6 Provisions—Targeted Improvements

25 June 2026 Agenda Paper 6 OFFICIAL - PUBLIC

Executive Summary

Project Type

Influencing

Project Scope

Moderate

Purpose of the paper

The purpose of this paper is to present a comprehensive view of the proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and seek Board Members' views on the IASB's project Provisions—Targeted Improvements including:

• the UKEB Secretariat's preliminary technical analysis (Appendix A);
• the IASB redeliberation in May 2026 (Appendix B); and
• the proposed amendments to IAS 37, as of May 2026 (Appendix C).

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.

At its May 2026 meeting, the IASB's redeliberation focused on the accounting for levies.

The IASB's work plan indicates a decision on project direction is expected in June 2026.

At its May 2026 meeting, the UKEB requested a paper setting out the extent of IASB tentative decisions, an indication of the expected changes to the Standard (IAS 37) arising from those decisions, and a technical analysis of the likely impact. This paper provides all three (see Appendices A, B and C) and seeks the Board's views on the IASB's proposed changes.

Questions for the Board

1. On the technical analysis presented in Appendix A, do Board Members:
   1. Agree with the Secretariat's preliminary technical analysis and observations?
   2. Foresee potential unintended consequences likely to arise from the proposed change to the definition of 'levy'?
   3. Have any specific aspects of the IASB proposals they would like the Secretariat to further analyse?
2. Do Board Members have views regarding any of the IASB tentative decisions made in May 2026 (as listed below and further explained in Appendix B)?
3. Do Board Members have questions or comments about the full package of proposed amendments to IAS 37 as of May 2026, presented in Appendix C?

Recommendation

Not applicable.

Appendices

• Appendix A Secretariat's preliminary technical analysis
• Appendix B IASB redeliberation – May 2026
• Appendix C Proposed amendments to IAS 37 (as of May 2026)

Secretariat's preliminary technical analysis

1As requested by the Board, this paper sets out a comprehensive view as of May 2026, of the proposed amendments to IAS 37.

2The Secretariat has considered the application of the IASB proposals, including the tentative decisions made at the May 2026 meeting, to certain real life fact patterns relevant to the UK (presented as Appendix A).

3At this point, the Secretariat's preliminary technical analysis is based largely on desk-based research, as we have not yet had the opportunity to discuss with UK stakeholders. It has been prepared to facilitate the Board analysis and discussion of the IASB proposals.

4The Secretariat's preliminary technical analysis is work in progress; it is not meant to reach definite conclusions at this stage but to identify specific aspects of the IASB proposals where further analysis might be useful.

Question for the Board

1. On the technical analysis presented in Appendix A, do Board Members:
   1. Agree with the Secretariat's preliminary analysis and observations?
   2. Foresee potential unintended consequences likely to arise from the proposed change to the definition of 'levy'?
   3. Have any specific aspects of the IASB proposals they would like the Secretariat to further analyse?

IASB redeliberation – May 2026

5Appendix B provides details on the redeliberation at the IASB's May 2026 meeting, which focused on the accounting for levies.

6In summary, the IASB tentatively decided:

1. To make the constraining presumption¹ non-rebuttable.
2. To express the resulting application requirements for levies as:
   1. a general requirement; and
   2. a supporting principle.
3. To omit from IAS 37 the requirement proposed in paragraph 14Q of the Exposure Draft.

Question for the Board

1. Do Board Members have views regarding any of the IASB tentative decisions made in May 2026 (as listed above and further explained in Appendix B)?
2. Do Board Members have questions or comments about the full package of proposed amendments to IAS 37 as of May 2026, presented in Appendix C?

Proposed amendments to IAS 37 (as of May 2026)

7With the objective of presenting the Board with a comprehensive view of the amendments to IAS 37 proposed by the IASB as of May 2026, the Secretariat has prepared a black lined version of IAS 37 (see Appendix C), which is based on our understanding of IASB's tentative decisions so far.

8That document highlights the amendments added subsequent to the publication of the IASB's ED and includes 'comments' providing some reference information (e.g. the date of the relevant IASB redeliberation).

9For the avoidance of doubt, Appendix C is not IFRS authoritative text and it has been prepared for illustrative purposes only with the sole objective of facilitating the UKEB's work. It has been developed based on publicly available information (including IASB staff papers and indicative wording when available) which is subject to change. [Note: IASB staff's indicative wording is not subject to IASB's approval]

Next Steps

10The IASB will be asked at a future meeting to decide the project direction, including whether to undertake further work before making a final decision on the possible application requirements. The IASB's work plan indicates that a decision on project direction is expected in June 2026.

11On Monday 22 June 2026, the IASB is expected to discuss a plan for completing the technical decisions², which includes:

1. asking the IASB to discuss feedback on aspects of the proposals it has not yet redeliberated (note: the IASB staff does not foresee any major new issues emerging when the IASB redeliberates them); and
2. performing further testing of the draft application requirements for levies (consulting IFRS specialists at the large accounting firms) with a view to obtaining reassurance that these requirements would have no major unintended consequences.

12The IASB staff's agenda paper³ for the June 2026 meeting also notes:

1. After receiving the feedback from the specialists, the IASB could consult the ASAF on any refinements suggested by the specialists. The IASB could then decide whether to refine aspects of the application requirements in the light of the feedback from the specialists.
2. When the IASB has completed its technical decisions on the amendments to IAS 37, it will perform the due process steps required by their due process⁴, which include:
   1. conducting an overall assessment of the likely effects (benefits and costs) of the amendments;
   2. reviewing the adequacy of the due process followed in developing them; and
   3. assessing whether there is a need for re-exposure.

13The 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.

Appendix A: Secretariat's preliminary technical analysis

Disclaimer: This document reflects the UKEB Secretariat's preliminary understanding of key aspects of the levies presented in this Appendix and the IASB's proposed amendments to IAS 37 (including IASB tentative decisions made up to May 2025) prepared to facilitate the Board's analysis and discussion of the IASB's proposals. The Secretariat's assessment is ongoing and subject to further refinement.

Purpose

A1This Appendix sets out a preliminary technical analysis of the IASB's proposals (presented in Appendix C) including the tentative decisions made by the IASB in May 2026 (presented in Appendix B) by reference to certain examples. The UKEB Secretariat has considered the application of the proposals to the following real life fact patterns relevant to some UK entities:

1. The UK Digital Services Tax (see paragraphs A5-A14).
2. The Bank of England Levy (see paragraphs A15-A29).

A2Additional observations from the Secretariat on the overall impact of the proposals is also included in this paper (see paragraphs A30-A34).

A3The Secretariat's preliminary technical analysis is based on desk-based research, and we have not yet had the opportunity to discuss with UK stakeholders. It has been prepared to facilitate the Board's analysis and discussion of the IASB proposals.

A4The Secretariat's preliminary technical analysis is work in progress; it is not meant to reach definite conclusions at this stage but to identify specific aspects of the IASB proposals where further analysis might be needed.

UK Digital Services Tax

Background5

A5The UK Digital Services Tax (DST) is a tax levied at the rate of 2% on revenues earned in the accounting period from the provision of social media, search engine, and online marketplace services to UK users.

A6The UK's DST is paid by groups that:

1. generate over £500 million in global revenues from these services in the accounting period⁶; and
2. more than £25 million of those revenues (in the accounting period) are from user-related activities in the UK.

Both thresholds must be met before a group is chargeable to the UK's DST.

A7To mitigate the impact on businesses with low profit margins, an alternative basis for charge is available. [For simplification purposes, the alternative basis is not further considered in this document].

A8The UK's DST is deductible for corporation tax purposes subject to normal corporation tax rules and, in most cases, companies are allowed to deduct DST as an expense against their taxable profits.

