5 Provisions – Targeted Improvements

21 May 2026 Agenda Paper 5 OFFICIAL - PUBLIC

Executive Summary

Project Stage

Project Type

Influencing

Project Scope

Moderate

Purpose of the paper

The purpose of this paper is to seek Board Members’ views on the recent IASB’s tentative decisions made on the Provisions – Targeted Improvements project.

This paper focuses on the International Accounting Standards Board’s (IASB’s) redeliberation of the proposed transfer condition.

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 Provisions – Targeted Improvements.

One of the aspects redeliberated in February 2026 was the proposed transfer condition. Tentative decisions were made by the IASB at that meeting.

The IASB will continue its redeliberation process. The IASB’s work plan indicates a decision on project direction is expected in June 2026.

Decisions for the Board

1 Do Board Members have views regarding the IASB tentative decision to retain the proposal of adding an explicit transfer condition in IAS 37?

2 Do Board Members have views on the IASB tentative decision to expand paragraph 14L of the ED to explain more fully the difference between an obligation to transfer an economic resource and an obligation to exchange economic resources (as reflected in the proposed illustrative drafting presented in Annex 1)?

3 Do Board Members have views regarding the IASB tentative decisions in relation to stakeholders’ requests for further application guidance on:

1. asset decommissioning and environmental rehabilitation obligations; and/or
2. application of the transfer condition to levies?

Recommendation

Not applicable

Background: Exposure Draft: Provisions – Targeted Improvements

In November 2024, the IASB published the Exposure Draft (ED) 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:

1. one 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
2. two 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; and
• IFRIC 21 Levies.

They would be replaced 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. The IASB commenced redeliberation of the ED proposals in September 2025, and the process is currently ongoing. The Board has received regular updates about the IASB’s redeliberation².

IASB redeliberation – February 2026

1 At its February 2026 meeting, the IASB redeliberated two aspects of the ED within the present obligation recognition criterion:

1. past-event condition - possible application requirements for levies³; and
2. the transfer condition⁴.

2 The obligation condition was redeliberated by the IASB in December 2025. An update to the Board was provided at the UKEB January 2026 meeting, as part of the Agenda Paper 8 IASB General Update – Appendix A.

3 In March 2026 the Board received an update on the IASB’s redeliberation of the past-event condition. Refer to Agenda Paper 4 Provisions - Targeted Improvements.

4 This paper focuses on the IASB’s redeliberation of the transfer condition.

Transfer condition

5 Background information about the transfer condition, including the views in the UKEB Comment Letter to the IASB, are presented in the table below.

6 Further analysis, including the IASB tentative decisions made at its February 2026 meeting, are presented in the following paragraphs.

Whether to add an explicit transfer condition to the present obligation recognition criterion

7 From the respondents to the IASB’s ED that commented specifically on the proposal to add an explicit transfer condition, the IASB received mixed feedback.

8 The February 2026 IASB Agenda Paper 22C noted that, in the IASB staff’s view, the transfer condition is inherent in the definition of a liability in the Conceptual Framework and, hence, in the present obligation recognition criterion. The IASB staff considered that an explicit transfer condition would allow for a more structured step-by-step approach to analysing whether the present obligation recognition criterion is met.

9 In addition, even though the IASB staff acknowledged⁵ that the transfer condition is effectively redundant for the purpose of recognition decisions (because any obligation that has no potential for a transfer automatically fails the second recognition criterion in IAS 37.14(b), that is, the ‘probable outflow of resources’), in their view, the transfer condition has an important role to play in disclosure decisions.

10 For example, in the IASB staff’s view, if an obligation fails the ‘probable outflow of resources’ recognition criterion in IAS 37.14(b) then the proposed transfer condition would need to be considered in deciding what information to disclose about the obligation:

1. if the obligation meets the transfer condition (and the other conditions in the present obligation recognition criterion), the entity has a contingent liability and must apply the requirements in IAS 37 for disclosing information about that contingent liability; whereas
2. if the obligation fails the transfer condition, the entity has neither a liability nor a contingent liability. None of the disclosure requirements in IAS 37 would apply.

