Project Initiation Plan - Provisions - Targeted Improvements
Purpose
1The International Accounting Standards Board (IASB) has indicated its intention to publish an Exposure Draft (ED) proposing targeted improvements to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The ED is anticipated to be published in November 2024, with a 120-day comment period.
2This paper sets out a proposed approach and plan for an influencing project for the forthcoming ED Provisions – Targeted Improvements.
Background
3The IASB has received stakeholder feedback that although IAS 37 generally works well in practice (and it doesn't need fundamental review), they have identified problems with particular aspects of the Standard1.
4As a result, the IASB is developing proposals to clarify the following in IAS 37:
- when an entity recognises a provision – including whether and, if so, when an obligation conditional on an entity's own future actions is a 'present obligation' and hence a liability;
- whether the rate at which an entity discounts a provision for the time value of money should reflect the entity's own credit risk, that is, the possibility that it may fail to fulfil its obligation; and
- whether a provision for an obligation to deliver goods or services should comprise only the incremental costs of fulfilling the obligation or also include an allocation of other directly related costs.
5In June2 and July3 2024, the Board considered papers summarising the IASB tentative decisions on this project.
Project Plan
6A proportionate approach is proposed, incorporating mandatory milestones listed in paragraph 5.3 of the UKEB's Due Process Handbook (Handbook). The Secretariat recommends the 'moderate scope' project plan shown below. The factors considered in arriving at this project plan are described in paragraphs 9-13. A timeline for the key project milestones is presented in paragraphs 17 and 18.
7Future dates are based on current expectations and are, therefore, subject to subsequent modification. The Board will be alerted to any significant changes.
| Key activities | Due Process Handbook reference | 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Key activities | |---------------------------------------------------------------|--------------------------------| | Project added to 17 October 2024 UKEB Work Plan. | 4.30(b)i Mandatory | | Creation of a Project Initiation Plan (this document). | 5.4 to 5.8 Mandatory | | An education session to be presented at the November 2024 UKEB meeting. | 4.10(b) Optional | | Desk-based research, including: | 5.9 Optional | | * Review of relevant material produced by third parties, including accounting firms. | | | * Review of IASB's work on the proposals (including staff papers, presentations, meetings and the Exposure Draft, when published). | | | Stakeholder outreach | 5.10-5.12 Mandatory | | * The Secretariat has engaged with the following UKEB Advisory/Working Groups during the development of the IASB proposals: | | | * Academic Advisory Group (Sep.23 & Sep.24) | | | * Accounting Firms and Institutes Advisory Group (Jun.23 & Jul.24) | | | * Investor Advisory Group (Nov.23) | | | * Preparer Advisory Group (Oct.23) | | | * Financial Instruments Working Group (Jul.24) | | | Over the next months the Secretariat will continue to engage with UKEB Advisory Groups and Working Groups, as appropriate. | | | * In addition, due to the conceptual nature of the forthcoming proposals (i.e. addressing fundamental aspects of the requirements in IAS 37), we plan to undertake targeted outreach with stakeholders, including but not limited to one-to-one engagement with preparers, users and technical teams at accounting firms, as relevant. | | | * The Draft Comment Letter will be published for stakeholder comment on the UKEB website. Stakeholder outreach will continue whilst the Draft Comment Letter is out for comment. | | | * The Secretariat to promote outreach activities and the Draft Comment Letter via the UKEB Advisory/Working Groups and via the usual channels (LinkedIn, News Alerts to subscribers and UKEB website) to encourage responses. | | | Draft Comment Letter (DCL) for public consultation | 5.13 to 5.17 Generally mandatory | | * Subject to the publication of the IASB's ED in November 2024, the Secretariat plans to present a DCL for Board approval at its December 2024 meeting. | | | * The DCL will be published for public comment shortly after Board approval. | | | Final comment letter (FCL) submitted to the IASB | 5.18 Mandatory | | * The IASB comment period is expected to be 120-days. | | | * Subject to the publication of the IASB's ED in November 2024, the Secretariat plans to present a FCL for Board approval at its February 2025 meeting. | | | * The FCL will be submitted to the IASB as soon as possible following Board approval. | | | Project Closure | 5.19 to 5.26 Mandatory | | * Subject to the publication of the IASB's ED in November 2024, a Feedback Statement and draft Due Process Compliance Statement (DPCS) to be presented for Board approval at its February 2025 meeting. | | | * The final Feedback Statement will be published on the UKEB website shortly after Board approval. | | | * A final version of the DCPS will be presented for noting at the March 2025 Board meeting and published on the UKEB website shortly after noting. | |
8The following considerations have shaped the project plan.