A9Whilst the UK's DST is calculated based on the group's total revenues, the liability falls on the individual members of the group. Once the threshold conditions are satisfied, each member of the group is liable to DST. The DST liability of an individual member of the group in respect of the accounting period is the appropriate proportion of the group amount.

A10The UK's DST in respect of an accounting period is due and payable on the day following the end of 9 months from the end of the accounting period⁷.

A11In recognition that other countries have implemented similar taxes to the UK's DST, the tax is designed to provide some relief on cross-border transactions. More specifically the tax charge is reduced by 50% when the other party in respect of a marketplace transaction is normally located in a country that operates a similar tax to the UK's DST. To assist groups in understanding which revenues may be entitled to the relief, HMRC has published a non-definitive list of similar taxes.

Preliminary accounting analysis

A12The UK's DST is a tax on revenue (and not taxable profits), as a result, it is not in the scope of IAS 12 Income Taxes, but is in scope of IAS 37.

A13Even though the UK's DST is not referred to in the legislation as a levy, in the Secretariat's view, under the proposed amendments to IAS 37 it meets the proposed new definition of 'levy'.

A14The following table presents a preliminary analysis of the proposed present obligation recognition criterion (and related application requirements for levies) to the UK's DST. The table below does not present an analysis of the probable outflow of resources criterion (IAS 37.14(b) or the reliable measurement criterion (IAS 34.14(c), as those are not the focus of the targeted amendments to IAS 37.

Bank of England Levy

Background

A15The purpose of the Bank of England Levy (the BoE Levy) is to recover the amounts required by the Bank of England in connection with the funding of its policy functions in pursuit of its Financial Stability⁸ and Monetary Policy⁹ objectives.

A16The BoE Levy is paid by eligible institutions, including banks and building societies, if they have an average of eligible liabilities greater than £600 million in the Reference Period. An 'eligible institution¹⁰” is a person who, at any time during a levy year, is an authorised deposit-taker. The Reference Period is the period from 1 October to 31 December prior to the start of that BoE Levy Year.

A17The BoE Levy Year is the 12-month period beginning on 1 March in one calendar year to the last day of February in the following calendar year.

A18The BoE Levy is charged annually, based on the Bank of England's projection for its annual policy costs (the Anticipated Levy Requirement) and subject to certain (true-up) adjustments. [For simplification purposes, the effect of true-up adjustments is not further considered in this document].

A19The BoE Levy is applied on a proportional basis. The Bank of England allocates the policy costs to be recovered by the Levy in proportion to an eligible institution's liability base. The policy rationale for using the eligible liability base is the link between the size of a financial institution's liabilities and its potential impact on the Bank of England's financial stability and monetary policy functions. The corresponding invoice is then submitted to eligible institutions in the Summer of the Levy Year (see illustrative timeline below).

A20The contribution of an eligible institution to the Levy is calculated using eligible liability data for the Reference Period.

A21Where an institution has become an eligible institution during the Reference Period, the Bank may use such other period of no more than three months as the Bank of England thinks fit.

A22Should an institution become eligible because its eligible liabilities go above £600 million after the eligible liabilities data has been collected for the Levy Year¹¹, and the total Levy amount has already been determined, the Levy will be payable by that eligible institution from the following Levy Year.

A23Under BoE Levy Terms and Conditions clause 12.1, if a Levy Payer ceases to be an eligible institution during a Levy Year, the Levy Payer's invoice for that Levy Year is payable in accordance with clause 4. It is our understanding, therefore, that the Levy Payer is required to pay the obligation for that Levy Year in full.

A24The timeline for the 2024/25 Levy Year can be illustrated as follows:

Preliminary accounting analysis

A25In this assessment, the Secretariat has assumed that the Bank of England would be considered a 'similar body' for purposes of meeting the definition of 'government'.

A26It is the Secretariat's understanding that the BoE Levy represents a contribution from entities in respect of their potential impact on the Bank of England's financial stability and monetary policy functions. On the face of it, entities paying the levy receive no economic resources from the Bank of England directly in exchange for the payment.

A27Further, it is our understanding that the BoE Levy is charged for a full levy year, even if a Levy Payer ceased to be an eligible institution during the Levy Year (see above), therefore, this seems to support a preliminary conclusion that the nature of the obligation is that of a 'non-reciprocal' charge as the entity does not receive anything in exchange for the portion of the payment related to the period it no longer qualifies as an eligible institution.

A28Based on the above, in the Secretariat's view the BoE Levy would meet the proposed new definition of levy.

A29The following table presents a preliminary analysis of the proposed present obligation recognition criterion (and related application requirements for levies) to the BoE Levy. The table below does not present an analysis of the probable outflow of resources criterion (IAS 37.14(b) or the reliable measurement criterion (IAS 34.14(c), as those are not the focus of the targeted amendments to IAS 37.

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Footnotes:

A30In the context of revenue-based levies, and more specifically those subject to specified thresholds, we consider the proposed amendment to IAS 37 would result in an accounting outcome that seems sensible. Although the proposals might increase the level of estimation uncertainty as part of the assessment of the present obligation recognition criterion, in reaching a conclusion on whether a provision should be recognised, an entity would also need to consider whether the probable outflow criterion (IAS 37 14(B) and reliable estimate criterion (IAS 17 14(c) were met. [Refer to the Secretariat's preliminary technical analysis of the UK Digital Services Tax above.]

A31For other types of levies, it is not so clear whether the proposed application requirements for levies would result in an improvement compared to current practice in all circumstances. In the IASB's view, for certain levies the accounting treatment resulting from applying the presumption might not be perfect, but it would be the same as the current accounting treatment under IFRIC 21[^14]. In the Secretariat's view:

1. The outcome of applying the proposed requirements for certain levies that are triggered by two or more actions/activities, would not automatically result in the same outcome as the current accounting treatment under IFRIC 21. As noted in our analysis of the Bank of England Levy above, for such a levy there are two possible accounting outcomes depending on management's judgement of the 'relevant activity' (as per proposed paragraph 83H). This creates a potential risk of increased diversity in practice.
2. If the IASB was to proceed with the finalisation of the proposed application requirements for levies, the Secretariat considers that additional disclosure should be required for entities to explain the judgement made in their assessment of the 'relevant activity', so that users of financial statements understand whether a provision for the same levy is comparable across different entities.

A32As a result of the work performed so far, in the Secretariat's view it would be important that the IASB allows sufficient time for stakeholders to test the proposals before making a decision on finalisation of amendments to IAS 37.

A33Further aspects that may need detailed exploration include:

1. The potential implications of the proposed new definition of 'levy'[^15] .
2. The revised proposed obligation and transfer conditions (as redeliberated in December 2025 and February 2026), with a focus on the application for non-levy obligations.
3. Intended interaction of different aspects of the IASB proposals.

Preliminary views of members of some UKEB's Advisory Groups

A34Advisory Group members considered the IASB tentative decisions made on 18 May 2026 and shared the following views:

1. On 9 June 2026, the Accounting Firms and Institutes Advisory Group (AFIAG) members' comments included:
   1. Mixed reactions in relation to omitting proposed paragraph 14Q (see more details in Appendix B). There was overall support but some questioned whether there will be a direct link between the proposed principles in the standard and the proposed new application requirements for levies.
   2. Concerns about a potential need to interpret government and public bodies' objectives and a risk of potential increase in diversity in practice.
2. On 15 June 2026, the Preparer Advisory Group (PAG) members' comments included:
   1. Questioned whether the IASB would define economic benefit/activity and highlighted the risk of different entities identifying different benefits/activities for the same levy. There is scope for potential interpretation and increased diversity.
   2. Raised concerns about the level of judgement required from entities to identify the 'relevant' benefit/activity the government is seeking to levy.
   3. Questioned the potential interaction of this project and the IASB's work in relation to ‘Presentation of Taxes or Other Charges that Are Not Tax Expense or Tax Income Applying IAS 12 Income Taxes (IFRS 18)'.