11 In response to stakeholder feedback suggesting that adding an explicit transfer condition is unnecessary given IAS 37 already has specific requirements for executory contracts, the IASB staff considered that the existing requirements in IAS 37 apply only to contractual obligations, not to other types of obligations (such as statutory or constructive obligations).

12 In the IASB staff’s view, the transfer condition provides general requirements that can be applied to any type of obligation. Among other things, the transfer condition clarifies why no provision should be recognised, or contingent liability disclosed for such obligations - as illustrated in Example 15 (Climate-related commitments) in the proposed Guidance on implementing IAS 37.

13 Based on the above, the IASB tentatively decided to retain the proposal to add an explicit transfer condition to the present obligation recognition criterion in IAS 37.

Requests for a clearer explanation of the transfer condition

14 A few respondents requested a clearer explanation of the difference between an obligation to transfer an economic resource and an obligation to exchange economic resources.

15 In response to stakeholder feedback, and drawing on paragraph 4.57 of the Conceptual Framework, the IASB tentatively decided to expand paragraph 14L of the Exposure Draft to explain more fully the difference between an obligation to transfer an economic resource and an obligation to exchange economic resources, by clarifying that:

1. an obligation to exchange economic resources with another party combines an obligation to transfer one economic resource to that party with a right to receive another economic resource from that party;
2. the economic resource an entity receives could be one it will recognise as an asset (for example, goods) or as an expense (for example, a service); and
3. an entity has an obligation to exchange economic resources with another party only if transferring one economic resource to that party gives the entity a right to receive another economic resource from that party. It is not sufficient that transferring the economic resource to that other party could give rise to other forms of economic benefit for the entity.

16 Annex 1 to this paper sets out the IASB staff’s proposed illustrative drafting.

Requests for further application guidance

17 The following paragraphs present IASB tentative decisions made in relation to stakeholders’ requests for further application guidance.

Asset decommissioning and environmental rehabilitation obligations

18 Some respondents noted that they had been unable to reconcile the transfer condition proposed in the ED with existing requirements in IAS 37 to recognise provisions for asset decommissioning and environmental rehabilitation obligations, for example where an entity plans to engage a subcontractor to fulfil obligations. In the IASB staff’s view, there is no tension between the proposed transfer condition and existing requirements in IAS 37.

19 In response to stakeholder feedback, the IASB staff suggested expanding the analysis in one or both of Examples 2 (Contaminated land) and Example 3 (Offshore oilfield) in the proposed Guidance on implementing IAS 37. In addition, the IASB staff’s illustrative drafting set out in Annex 1 to this paper includes a simple environmental rehabilitation example.

20 The IASB agreed with the staff’s recommendation and tentatively decided to expand examples⁶ in the Guidance on implementing IAS 37 to clarify:

1. why asset decommissioning and environmental rehabilitation obligations meet the transfer condition; and
2. how the transfer condition relates to the measurement requirements in IAS 37.

Application of the transfer condition to levies

21 A few respondents questioned whether an obligation for a levy meets the transfer condition (i.e. whether it is a transfer or an exchange of an economic resource). Some respondents asked for further guidance on whether and why, or in what circumstances, an obligation for a levy meets the transfer condition.

22 The IASB staff analysis noted that the use of the term ‘levy’ in the ED is consistent with the meaning in IFRIC 21, i.e. that a levy is a non-reciprocal transaction, and that although payment of a levy might be a consequence of an entity exercising a right (e.g. the ability to operate as a bank in a jurisdiction), the levy is not payable in exchange for gaining that right – the right was pre-existing, and therefore the obligation to pay the levy is a transfer and not an exchange.

23 In February 2026, the IASB staff proposed the following definitions⁷:

1. “A levy is a non-reciprocal charge that a government imposes on entities that obtain a specific economic benefit or conduct a specific activity”.⁸
2. The IASB staff also proposed to reproduce in IAS 37 the definition of a government that is set out in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance (and currently reproduced in paragraph 4 of IFRIC 21) “Government refers to government, government agencies and similar bodies whether local, national or international”.