Proportionality assessment
Significance / relevance in the UK
9IAS 37 is relevant to most UK IFRS reporters.
Complexity
10The IASB has decided to propose targeted improvements to the existing requirements in IAS 37, mainly affecting the recognition and measurement of provisions4.
11The anticipated amendments, in particular those affecting the recognition of provisions, are expected to address fundamental aspects of the requirements and potentially change current practice for some IFRS reporters. As a result, the anticipated changes to the existing requirements have a risk of unintended consequences.
Expected interest / sensitivity
12We anticipate wide interest in this project from a range of stakeholders. We have not been made aware of any significant concerns with the proposed amendments to date. However, questions have been raised about the clarity of certain aspects of the anticipated proposals, such as the proposed changes to address the accounting for levies (which would result in the withdrawal of IFRIC 21).
Expected timeline / urgency
13There is no particular urgency to the project and the IASB project follows the standard timeline for publications of Exposure Drafts. The ED is expected to be published in November 2024 with a 120-day comment period.
UKEB project scope
14Based on the proportionality assessment above we recommend a 'moderate' project scope and the approach described in the project plan reflects this.
Resources allocated
15Based on this project plan, we consider a project team consisting of one Project Director and one Project Manager, with technical support and oversight from a Senior Project Director, should ensure that project milestones are achievable. Communications support will be obtained as appropriate. The required resources are allowed for in the UKEB plan and budget.
Setting up an ad-hoc advisory group
16It is not considered necessary to set up a separate, ad-hoc advisory group. The existing UKEB Advisory/Working Groups are well placed to provide feedback on this project.
Project timeline
17The proposed high-level project timeline is shown below. This provides a best estimate based on information known at this time, assuming the publication of the IASB's ED in November 2024. Future dates are based on current expectations and are, therefore, subject to subsequent modification. The Board will be alerted to any significant changes.
| Date | Milestone |
|---|---|
| 17 Oct 2024 | Project Initiation Plan for Board approval. |
| November 2024 | Board Education Session. |
| IASB publishes Exposure Draft with 120-day comment period. | |
| 12 Dec 2024 | Draft Comment Letter for Board approval. |
| Estimated DCL consultation period (no less than 30 days) - mid-Dec 2024 to early-Feb 2025 | |
| 27 Feb 2025 | Final Comment Letter, Feedback Statement and draft Due Process Compliance Statement for Board approval. |
| March 2025 | Final Comment Letter submitted to IASB. |
| 28 Mar 2025 | Due Process Compliance Statement for noting. |
Provisions – Targeted Improvements – Project timeline
18The diagram below is a graphical view of the mandatory milestones in the table (paragraph 17) above. It provides a best estimate based on information known at this time, assuming the publication of the IASB's ED in November 2024. Future dates are based on current expectations and are, therefore, subject to subsequent modification. The Board will be alerted to any significant changes.
Footnotes
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IFRS - Provisions-Targeted Improvements. ↩
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Refer to June 2024 IASB General Update - Appendix A: Provisions - Targeted Improvements. ↩
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Refer to July 2024 IASB General Update - Appendix A: Provisions - Targeted Improvements. ↩
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No amendments are expected to the requirements in IAS 37 for contingent liabilities and contingent assets. ↩