Appendix B: IASB redeliberation – May 2026

Purpose

B1This appendix summarises the IASB redeliberation at its May 2026 meeting (including some background information) and seek Board Members' views on the tentative decisions made by the IASB, in relation to the accounting for levies.

Background

Provisions - Recognition criteria

B2Paragraph 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.

B3One aspect of the IASB's ED is the proposed amendments to the 'present obligation recognition' criterion. 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.

B4The past-event condition, as proposed in the IASB's ED, would change the timing of recognition of some levies. The ED proposed that if a requirement to pay a levy is a consequence of taking two or more actions, the past-event condition could be met when the entity has taken any of the actions, not only when it has taken all the actions (as per IFRIC 21). The proposed past event condition has been subject to significant stakeholder feedback and is the focus of this Appendix.

Past-event condition – Application requirements for levies

B5For context, a brief overview of the current accounting requirements, the proposals in the IASB's ED (in relation to the accounting for levies) and the views in the UKEB Comment Letter to the IASB, are presented in the table below.

B6At its February 2026 meeting, the IASB tentatively decided to supplement the 'past-event condition' proposed in the Exposure Draft with application requirements for levies. The model for these requirements would:

1. specify a principle – the economic benefit or action that meets the past-event condition for recognising a levy is the economic benefit or activity the government is seeking to levy; and
2. support this principle with a constraining presumption – the economic benefit or activity the government is seeking to levy will be one of those required by the levy legislation[^17] for the levy to be payable.

B7In May 2026, the IASB was asked to make further tentative decisions necessary to complete the model for the possible application requirements for levies.

B8Further details, including the three IASB tentative decisions made at its May 2026 meeting, are presented in the following paragraphs.

Whether the presumption should be rebuttable in some circumstances

B9In March 2026, the IASB asked members of the IASB's Accounting Standards Advisory Forum (ASAF) for feedback on the possible application requirements for levies, which the IASB had discussed in February 2026.

B10The UKEB (and four National and Regional Standard Setters[^18]) did not comment specifically on whether the constraining presumption should be rebuttable. However, all expressed more general concerns that the requirements still seemed too complex and the full consequences of the requirements for both current and future levies are unclear. They noted that IFRIC 21, although not perfect, is at least clear.

B11In response to that feedback, one National Standard Setter[^19] noted that the proposals represent a reasonable step forward; in their view it is unrealistic to expect new requirements to address all levies and eliminate all diversity. Another National Standard Setter[^20] observed that although outcomes might not change for many levies, the requirements would provide a better basis on which to recognise over time some levies that are currently recognised at a point in time; in their view that would not necessarily require a lot of additional work.

B12On the question of whether the presumption should be rebuttable, the views of the ASAF members that commented on the topic were mixed[^21].

B13In May 2026, the IASB staff presented arguments in support of either a rebuttable or a non-rebuttable presumption, including:

1. In support of a rebuttable presumption, it could be argued that:
   1. an ability to rebut could be perceived as more principle-based, would provide a faithful representation of the economics of the levy;
   2. although it would add more complexity, it could be minimised by permitting, but not requiring, rebuttal of the presumption; and
   3. although it would create a theoretical risk of diversity in application (especially if rebuttal is permitted without being required), the risk might be low in practice. In their view, setting conditions for rebuttal would limit the levies that could be rebutted and current practice for sector-specific levies is that a sector-wide consensus is typically sought.
2. In support of a non-rebuttable presumption, it could be argued that:
   1. it would be consistent with the general past-condition proposed in paragraph 14N of the Exposure Draft, reducing any pressure on the definition of a levy and any risk of unintended consequences;
   2. it would be less complex and less subjective compared to a rebuttable presumption; and
   3. the potential benefits of a rebuttable presumption could be marginal. The IASB is only aware of a handful of current levies where there is a clear disconnect between the economic benefit or activity required by the levy legislation for the levy to be payable and the economic benefit or activity the government is seeking to levy. In the IASB's view, for each of these levies, the accounting treatment resulting from applying the presumption might not be perfect, but it would be the same as the current accounting treatment under IFRIC 21.

B14At its May 2026 meeting, the IASB tentatively decided to make the constraining presumption non-rebuttable.

How to express requirements that include a non-rebuttable presumption

B15At its February 2026 meeting, the IASB had tentatively decided to supplement the past-event condition proposed in the Exposure Draft with application requirements for levies that would specify a principle supported by a constraining presumption. Further details on this proposed approach were presented to the Board in the UKEB March 2026 Agenda Paper 4 - Provisions - Targeted Improvements, paragraphs 9-18.

B16As a result of the IASB's tentative decision in May 2026 to make the constraining non-rebuttable, it was noted that a non-rebuttable presumption is essentially a requirement. Therefore, in May 2026 the IASB tentatively decided to instead express the resulting application requirement as:

1. a general requirement – the past event condition is met when an entity has obtained the economic benefit or conducted the activity required by levy legislation for a levy to be payable (the relevant economic benefit or activity); and
2. a supporting principle – if more than one economic benefit or activity is required for a levy to be payable, the relevant economic benefit or activity is the one that best reflects the economic benefit or activity the government is seeking to levy.

B17The IASB expects that:

1. A preparer would need to identify the activity the government is seeking to levy only in cases where more than one economic benefit or activity is required for a levy to be payable.
2. In those cases, the preparer would be required only to select one economic benefit or activity from among those required by the levy legislation for the levy to be payable.
3. The 'best reflects' notion (included in the proposed supporting principle above) would clarify how to apply the requirements if none of the economic benefits or activities required for the levy to be payable exactly matches the one the government is seeking to levy.

B18The IASB staff's Agenda Paper 22C presented indicative wording which shows how the proposed general requirement and supporting principle could be drafted. The agenda paper also presented five indicative Illustrative Examples. The drafting was presented for indicative purposes only. IASB members were not asked to approve the drafting at the meeting.

B19The fact pattern in Illustrative Example 3 'A digital services levy' is broadly similar to the UK Digital Services Tax and Illustrative Example 5 'A central bank levy' is broadly similar to the Bank of England Levy. [Refer to the Secretariat's preliminary analysis of these levies in Appendix A.]

Consequences for proposed paragraph 14Q in the Exposure Draft

B20Paragraph 14Q proposed for inclusion in IAS 37 in the Exposure Draft is reproduced below:

"In some situations, an entity has an obligation to transfer an economic resource only if it takes two (or more) separate actions, and the requirement to transfer an economic resource is a consequence of taking both (or all) these actions. In such situations, the past-event condition is met when the entity has taken the first action (or any of the actions) and has no practical ability to avoid taking the second action (or all the remaining actions).”

B21The IASB May 2026 Agenda Paper 22B paragraph 12 indicates that the proposed paragraph 14Q is applied in two ways in the Exposure Draft:

1. in determining the proposed accounting treatment for levies; and
2. in expressing why the proposed amendments to IAS 37 do not change existing IAS 37 requirement for restructuring provisions.

Paragraph 14Q in determining the proposed accounting treatment for levies

B22In the IASB staff's view, the main application of paragraph 14Q in the Exposure Draft is in specifying how to apply the past-event condition to levies. Examples 13A and 13B in the Proposed amendments to Guidance on implementing IAS 37 involve fact patterns in which an entity is required to pay a levy only if it conducts two separate activities. The analysis in those examples refers to paragraph 14Q.

B23The recent IASB tentative decisions to define the term levy to include only non-reciprocal charges[^22] (February 2026) and to add application requirements for levies as described above (May 2026) created a possible tension with the requirements in proposed paragraph 14Q. See red text in table below.

Source: IASB May 2026 Agenda Paper 22B, paragraph 16.

