The Committee noted that the issues that need to be addressed in developing and applying an accounting policy for the tax deposit may be similar or related to those that arise for the recognition, measurement, presentation and disclosure of monetary assets. If this is the case, the entity’s management would refer to requirements in IFRS Standards dealing with those issues for monetary assets. The Committee observed that if the tax deposit gives rise to an asset, that asset may not be clearly within the scope of any IFRS Standard. Furthermore, the Committee concluded that no IFRS Standard deals with issues similar or related to the issue that arises in assessing whether the right arising from the tax deposit meets the definition of an asset. The Committee concluded that the right arising from the tax deposit meets either of those definitions.
The Committee also noted that this request for guidance would be best addressed as part of the Board’s project to replace IAS 37 with a new liabilities standard, and that the Board is already considering the request for additional guidance to be incorporated into this new standard. For this reason, the Committee decided not to add this issue to its agenda. Therefore, the Committee concluded that, in the fact pattern described in the request, the activity that gives rise to a present obligation is IAS 37 – Provisions, contingent liabilities and contingent assets the production or import of vehicles whose fuel emissions, averaged for all the vehicles produced or imported in that calendar year, are higher than the government target. View all O’Reilly videos, Superstream events, and Meet the Expert sessions on your home TV. The above summary does not include details of consequential amendments made as the result of other projects. Read our latest news, features and press releases and see our calendar of events, meetings, conferences, webinars and workshops.
IAS 37 Provisions, Contingent Liabilities, and Contingent Assets
Reductions over and above the remaining carrying value of the asset are recognised immediately in profit or loss. The adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. Where the change gives rise to an addition to cost, the entity should consider the need to test the newcarrying value for impairment. Reductions over andabove the remaining carrying value of the asset are recognised immediately in profit or loss.
This is sometimes described as the ‘full goodwill’ method. In this case, when the entity performs its impairment review, there is no ‘mismatch’. This is because VIU and FVLCOD are estimated based on 100% of the asset or CGU under review and its related cash flows.
IAS 36 –Impairment of Assets
An example is litigation against the entity when it is uncertain whether the entity has committed an act of wrongdoing and when it is not probable that settlement will be needed. A provision is measured at the amount that the 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. Risks and uncertainties are taken into account in measuring a provision. A provision is discounted to its present value.
The Committee observed that paragraph 47 of IAS 37 states that ‘risks specific to the liability’ should be taken into account in measuring the liability. The Committee noted that IAS 37 does not explicitly state whether or not own credit risk should be included. The Committee understood that the predominant practice today is to exclude own credit risk, which is generally viewed in practice as a risk of the entity rather than a risk specific to the liability. An entity would have a legal obligation that is enforceable by law if accepting the possible sanctions for non-settlement is not a realistic alternative for that entity. The Committee observed that a present obligation could arise at any date within a calendar year (on the basis of the entity’s production or import activities to that date), not only at the end of the calendar year. Discuss how the directors of Venom Limited should recognize and disclose the above situation in the financial statements for the year ended 31 December 2021 in accordance with IAS37 Provisions, Contingent Liabilities and Contingent Assets.
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Whether the entity has no realistic alternative to settling the obligation. © 2023 Crowe
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Consequently, the Interpretations Committee noted that to provide an interpretation of IFRS on the measurement of a liability arising from the obligation to deliver allowances related to an emission trading scheme would be too broad an issue for it to deal with. An entity has no realistic alternative to settling an obligation only where settlement can be enforced by law or, in the case of a constructive obligation, where the entity’s actions have created valid expectations in other parties that the entity will discharge the obligation (paragraph 17 of IAS 37). Defines an obligating event as ‘an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation’. In our view, this deferred tax-related goodwill is an accounting phenomenon that does not represent real benefits that the acquirer has paid for and that may increase future cash flows.
The Interpretations Committee noted that when the IASB withdrew IFRIC 3, it affirmed that IFRIC 3 was an appropriate interpretation of existing IFRS for accounting for the emission trading schemes that were within the scope of IFRIC 3. However, the IASB acknowledged that, as a consequence of following existing IFRS, IFRIC 3 had created unsatisfactory measurement and reporting mismatches between assets and liabilities arising from emission trading schemes. The request asked whether the measurement of the liability for the obligation to deliver allowances should reflect current values of allowances at the end of each reporting period if IAS 37 was applied to the liability. The request noted that this was the basis required by IFRIC 3 Emission Rights, which was withdrawn in June 2005. The request asked only whether the government measures give rise to obligations that meet the definition of a liability in IAS 37. The Committee observed that, having identified such an obligation, an entity would apply other requirements in IAS 37 to determine how to measure the liability.
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- [IAS 37.78].Thus a provision cannot be made for a loss on sale unless there is a binding sale agreement by the end of the reporting period.
- The standard states that ‘future 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’.
- Where the change gives rise to an addition to cost, the entity should consider the need to test the newcarrying value for impairment.
- The main area of concern with these requirements is whether the ‘virtually certain’ criterion that needs to be applied to the corresponding asset might mean that some reimbursements will not be capable of recognition at all.