CA ANZ and CPA Australia have lodged a joint submission to the International Accounting Standards Board (IASB) on its Exposure Draft Provisions—Targeted Improvements that proposes the following amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets:

• Updating the definition of a liability to be consistent with that in the Conceptual Framework, and to align the wording of the recognition criteria to this updated definition.
• Disaggregating the present obligation criterion into three conditions – obligation condition, transfer condition and past-event condition – in response to feedback that grouping all three of these concepts into one criterion has been confusing.
• Specifying that the discount rate excludes non-performance risk and added disclosure requirements.
• Clarifying that the types of costs an entity includes in measuring a provision are the incremental costs of settling that obligation and an allocation of other costs that relate directly to settling obligations of that type.
• Consequential updates to the Guidance document decision trees and illustrative examples, to reflect the disaggregated present obligation criterion.
• Withdrawing IFRIC 21 Levies and IFRIC 6 Liabilities arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment, noting that similar fact patterns have been transferred to Examples 13A-B and Example 12, respectively.

Although the IASB considers these to be minor amendments with no fundamental changes to principals, we have communicated member’s concerns and made further suggestions for improvements to make IAS 37 more useful and relevant in practice. Additionally, we urged the IASB to carefully consider potential unintended consequences of certain proposed amendments. For example, feedback we received indicates that some of the proposed amendments to the present obligation recognition criteria could lead to burdensome changes for some preparers.

We also highlighted member concerns around the proposed transition requirements and effective date. While we support retrospective application with the two proposed simplifications, proposing that these exceptions be applied at two different application dates could lead to confusion and should be reconsidered. We also emphasised that the substantial resources our members are committing to IFRS 18 implementation should be considered by the IASB when setting the effective date of the amended IAS 37.