Paragraph 14Q in explaining the proposed requirements for restructuring provisions

B24The existing application requirements for restructuring costs are set out in paragraphs 72 and 80 of IAS 37:

1. Paragraph 72 requires that an entity:
   1. has a detailed formal plan for the restructuring; and
   2. has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.
2. Paragraph 80 restricts the costs included in the provision to those that are:
   1. necessarily entailed by the restructuring; and
   2. not associated with the ongoing activities of the entity.

B25In the IASB staff's view, a secondary use of paragraph 14Q in the Exposure Draft is in explaining why the amendments to IAS 37 would not change the existing requirements for restructuring provisions.

B26The explanation is presented in the Basis for Conclusions (BC50 and BC51) to the Exposure Draft. Although the explanation does not refer explicitly to paragraph 14Q, it relies on the logic of that paragraph:

1. if a requirement to transfer an economic resource is a consequence of taking two or more separate actions (for example, employing people and then making them redundant);
2. the past-event condition is met when the entity has taken any of the actions (employing people) and has no practical ability to avoid the remaining actions (making them redundant).

B27If paragraph 14Q is omitted, an alternative explanation could be that:

1. the relevant action that meets the past-event condition for a restructuring cost is the implementation of a restructuring plan that triggers the payment of that cost;
2. the requirements in paragraph 72 of IAS 37 are a practical means of identifying the point of implementation and ensuring that all the costs of the restructuring are recognised at the same time (providing useful information to users of financial statements); and
3. the requirements in paragraph 80 ensure that the provision includes only obligations that meet the transfer condition. By excluding obligations 'associated with the ongoing activities of the entity', paragraph 80 excludes obligations to exchange (as opposed to transfer) economic resources.

B28The IASB tentatively decided to omit the requirement proposed in paragraph 14Q of the Exposure Draft.

Secretariat's observations

B29As noted in the UKEB's comment letter, the proposed requirements lacked clarity, in particular when applying the requirement proposed in paragraph 14Q and the potential interaction with other requirements within the Standard. The Secretariat therefore welcomes the IASB's tentative decision to omit from IAS 37 the requirement proposed in paragraph 14Q; however, further work is needed to assess whether there could be unintended consequences, for example, for non-levy obligations.

B30Refer to Appendix A for the Secretariat's observations in relation to the application of the proposed requirements for levies.

Appendix C: Proposed amendments to IAS 37 (as of May 2026)

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 Assets[^23].

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:
3. the costs an entity includes in estimating the future expenditure required to settle its present obligation; and
4. 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

1. 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 redeliberation[^24].

International Accounting Standard 37

Provisions, Contingent Liabilities and Contingent Assets

Objective

The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount.

Scope

1This Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except:

1. those resulting from executory contracts, except where the contract is onerous; and
2. [deleted]
3. those covered by another Standard.

2This Standard does not apply to financial instruments (including guarantees) that are within the scope of IFRS 9 Financial Instruments.

3An executory contract is a contract, or a portion of a contract, that is equally unperformed-Executory contracts are contracts under which neither party has fulfilled performed any of its obligations or both parties have partially fulfilled performed their obligations to an equal extent. This Standard does not apply to executory contracts unless they are onerous.

4[Deleted]

5When another Standard deals with a specific type of provision, contingent liability or contingent asset, an entity applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on:

1. [deleted]
2. income taxes (see IAS 12 Income Taxes);
3. leases (see IFRS 16 Leases). However, this Standard applies to any lease that becomes onerous before the commencement date of the

lease as defined in IFRS 16. This Standard also applies to short-term leases and leases for which the underlying asset is of low value accounted for in accordance with paragraph 6 of IFRS 16 and that have become onerous;

employee benefits (see IAS 19 Employee Benefits);

insurance contracts and other contracts within the scope of IFRS 17 Insurance Contracts,

contingent consideration of an acquirer in a business combination (see IFRS 3 Business Combinations); and

revenue from contracts with customers (see IFRS 15 Revenue from Contracts with Customers). However, as IFRS 15 contains no specific requirements to address contracts with customers that are, or have become, onerous, this Standard applies to such cases.

6[Deleted]

7This Standard defines provisions as liabilities of uncertain timing or amount. In some countries the term 'provision' is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard.

8Other Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requires capitalisation of the costs recognised when a provision is made.

9This Standard applies to provisions for restructurings (including discontinued operations). When a restructuring meets the definition of a discontinued operation, additional disclosures may be required by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Definitions

10The following terms are used in this Standard with the meanings specified:

A provision is a liability of uncertain timing or amount.

A liability is a present obligation of the entity to transfer an economic resource as a result of arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. ¹

An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.

A legal obligation is an obligation that derives from:

1. a contract (through its explicit or implicit terms);
2. legislation; or
3. other operation of law.

A constructive obligation is an obligation that derives from an entity's actions where:

1. by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and
2. as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

A contingent liability is:

1. a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
2. a present obligation that arises from past events but is not recognised because:
   1. it is not probable that the entityan outflow of resources embodying economic benefits will be required to transfer an economic resource to settle the obligation; or
   2. the amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

A restructuring is a programme that is planned and controlled by management, and materially changes either:

1. the scope of a business undertaken by an entity; or
2. the manner in which that business is conducted.

A levy is a non-reciprocal charge that a government imposes on entities that obtain a specific economic benefit or conduct a specific activity.

A government is a government, government agency or similar body whether local, national or international.

Provisions and other liabilities

11Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement. By contrast:

1. trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and
2. accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions.

Accruals are often reported as part of trade and other payables, whereas provisions are reported separately.

Relationship between provisions and contingent liabilities

12In a general sense, all provisions are contingent because they are uncertain in timing or amount. However, within this Standard the term 'contingent' is used for liabilities and assets that are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. In addition, the term 'contingent liability' is used for liabilities that do not meet the recognition criteria.

13This Standard distinguishes between:

1. provisions which are recognised as liabilities (assuming that a reliable estimate can be made) because they are present obligations and it is probable that the entityan outflow of resources embodying economic benefits will be required to transfer economic resources to settle the obligations; and
2. contingent liabilities - which are not recognised as liabilities because they are either:
   1. possible obligations, as it has yet to be confirmed whether the entity has a present obligation that could lead to the transfer of an economic resourcean outflow of resources embodying economic benefits; or
   2. present obligations that do not meet the recognition criteria in this Standard (because either it is not probable that the entityan outflow of resources embodying economic benefits will be required to transfer an economic resource to settle the obligation, or a sufficiently reliable estimate of the amount of the obligation cannot be made).

Recognition

Provisions

14A provision shall be recognised when three criteria are met:

1. an entity has a present obligation (legal or constructive) to transfer an economic resource as a result of a past event (paragraphs 14A-16);
2. it is probable that the entity an outflow of resources embodying economic benefits will be required to transfer an economic resource to settle the obligation (paragraphs 23-24); and
3. a reliable estimate can be made of the amount of the obligation (paragraphs 25-26).

If any of these criteria conditions are not met, no provision shall be recognised.

Present obligation recognition criterion

14AThe first criterion for recognising a provision (paragraph 14(a)) is that an entity has a present obligation (legal or constructive) to transfer an economic resource as a result of a past event. This criterion (the present obligation recognition criterion) comprises three conditions:

1. an obligation condition—the entity has an obligation (paragraphs 14B–14H);
2. a transfer condition—the nature of the entity’s obligation is to transfer an economic resource (paragraphs 14I–14L); and
3. a past-event condition—the entity’s obligation is a present obligation that exists as a result of a past event (paragraphs 14M–14U).

Obligation condition (paragraph 14A(a))

14BThe first condition for meeting the present obligation recognition criterion is that the entity has an obligation. An entity has an obligation if:

1. a mechanism is in place that imposes a responsibility on the entity if it obtains specific economic benefits or takes a specific action;
2. the entity owes that responsibility to another party; and
3. the entity has no practical ability to avoid discharging the responsibility if it obtains the specific economic benefits or takes the specific action.

