decisions

At its February 2026 meeting, the IASB tentatively decided to supplement the past-event condition proposed in the ED with application requirements for levies, that would⁷:

1. specify a principle – that the economic benefit or action that meets the past-event condition for a levy is the economic benefit or activity the government is seeking to levy; and
2. support this principle with a constraining presumption – that the economic benefit or activity the government is seeking to levy will be one of those required by the levy legislation for the levy to be payable.

In this paper this is referred to subsequently as the 'principle and presumption' approach.

Levies - 'principle and presumption' approach

10Feedback from members of the UKEB's Investor and Preparer Advisory Groups (based on information prior to the IASB’s February 2026 meeting) continued to be that the recognition of non-levy provisions is well-established. They considered that addressing levies in a separate project would be preferable to including application requirements within an amended IAS 37, to reduce the risk of unintended consequences.

11At the February 2026 IASB Board meeting, the IASB staff set out the implications of the proposed 'principle and presumption' approach. These would depend on the key terms of each levy⁸:

1. if the activity the government is seeking to levy occurs before the activity that triggers payment of the levy, a provision would be recognised earlier than it is currently recognised under IFRIC 21; or
2. if the activity the government is seeking to levy also triggers payment of the levy, a provision would be recognised at the same time as it is currently recognised under IFRIC 21.

12The IASB staff considered that the economic benefits or activities required for a levy to be payable are a matter of fact, identified by assessing the precise terms of the legislation giving rise to a levy. They expect all entities subject to a particular levy to identify the same economic benefits or activities and account for the levy in a consistent manner. The importance of this outcome was emphasised by several IASB members during the discussion.

13Members of the Accounting Firms and Institutes Advisory Group had a preliminary discussion at its March 2026 meeting (shortly after the IASB's February 2026 tentative decisions were made). As of that date, they had not yet conducted analysis of the proposed revised principle and presumption approach. We have requested that they share the finding of their analysis when it is available.

Secretariat preliminary views

14The Secretariat consider that the UKEB's preferred approach should remain that the IASB address the accounting for levies as a separate project. This approach would reduce the risk of unintended consequences for non-levy obligations.

15However, if the IASB decided to pursue the finalisation of the proposals with its current scope, the Secretariat's preliminary view is that amending the proposals to be more principle-based would be a welcome step, compared to the requirement in proposed ED paragraph 14Q of identifying different actions. Nonetheless, the feasibility of the proposed principle and presumption approach will take time to fully assess, given the variety of UK levy fact patterns.

16As a result, the Secretariat's view is that the revised proposals should not be finalised before the IASB conducted field testing on a range of levies, with different characteristics, to assess the outcomes arising from applying this proposed new approach. Such field testing should include levies for which the amount chargeable to an entity is based on a balance sheet measure.

17In addition, it is essential that the IASB allows sufficient time for stakeholders in different jurisdictions to perform their own field testing and provide feedback to the IASB before finalisation of any amendments to IAS 37.

18For IASB stakeholders to be in a position to conduct field testing of the most recent proposals, it would be essential that the IASB publishes detailed indicative wording, as well as the intended placement of the proposed new levy application requirements within the proposed amended Standard. The IASB has precedent of doing this with the indicative wording published as part of the IASB staff papers on this project, before the publication of its Exposure Draft.

Questions for the Board

ASAF questions:

2What are Board Members' views on whether the proposed presumption should be rebuttable?

1. If the presumption is rebuttable: 1. What should be the conditions for rebuttal? 2. Should rebuttal be permitted or required?

3Are Board Members aware of any UK levies that might meet the conditions for rebuttal described in paragraph 21?

4Do Board Members have comments or questions on other aspects of the possible requirements?

Levies - rebuttable or non-rebuttable presumption

19In the IASB staff view, in some (possibly quite rare) cases, the terms of the levy legislation will not align with the government's policy objective. This will be the case if none of the economic benefits or activities required for the levy to be payable are the same as the one the government is seeking to levy. Such cases can arise if the activity the government is seeking to levy is difficult to measure directly and the government can achieve its policy objectives more simply, or collect the levy more quickly, by levying a proxy economic benefit or activity.