24 The IASB tentatively decided to clarify the implications of the transfer condition for levies by:

1. defining the term ‘levy’ to include only non-reciprocal charges; and
2. stating within the application requirements for levies that an obligation for a levy will, by definition, meet the transfer condition.

Initial views on the IASB’s tentative decisions

25 On 10 March 2026, the Secretariat had an initial discussion with members of the UKEB’s Accounting Firms and Institutes Advisory Group (AFIAG). Given our discussion was held only a few days after the IASB’s tentative decisions were made, AFIAG members had not yet formed a view on the IASB’s tentative decisions. At that meeting AFIAG members noted that it was unclear whether the proposed revised illustrative drafting would achieve its objective of clarifying the distinction between exchange and transfer. The risk of potential unintended consequences was noted.

26 The Secretariat’s initial view is that the proposed clarifications may introduce additional complexity. Re-assessment of existing provisions for the proposed transfer condition, including a change to definition of a levy, could be burdensome and potentially present interpretation challenges. Further work is needed to assess whether the proposals would lead to information that is more useful to users of accounts.

27 As noted at the UKEB March 2026 meeting, the Secretariat considers that it is essential that the IASB allows sufficient time for stakeholders in different jurisdictions to perform field testing on the comprehensive model, for a range of provisions including levies, before finalisation of any amendments to IAS 37.

28 The Secretariat’s view does not support a piecemeal approach (e.g. field testing the proposals related to the transfer condition only) as it is difficult to assess the consequences of the overall model application. Proposed comprehensive indicative drafting from the IASB would facilitate appropriate field testing.

Questions for the Board

1 Do Board Members have views regarding the IASB tentative decision to retain the proposal of adding an explicit transfer condition in IAS 37?

2 Do Board Members have views on the IASB tentative decision to expand paragraph 14L of the ED to explain more fully the difference between an obligation to transfer an economic resource and an obligation to exchange economic resources (as reflected in the proposed illustrative drafting presented in Annex 1)?

3 Do Board Members have views regarding the IASB tentative decisions in relation to stakeholders’ requests for further application guidance on:

1. asset decommissioning and environmental rehabilitation obligations; and/or
2. application of the transfer condition to levies?

Next steps

29 At upcoming meetings, the IASB will be asked to reconsider the remaining aspects of the ED 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.

30 Based on the IASB’s current work plan a decision on the overall project direction is expected in June 2026.

31 The Secretariat plans to present a UKEB paper on the accounting for levies at the UKEB June 2026 meeting, which will consider the IASB redeliberation held at the IASB May 2026 meeting.

Annex 1: IASB’s staff proposed illustrative drafting for amending the Exposure Draft proposals on the transfer condition

In February 2026⁹, the IASB staff presented the following indicative drafting proposing amendments to the Exposure Draft paragraph 14L, and suggesting an additional paragraph 14LA:

14L An obligation to exchange economic resources with another party (for example, to pay cash to another party in exchange for receiving goods or services from that other party) combines an obligation to transfer one economic resource to that party with a right to receive another economic resource from that party. The combined right and obligation constitute is not an obligation to transfer an economic resource to that party unless only if the terms of the exchange are unfavourable to the entity. Accordingly, the obligations arising under an executory contract—for example, a contract to receive goods in exchange for paying cash— are not obligations to transfer an economic resource unless only if the contract is onerous. 14LA For an entity to have an obligation to exchange economic resources with another party, transferring an economic resource to that other party must give the entity a right to receive an economic resource from the other party. It is not sufficient that transferring the economic resource to the other party could lead to other forms of economic benefit for the entity. For example, a statutory obligation to rehabilitate land would be an obligation to exchange economic resources if the statute granted an entity new rights over the land in exchange for rehabilitating it. It would not be sufficient that rehabilitating the land could increase the value of the entity’s existing rights over the land or enhance the entity’s reputation.

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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);

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

UKEB meeting – 26 March 2026, Agenda Paper 4 Provisions – Targeted Improvements.

those outflows of resources that are within the scope of other Standards (such as income taxes that are within the scope of IAS 12 Income Taxes); and

fines or other penalties that are imposed for breaches of the legislation.”