14CThe mechanism imposing a responsibility could be:

1. legal—a contract (through its explicit or implicit terms), legislation or other operation of law; or
2. constructive—the entity’s established pattern of past practice, its published policies or a sufficiently specific current statement.

14DThe economic benefits the entity obtains could be, for example, cash, goods or services. The action the entity takes could be, for example, operating in a specific market, causing environmental damage or other harm to another party, owning specific assets on a specific date, or constructing an asset that will need to be decommissioned at the end of its useful life.

14E[Derives from first part of former paragraph 20] An obligation is always owed to another party. It is not necessary for an entity to know the identity of the party to whom the obligation is owed. The other party could be a person or another entity, a group of people or other entities, or society at large.

14FAn entity has no practical ability to avoid discharging a responsibility:

1. in the case of a legal obligation, if either:
   1. the responsibility is legally enforceable—that is, the counterparty has a right to ask a judicial body to force the entity to discharge the responsibility or to pay a penalty or compensation for failing to do so; or
   2. the counterparty has a right to take another form of action against the entity for failing to discharge the responsibility and, as a result, the economic consequences for the entity of not discharging the responsibility are expected to be significantly worse than the costs of discharging it; or
2. in the case of a constructive obligation, if the entity’s pattern of past practice, published policy or sufficiently specific current statement creates valid expectations in other parties that the entity will discharge the responsibility.

14G[Derives from former paragraph 22] If details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted as drafted. In this Standard, such an obligation is treated as a legal obligation. Variations in circumstances surrounding enactment make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted.

14H[Derives from second part of former paragraph 20] An obligation requires an entity to have no practical ability to avoid discharging a responsibility. Therefore, a management or board decision does not give rise to a constructive obligation at the end of the reporting period unless the decision has been communicated before the end of the reporting period to those affected by it in a sufficiently specific manner to create a valid expectation in those affected that the entity will discharge its responsibility.

Transfer condition (paragraph 14A(b))

14IThe second condition for meeting the present obligation recognition criterion is that the nature of the entity’s obligation is to transfer an economic resource. To meet this condition, the obligation must have the potential to require the entity to transfer an economic resource to another party.

14JFor that potential to exist, it does not need to be certain, or even likely, that the entity will be required to transfer an economic resource—the transfer may, for example, be required only if a specified uncertain future event occurs.

14KConsequently, the probability of a transfer does not affect whether an obligation meets the present obligation recognition criterion—an obligation can meet that criterion even if the probability is low. However, the probability of a transfer could affect:

1. whether the obligation meets one of the other criteria for recognising a provision—a provision is recognised only if it is probable (more likely than not) that the entity will be required to transfer an economic resource to settle the obligation (see paragraphs 14(b) and 23); and
2. whether the entity discloses a contingent liability if the obligation does not meet all the criteria for recognising a provision (see paragraph 23).

14LAn 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 an obligation to transfer an economic resource only if the terms of the exchange are unfavourable to the entity. Accordingly, the obligations arising under an executory contract are obligations to transfer an economic resource only if the contract is onerous. 14LAFor 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.

Past-event condition (paragraph 14A(c))

14MThe third condition for meeting the present obligation recognition criterion is that the entity’s obligation is a present obligation that exists as a result of a past event. 14NAn entity’s obligation becomes a present obligation that exists as a result of a past event when the entity:

1. has obtained specific economic benefits or taken a specific action, as described in paragraphs 14B and 14D; and
2. as a consequence of having obtained those benefits or taken that action, will or may have to transfer an economic resource it would not otherwise have had to transfer.

14OIf the economic benefits are obtained, or the action is taken, over time, the past-event condition is met, and the resulting present obligation accumulates, over that time. 14PIn some situations, an entity has an obligation to transfer an economic resource only if a measure of its activity in a period (the assessment period) exceeds a specific threshold. In such situations, the action that meets the past event condition is the activity that contributes to the total activity on which the amount of the transfer is assessed. At any date within the assessment period, the present obligation is a portion of the total expected obligation for the assessment period. It is the portion attributable to the activity carried out to date. The entity recognises a provision if the recognition criteria in paragraphs 14(b) and 14(c) are met—that is, if:

1. it is probable that the entity’s activity will exceed the threshold and the entity will be required to transfer an economic resource (see paragraph 14(b)); and
2. a reliable estimate can be made of the amount of the obligation (see paragraph 14(c)).

14QIn some situations, an entity has an obligation to transfer an economic resource only if it takes two (or more) separate actions, and the requirement to transfer an economic resource is a consequence of taking both (or all) these actions. In such situations, the past-event condition is met when the entity has taken the first action (or any of the actions) and has no practical ability to avoid taking the second action (or all the remaining actions). 14RA decision to prepare an entity’s financial statements on a going concern basis implies that the entity has no practical ability to avoid taking an action it could avoid only by liquidating the entity or by ceasing to trade.

Interactions between the obligation and past-event conditions

14SThe enactment of a new law is not in itself sufficient to create a present legal obligation for an entity. A present legal obligation arises only if, as a consequence of obtaining the economic benefits or of taking the action to which the law applies, the entity will or may have to transfer an economic resource it would not otherwise have had to transfer (see paragraph 14N). 14TSimilarly, having an established pattern of past practice, publishing a policy or making a statement is not in itself sufficient to create a present constructive obligation for an entity. A present constructive obligation arises only if, as a consequence of obtaining the economic benefits or of taking the action to which the practice, policy or statement applies, the entity will or may have to transfer an economic resource it would not otherwise have had to transfer (see paragraph 14N). 14U[Derives from former paragraph 21] An action of the entity that does not give rise to a present obligation immediately might do so at a later date, because a mechanism is introduced that imposes new responsibilities on the entity—a new law might be enacted, an existing law might be changed or the entity might establish a pattern of practice, publish a policy or make a statement that gives rise to a constructive obligation. For example, if an entity causes environmental damage, it might have no obligation to remedy the damage at the time of causing it. However, the causing of the damage will be the past event that has created a present obligation if, at a later date, a new law requires the existing damage to be rectified, or if the entity accepts responsibility for rectification in a way that creates a constructive obligation.

Uncertainty about whether the present obligation recognition criterion is met

15In rare cases it is not clear whether there is a present obligation to transfer an economic resource as a result of a past event. In these cases, such an obligation is deemed to exist a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that thea present obligation exists at the end of the reporting period.

16In almost all cases it will be clear whether a past event has given rise to a present obligation to transfer an economic resource. In rare cases, it is not clear—for example in a lawsuit, it may be disputed either whether specific certain events have occurred or whether those events result in a present obligation to transfer an economic resource. In such a case, an entity determines whether such ana present obligation exists at the end of the reporting period by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the reporting period. On the basis of such evidence:

1. where it is more likely than not that a present obligation to transfer an economic resource exists as a result of a past event at the end of the reporting period, the entity recognises a provision (if the recognition criteria are met); and
2. where it is more likely that no such present obligation exists at the end of the reporting period, the entity discloses a contingent liability, unless the possibility of the entity being required to transfer an economic resourcean outflow of resources embodying economic benefits is remote (see paragraph 86).

Past event

17[Replaced by paragraph 14F] A past event that leads to a present obligation is called an obligating event. For an event to be an obligating event, it is necessary that the entity has no realistic alternative to settling the obligation created by the event. This is the case only:

1. where the settlement of the obligation can be enforced by law; or
2. in the case of a constructive obligation, where the event (which may be an action of the entity) creates valid expectations in other parties that the entity will discharge the obligation.

18Financial statements deal with the financial position of an entity at the end of its reporting period and not its possible position in the future. Therefore, no provision is recognised for costs that need to be incurred to operate in the future. The only liabilities recognised in an entity’s statement of financial position are those that exist at the end of the reporting period.