20At the February 2026 IASB meeting, the IASB staff presented proposals⁹ for the constraining presumption in the proposed application requirements for levies. The IASB members were only asked for their preliminary views and were not asked to make any decisions on this topic at that meeting.

21The proposals outlined arguments for and against the constraining presumption being a rebuttable presumption. The following possible conditions for rebuttal were suggested by the IASB staff:

1. condition 1: evidence within the legislation (or an accompanying government statement) of the activity the government is seeking to levy (the government's policy objective)¹⁰; and/or;
2. condition 2: evidence that the government has been able to levy a proxy economic benefit or activity without significantly changing either the scope of the levy (the entities required to pay it) or the amounts payable by each entity.

22A bank levy payable by entities operating as large banks in a country on the first day of a year, calculated by reference to the reported liabilities in an entity's most recently published financial statements, was given as an example in the IASB staff paper. The example was used to illustrate a circumstance in which the activity the government is seeking to levy (the risk the bank poses to society throughout the levy year) occurs at a different time from the activity required for the levy to be payable (operating as a bank on the first day of the levy year).

23In this case, an entity could recognise an expense and liability for the bank levy in accordance with the proposed principle (over time) only by rebutting the proposed presumption that the activity the government is seeking to levy is one of those required for the levy to be payable.

Secretariat preliminary views

24During the meeting IASB members expressed mixed views, with most sharing reservations, as to whether the presumption should be rebuttable, and if rebuttable, whether the rebuttal should be required or permitted. Concerns were raised about excessive cost and burden for preparers to assess all levies to which they are subject if rebuttal was required, balanced against potential diversity in practice if there was no rebuttable presumption or it was permitted but not required to rebut the presumption.

25The Secretariat's preliminary view is that further work is needed to establish the potential extent to which UK levies have features that could warrant the use of a rebuttable presumption and whether they would result in suitable accounting outcomes. It has been suggested that for some UK banking levies the likely outcome of applying the principle and presumption approach will be similar to that under IFRIC 21, unless an entity is able to use the rebuttable presumption. However, this is something the Secretariat is yet to explore.

Questions for the Board

ASAF questions:

2What are Board Members' views on whether the proposed presumption should be rebuttable?

1. If the presumption is rebuttable: 1. What should be the conditions for rebuttal? 2. Should rebuttal be permitted or required?

3Are Board Members aware of any UK levies that might meet the conditions for rebuttal described in paragraph 21?

4Do Board Members have comments or questions on other aspects of the possible requirements?

Next steps

26At upcoming meetings, the IASB will be asked to reconsider the remaining aspects of the Exposure Draft proposals, including:

1. remaining aspects of application requirements for levies;
2. other remaining aspects of the past-event condition; and
3. the proposed amendments to the Guidance on implementing IAS 37.

27The IASB staff noted that a decision on the overall project direction is expected in Q2 2026, once the IASB has reached tentative decisions on remaining aspects of the requirements for levies.

28The Secretariat intends to discuss the proposed application requirements for levies with the UKEB's Academic Advisory Group at its April 2026 meeting.

29The Secretariat will continue to monitor the IASB's redeliberation and tentative decisions and will provide the Board with a further update at a future meeting.

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Footnotes

Exposure Draft: Provisions-Targeted Improvements-Proposed amendments to IAS 37

Exposure Draft: Provisions-Targeted Improvements-Proposed amendments to Guidance on implementing IAS 37; and

Exposure Draft: Provisions-Targeted Improvements-Basis for Conclusions.

UKEB meeting – 26 June 2025, Agenda Paper 9 IASB General Update (Appendix C)

UKEB meeting – 30 October 2025, Agenda Paper 8 IASB General Update (Appendix D)

UKEB meeting – 20 November 2025, Agenda Paper 7 IASB General Update (Appendix C); and

UKEB meeting – 29 January 2026, Agenda Paper 8 IASB General Update (Appendix A).

Tightly - by requiring that the legislation specifies the activity the government I s seeking to levy; or

More loosely - by requiring that the legislation either specifies or indicates through its terms the activity the government is seeking to levy.