Hi everyone,
IFRS 18 might feel like old news by now, and you probably know it inside out, right? 😉 But if you’re still catching up, I’ve got some good news: BDO has published what I believe is the most comprehensive guide to IFRS 18 yet.
But before we dive into that, let’s look at the proposed amendments to provision accounting under IAS 37.
Let’s dive in.
Note: You’re currently reading an older issue from the archive, so all links have been removed.
Exposure draft on provision accounting
The IASB released an exposure draft proposing amendments to provision accounting under IAS 37. These amendments focus on three key areas:
- Recognition criteria for present obligation.
- Costs included in measuring provisions.
- Discount rate requirements.
Here’s a closer look at each:
Recognition criteria for present obligation
The 2018 Conceptual Framework introduced an updated definition of a liability, leading to changes in IAS 37’s criteria for identifying present obligations. The new requirements replace the single concept of an obligating event with three conditions: obligation, transfer, and past event.
In practical terms, these amendments will affect provisions for costs (such as levies) where a company must undertake multiple actions or exceed specific activity thresholds within a given period. Some provisions will be recognised earlier and progressively rather than at a single point in time. This marks a significant change from the existing requirements under IFRIC 21 Levies, which will be withdrawn once these amendments are finalised.
Costs included in measuring provisions
The amendments specify that provisions should include both incremental costs and an allocation of directly related expenses. For instance, a legal claim provision would now include internal legal team costs alongside external legal fees and settlement amounts. This will lead to higher provisions for certain types of obligations.
Discount rate requirements
To address current inconsistencies, the IASB proposes using a risk-free rate to discount provisions, excluding adjustments for non-performance risk. This is particularly relevant for long-term provisions like decommissioning or asset restoration costs. Companies that previously included non-performance risk adjustments in their discount rates will see an increase in these provisions.
Additionally, companies will also need to disclose the discount rate used and explain their approach to determining it.
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The IASB has also updated and added examples in IAS 37 to illustrate these changes. For more details, check out technical publications from KPMG and EY.
The Exposure Draft is open for comment until 12 March 2025.
Technical Publications
BDO’s deep dive into IFRS 18
BDO has released a comprehensive guide to IFRS 18, featuring illustrative examples and practical insights. At 108 pages, you might need a few sittings to get through it all.
Even with this impressive depth, this publication doesn’t cover the new requirements on management-defined performance measures (MPMs). BDO plans to release a separate guide addressing those soon.
Big credit to the BDO team for this work!
Accounting for carbon allowances
ESMA recently published guidance on accounting for emissions trading schemes and other carbon pricing programmes under IFRS. The key question ESMA tackles is whether carbon credits and allowances should be recognised as assets or treated as expenses. The publication also includes an overview of the current accounting practices among European companies.
IFRS Interpretations Committee Meeting
The Committee met on 26 November, but the meeting notes were not yet available as I finalised this edition. We’ll catch up on any new agenda decisions in the December edition, so stay tuned!
That’s all for this edition of Reporting Period. Your feedback is invaluable, so feel free to reply directly to this email with any thoughts and comments.
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Best regards,
Marek