19[Replaced by paragraphs 14N-14R] It is only those obligations arising from past events existing independently of an entity’s future actions (ie the future conduct of its business) that are recognised as provisions. Examples of such obligations are penalties or clean-up costs for unlawful environmental damage, both of which would lead to an outflow of resources embodying economic benefits in settlement regardless of the future actions of the entity. Similarly, an entity recognises a provision for the decommissioning costs of an oil installation or a nuclear power station to the extent that the entity is obliged to rectify damage already caused. In contrast, because of commercial pressures or legal requirements, an entity may intend or need to carry out expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a certain type of factory). Because the entity can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognised.

20[Renumbered as paragraphs 14E and 14H with edits] An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the obligation is owed—indeed the obligation may be to the public at large. Because an obligation always involves a commitment to another party, it follows that a management or board decision does not give rise to a constructive obligation at the end of the reporting period unless the decision has been communicated before the end of the reporting period to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will discharge its responsibilities.

21[Renumbered as paragraph 14U with edits] An event that does not give rise to an obligation immediately may do so at a later date, because of changes in the law or because an act (for example, a sufficiently specific public statement) by the entity gives rise to a constructive obligation. For example, when environmental damage is caused there may be no obligation to remedy the consequences. However, the causing of the damage will become an obligating event when a new law requires the existing damage to be rectified or when the entity publicly accepts responsibility for rectification in a way that creates a constructive obligation.

22[Renumbered as paragraph 14G] Where details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted as drafted. For the purpose of this Standard, such an obligation is treated as a legal obligation. Differences in circumstances surrounding enactment make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted.

Probable transfer of an economic resourceoutflow of resources embodying economic benefits

23For a liability to qualify for recognition there must be not only a present obligation but also the probability of the entity transferring an economic resourcean outflow of resources embodying economic benefits to settle that obligation. For the purpose of this Standard,² a transfer of an economic resourcean outflow of resources or other event is regarded as probable if the event is more likely than not to occur, ie the probability that the event will occur is greater than the probability that it will not. Where it is not probable that a present obligation exists, an entity discloses a contingent liability, unless the possibility of the entity transferring an economic resourcean outflow of resources embodying economic benefits is remote (see paragraph 86).

24Where there are a number of similar obligations (eg product warranties or similar contracts) the probability that a transferan outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of a transferoutflow for any one item may be small, it may well be probable that some transfersoutflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognised (if the other recognition criteria are met).

Reliable estimate of the obligation

25The use of estimates is an essential part of the preparation of financial statements and does not undermine their reliability. This is especially true in the case of provisions, which by their nature are more uncertain than most other items in the statement of financial position. Except in extremely rare cases, an entity will be able to determine a range of possible outcomes and can therefore make an estimate of the obligation that is sufficiently reliable to use in recognising a provision.

26In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognised. That liability is disclosed as a contingent liability (see paragraph 86).

Contingent liabilities

27An entity shall not recognise a contingent liability.

28A contingent liability is disclosed, as required by paragraph 86, unless the possibility of a transfer of an economic resourcean outflow of resources embodying economic benefits is remote.

29Where an entity is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability. The entity recognises a provision for the part of the obligation for which a transfer of an economic resourcean outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made.

30Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether a transfer of an economic resourcean outflow of resources embodying economic benefits has become probable. If it becomes probable that the entityan outflow of future economic benefits will be required to transfer an economic resource for an item previously dealt with as a contingent liability, a provision is recognised in the financial statements of the period in which the change in probability occurs

Contingent assets

31An entity shall not recognise a contingent asset.

32Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the entity. An example is a claim that an entity is pursuing through legal processes, where the outcome is uncertain.

33Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.

34A contingent asset is disclosed, as required by paragraph 89, where an inflow of economic benefits is probable.

35Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, an entity discloses the contingent asset (see paragraph 89).

Measurement

Best estimate

36The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

37The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time. It will often be impossible or prohibitively expensive to settle or transfer an obligation at the end of the reporting period. However, the estimate of the amount that an entity would rationally pay to settle or transfer the obligation gives the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

38The estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

39Uncertainties surrounding the amount to be recognised as a provision are dealt with by various means according to the circumstances. Where the provision being measured involves a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. The name for this statistical method of estimation is 'expected value'. The provision will therefore be different depending on whether the probability of a loss of a given amount is, for example, 60 per cent or 90 per cent. Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the mid-point of the range is used.

40Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability. However, even in such a case, the entity considers other possible outcomes. Where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount. For example, if an entity has to rectify a serious fault in a major plant that it has constructed for a customer, the individual most likely outcome may be for the repair to succeed at the first attempt at a cost of 1,000, but a provision for a larger amount is made if there is a significant chance that further attempts will be necessary.

Costs to include

40AThe expenditure required to settle an obligation comprises the costs that relate directly to the obligation. Costs that relate directly to an obligation consist of both:

1. the incremental costs of settling that obligation; and
2. an allocation of other costs that relate directly to settling obligations of that type.

41The provision is measured before tax, as the tax consequences of the provision, and changes in it, are dealt with under IAS 12.

Risks and uncertainties

42The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision.

43Risk describes variability of outcome. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgements under conditions of uncertainty, so that income or assets are not overstated and expenses or liabilities are not understated. However, uncertainty does not justify the creation of excessive provisions or a deliberate overstatement of liabilities. For example, if the projected costs of a particularly adverse outcome are estimated on a prudent basis, that outcome is not then deliberately treated as more probable than is realistically the case. Care is needed to avoid duplicating adjustments for risk and uncertainty with consequent overstatement of a provision.

44Disclosure of the uncertainties surrounding the amount of the expenditure is made under paragraph 85(b).

Present value

45Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation.

46Because of the time value of money, provisions relating to cash outflows that arise soon after the reporting period are more onerous than those where cash outflows of the same amount arise later. Provisions are therefore discounted, where the effect is material.

47The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s)

current market assessments of the time value of money, represented by a risk-free rate; and

risks surrounding the amount or timing of the expenditure required to settle the obligation (as described in paragraphs 42 43) if those risks are not reflected in the estimates of the future cash flowsthe risks specific to the liability. The discount rate(s) shall not reflect risks for which future cash flow estimates have been adjusted.

47AThe discount rate (or rates) does (do) not reflect non-performance risk—the risk that the entity will not settle the obligation.

Future events

48Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.

49Expected future events may be particularly important in measuring provisions. For example, an entity may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognised reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence as to the technology that will be available at the time of the clean-up. Thus it is appropriate to include, for example, expected cost reductions associated with increased experience in applying existing technology or the expected cost of applying existing technology to a larger or more complex clean-up operation than has previously been carried out. However, an entity does not anticipate the development of a completely new technology for cleaning up unless it is supported by sufficient objective evidence.

50The effect of possible new legislation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what legislation will demand and of whether it is virtually certain to be enacted and implemented in due course. In many cases sufficient objective evidence will not exist until the new legislation is enacted.

Expected disposal of assets

51Gains from the expected disposal of assets shall not be taken into account in measuring a provision.

52Gains on the expected disposal of assets are not taken into account in measuring a provision, even if the expected disposal is closely linked to the event giving rise to the provision. Instead, an entity recognises gains on expected disposals of assets at the time specified by the Standard dealing with the assets concerned.

Reimbursements

53Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

54In the statement of comprehensive income, the expense relating to a provision may be presented net of the amount recognised for a reimbursement.

55Sometimes, an entity is able to look to another party to pay part or all of the expenditure required to settle a provision (for example, through insurance contracts, indemnity clauses or suppliers' warranties). The other party may either reimburse amounts paid by the entity or pay the amounts directly.

56In most cases the entity will remain liable for the whole of the amount in question so that the entity would have to settle the full amount if the third party failed to pay for any reason. In this situation, a provision is recognised for the full amount of the liability, and a separate asset for the expected reimbursement is recognised when it is virtually certain that reimbursement will be received if the entity settles the liability.

57In some cases, the entity will not be liable for the costs in question if the third party fails to pay. In such a case the entity has no liability for those costs and they are not included in the provision.

58As noted in paragraph 29, an obligation for which an entity is jointly and severally liable is a contingent liability to the extent that it is expected that the obligation will be settled by the other parties.

Changes in provisions

59Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that the entityan outflow of resources embodying economic benefits will be required to transfer an economic resource to settle the obligation, the provision shall be reversed.

60Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognised as borrowing cost.

Use of provisions

61A provision shall be used only for expenditures for which the provision was originally recognised.

62Only expenditures that relate to the original provision are set against it. Setting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different events.

Application of the recognition and measurement rules

Future operating losses

63Provisions shall not be recognised for future operating losses.

64Future operating losses do not meet the definition of a liability in paragraph 10 and the general recognition criteria set out for provisions in paragraph 14.

65An expectation of future operating losses is an indication that certain assets of the operation may be impaired. An entity tests these assets for impairment under IAS 36 Impairment of Assets.

Onerous contracts

66If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

67Many contracts (for example, some routine purchase orders) can be cancelled without paying compensation to the other party, and therefore there is no obligation. Other contracts establish both rights and obligations for each of the contracting parties. Where events make such a contract onerous, the contract falls within the scope of this Standard and a liability exists which is recognised. Executory contracts that are not onerous fall outside the scope of this Standard.

68This Standard defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

68AThe cost of fulfilling a contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract consist of both:

1. the incremental costs of fulfilling that contract—for example, direct labour and materials; and
2. an allocation of other costs that relate directly to fulfilling contracts—for example, an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling that contract among others.

69Before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract (see IAS 36).

Restructuring

70The following are examples of events that may fall under the definition of restructuring:

1. sale or termination of a line of business;
2. the closure of business locations in a country or region or the relocation of business activities from one country or region to another;
3. changes in management structure, for example, eliminating a layer of management; and
4. fundamental reorganisations that have a material effect on the nature and focus of the entity's operations.

71A provision for restructuring costs is recognised only when the general recognition criteria for provisions set out in paragraph 14 are met. Paragraphs 72–83 set out how the general recognition criteria apply to restructurings.

72A present constructive_obligation for the costs of a restructuring to restructure arises only when an entity:

1. has a detailed formal plan for the restructuring identifying at least:
   1. the business or part of a business concerned;
   2. the principal locations affected;
   3. the location, function, and approximate number of employees who will be compensated for terminating their services;
   4. the expenditures that will be undertaken; and
   5. when the plan will be implemented; and
2. has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

73Evidence that an entity has started to implement a restructuring plan would be provided, for example, by:

1. dismantling plant or selling assets or
2. by the public announcement of the plan, the main features of the plan. A public announcement of a detailed plan to restructure constitutes a constructive obligation to restructure only if it is made in such a way and in sufficient detail (ie setting out the main features of the plan) that it gives rise to valid expectations in other parties such as customers, suppliers and employees (or their representatives) that the entity will carry out the restructuring.

74For a plan to be sufficient to give rise to such expectationsto a constructive obligation when communicated to those affected by it, its implementation needs to be planned to begin as soon as possible and to be completed in a timeframe that makes significant changes to the plan unlikely. If it is expected that there will be a long delay before the restructuring begins or that the restructuring will take an unreasonably long time, it is unlikely that the plan will raise a valid expectation on the part of others that the entity is at present committed to restructuring, because the timeframe allows opportunities for the entity to change its plans.

75A management or board decision to restructure taken before the end of the reporting period does not give rise to a presentconstructive obligation at the end of the reporting period unless the entity has, before the end of the reporting period:

1. started to implement the restructuring plan; or
2. announced the main features of the restructuring plan to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will carry out the restructuring.

If an entity starts to implement a restructuring plan, or announces its main features to those affected, only after the reporting period, disclosure is required under IAS 10 Events after the Reporting Period, if information about the restructuring is material and non-disclosure could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

76Although a presentconstructive obligation is not created solely by a management decision, a presentan obligation may result from other earlier events together with such a decision. For example, negotiations with employee representatives for termination payments, or with purchasers for the sale of an operation, may have been concluded subject only to board approval. Once that approval has been obtained and communicated to the other parties, the entity has a presentconstructive obligation for restructuring coststo restructure, if the conditions of paragraph 72 are met.

77In some countries, the ultimate authority is vested in a board whose membership includes representatives of interests other than those of management (eg employees) or notification to such representatives may be necessary before the board decision is taken. Because a decision by such a board involves communication to these representatives, it may result in a presentconstructive obligation for restructuring coststo restructure.

78No obligation arises for the sale of an operation until the entity is committed to the sale, ie there is a binding sale agreement.

79Even when an entity has taken a decision to sell an operation and announced that decision publicly, it cannot be committed to the sale until a purchaser has been identified and there is a binding sale agreement. Until there is a binding sale agreement, the entity will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment, under IAS 36. When a sale is only part of a restructuring, a presentconstructive obligation can arise for the costs of the other parts of the restructuring before a binding sale agreement exists.

80A restructuring provision shall include only present obligations for the direct expenditures arising from the restructuring, which are those that are both:

1. necessarily entailed by the restructuring; and
2. not associated with the ongoing activities of the entity.

80AA restructuring provision could include such obligations as:

1. statutory, contractual or constructive obligations to pay termination benefits to employees whose roles are made redundant by the restructuring, to the extent that the obligations relate to past employment; or
2. contractual obligations to pay penalties for cancelling executory supply contracts the entity entered into before the end of the reporting period.

81A restructuring provision does not include such costs as:

1. retraining or relocating continuing staff;
2. marketing; or
3. investment in new systems and distribution networks.

These expenditures relate to the future conduct of the business and are not present obligations to transfer an economic resourceliabilities for restructuring at the end of the reporting period. Such expenditures are recognised on the same basis as if they arose independently of a restructuring.

82Identifiable future operating losses up to the date of a restructuring are not included in a provision, unless they relate to an onerous contract as defined in paragraph 10.

83As required by paragraph 51, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring.

Levies

83AIn this Standard, the term levy is used to refer to a charge that:

1. a government imposes on entities that obtain a specific economic benefit (for example, revenue or a gain in the value of their real estate) or conduct a specific activity (for example, operating in a specific market sector or locality or holding specific assets); and
2. is non-reciprocal—the entities receive no new rights from the government in exchange for paying the charge.

83BA provision for a levy is recognised when the general recognition criteria set out in paragraph 14 are met. Paragraphs 83C–83J explain how to apply the first of these criteria—the present obligation recognition criterion—to levies.

Applying the present obligation recognition criterion

83CThe present obligation recognition criterion (specified in paragraph 14A) comprises three conditions—an obligation condition (specified in paragraphs 14B–14H), a transfer condition (specified in paragraphs 14I–14L) and a past-event condition (specified in paragraphs 14N – 14P).

83DTypically, a responsibility to pay a levy meets the obligation condition. Typically, the terms of the legislation or other mechanism imposing a levy (the levy legislation) are such that an entity has no practical ability to avoid paying the levy if it obtains the economic benefit or conducts the activity required by the levy legislation for the levy to be payable.

83EBy definition, a levy is a non-reciprocal charge, meaning that the nature of the entity's obligation is to transfer an economic resource (to pay a levy) without receiving an economic resource (any new rights) from the government in exchange. Therefore, an obligation for a levy always meets the transfer condition.

83FConsequently, questions about whether an entity's obligation for a levy meets the present obligation recognition criterion typically focus on when the obligation meets the past-event condition (specified in paragraphs 14N–14P). Paragraphs 83G–83K set out how to determine when an obligation for a levy meets the past event condition.

Applying the past-event condition

83GAn entity's obligation for a levy becomes a present obligation that exists as a result of a past event when:

1. the entity has obtained the economic benefit or conducted the activity required by the levy legislation for the levy to be payable (the relevant economic benefit or activity); and
2. as a consequence, the entity will or may have to pay a levy it would not otherwise have had to pay. (Paragraph 14N)

83HIf more than one economic benefit or activity is required by levy legislation for a levy to be payable, the relevant economic benefit or activity is the one that best reflects the economic benefit or activity the government is seeking to levy.

83IIf the relevant economic benefit or activity is obtained or conducted over time, the past-event condition is met, and the resulting present obligation for the levy accumulates, over that time. (Paragraph 14O)

83JIn some cases, an entity has an obligation to pay a levy only if the relevant economic benefit or activity in a period exceeds a specific threshold. In such cases:

1. the past-event condition is met as the entity obtains the relevant economic benefit or conducts the relevant activity that contributes to the total for the period;

1. at any date within the period, the entity's present obligation is a portion of the total levy the entity expects to pay for the period—the portion attributable to the economic benefit obtained or activity conducted to that date;
2. the entity recognises a provision if the recognition criteria in paragraphs 14(b) and 14(c) are met—that is, if:
   1. it is probable that the relevant economic benefit or activity will exceed the threshold and the entity will be required to pay a levy; and
   2. a reliable estimate can be made of the amount the entity will pay. (Paragraph 14P)

Disclosure

84For each class of provision, an entity shall disclose:

1. the carrying amount at the beginning and end of the period;
2. additional provisions made in the period, including increases to existing provisions;
3. amounts used (ie incurred and charged against the provision) during the period;
4. unused amounts reversed during the period; and
5. the increase during the period in the discounted amount arising from the passage of time and the effect of any change in the discount rate.

Comparative information is not required.

85An entity shall disclose the following for each class of provision:

1. a brief description of the nature of the obligation and the expected timing of any resulting transferoutflows of economic resourcesbenefits;
2. an indication of the uncertainties about the amount or timing of that transferthose outflows. Where necessary to provide adequate information, an entity shall disclose the major assumptions made concerning future events, as addressed in paragraph 48; and
3. the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement; and
4. if a provision is discounted, the discount rate (or rates) used in measuring the provision and the approach used to determine that rate (or those rates).

86Unless the possibility of any transfer of economic resourcesoutflow in settlement is remote, an entity shall disclose for each class of contingent liability at the end of the reporting period a brief description of the nature of the contingent liability and, where practicable:

1. an estimate of its financial effect, measured under paragraphs 36–52;
2. an indication of the uncertainties relating to the amount or timing of any transferoutflow; and
3. the possibility of any reimbursement.

87In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfil the requirements of paragraphs 85(a) and (b) and 86(a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a single class amounts relating to normal warranties and amounts that are subject to legal proceedings.

88Where a provision and a contingent liability arise from the same set of circumstances, an entity makes the disclosures required by paragraphs 84–86 in a way that shows the link between the provision and the contingent liability.

89Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent assets at the end of the reporting period, and, where practicable, an estimate of their financial effect, measured using the principles set out for provisions in paragraphs 36–52.

90It is important that disclosures for contingent assets avoid giving misleading indications of the likelihood of income arising.

91Where any of the information required by paragraphs 86 and 89 is not disclosed because it is not practicable to do so, that fact shall be stated.

92In extremely rare cases, disclosure of some or all of the information required by paragraphs 84–89 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.

Transitional provisions

93The effect of adopting this Standard on its effective date (or earlier) shall be reported as an adjustment to the opening balance of retained earnings for the period in which the Standard is first adopted. Entities are encouraged, but not required, to adjust the opening balance of retained earnings for the earliest period presented and to restate comparative information. If comparative information is not restated, this fact shall be disclosed.

94[Deleted]

94AOnerous Contracts—Cost of Fulfilling a Contract, issued in May 2020, added paragraph 68A and amended paragraph 69. An entity shall apply those amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). The entity shall not restate comparative information. Instead, the entity shall recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application.

94BProvisions—Targeted Improvements, issued in [Month, Year], amended IAS 37 (see paragraph 106). An entity shall apply those amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (see paragraph 94C), except as required by paragraph 94D and as permitted by paragraph 94E. For the purposes of applying paragraphs 94C–94E:

1. the transition date is the beginning of the first annual reporting period for which the entity provides comparative information; and
2. the date of initial application is the beginning of the annual reporting period in which the entity first applies the amendments.

94CTo apply the amendments described in paragraph 94B retrospectively, an entity shall at the transition date:

1. identify, recognise and measure provisions as if the entity had always applied the amendments;
2. re-measure the carrying amount of related assets (for example, items of property, plant and equipment or right-of-use assets), if any, as if the entity had always applied the amendments; and
3. recognise any resulting net difference in retained earnings or other component of equity, as appropriate.

94DIf an entity changes its accounting policy for the costs it includes in the measure of a provision to comply with paragraph 40A, the entity shall apply the change in accounting policy:

1. only to obligations the entity has not yet settled at the date of initial application; and
2. without restating comparative information. Instead, the entity shall recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of a related asset (if any). retained earnings or other component of equity, as appropriate, at the date of initial application.

94EIf an entity changes its accounting policy for determining discount rates to comply with the amendments to paragraphs 47–47A, the entity is not required to comply with the requirements in IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities for changes in the measurement of a provision that occurred before the transition date. An entity that uses this exemption shall:

1. apply the amended requirements to restate the provision at the transition date; and
2. apportion the amount by which it adjusts the provision at the transition date between the related asset and retained earnings:
   1. assuming the current discount rate(s) and estimates of cash flows used in measuring the provision have not changed since the provision was first recognised; and
   2. using current estimates of the useful life of the related asset.

Effective date

95This Standard becomes operative for annual financial statements covering periods beginning on or after 1 July 1999. Earlier application is encouraged. If an entity applies this Standard for periods beginning before 1 July 1999, it shall disclose that fact.

96[Deleted]

97[Deleted]

98[Deleted]

99Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013, amended paragraph 5 as a consequential amendment derived from the amendment to IFRS 3. An entity shall apply that amendment prospectively to business combinations to which the amendment to IFRS 3 applies.

100IFRS 15 Revenue from Contracts with Customers, issued in May 2014, amended paragraph 5 and deleted paragraph 6. An entity shall apply those amendments when it applies IFRS 15.

101IFRS 9, as issued in July 2014, amended paragraph 2 and deleted paragraphs 97 and 98. An entity shall apply those amendments when it applies IFRS 9.

102IFRS 16, issued in January 2016, amended paragraph 5. An entity shall apply that amendment when it applies IFRS 16.

103IFRS 17, issued in May 2017, amended paragraph 5. An entity shall apply that amendment when it applies IFRS 17.

104Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 75. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. An entity shall apply those amendments when it applies the amendments to the definition of material in paragraph 7 of IAS 1 and paragraphs 5 and 6 of IAS 8.

105Onerous Contracts—Cost of Fulfilling a Contract, issued in May 2020, added paragraphs 68A and 94A and amended paragraph 69. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2022. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.

106Provisions—Targeted Improvements, issued in [Month, Year]:

1. added paragraphs 14A–14U, 40A, 47A, 80A, 94B–94E and 106–108;
2. deleted paragraphs 17–22; and
3. amended paragraphs 3, 10, 14, 15–16, 47, 72–77, 79–80, 81 and 85.

107An entity shall apply the amendments listed in paragraph 106 for annual reporting periods beginning on or after [Day, Month, Year]. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.

Withdrawal of IFRIC 6 and IFRIC 21

108Provisions—Targeted Improvements, issued in [Month, Year], supersedes IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment and IFRIC 21 Levies.