Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council

en · official · sha256:02936e402b1c742be74f5b36399ec147ccd2c05a532fc82a45a56f10bbd5090f

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.

en · official · sha256:b57204adab3a2f0601043e9bda2e9368e5b32a4d516116fdfc991aa4bbcc6107

1 This standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except: (a) those resulting from executory contracts, except where the contract is onerous; and (b) [deleted] (c) those covered by another standard.

Referencing norms: Para1ExecutoryContractExclusion, Para1ScopeCoversAllItems, item_accounted, item_in_scope, item_of_contract, scope_exclusion

en · official · sha256:10d49262dfdcef49346dc7a56392172de82a6d5e2b47d61d22976b54858534ea

10 The 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 arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. 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: (a) a contract (through its explicit or implicit terms); (b) legislation; or (c) other operation of law. A constructive obligation is an obligation that derives from an entity's actions where: (a) 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 (b) 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: (a) 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 (b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) 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: (a) the scope of a business undertaken by an entity; or (b) the manner in which that business is conducted.

Referencing norms: Item, Para10ConstructiveObligation, Para10ContingentAsset, Para10ContingentLiabilityPossibleObligation, Para10LegalObligationFromContract, Para10LegalObligationFromLegislation, Para10LegalObligationFromOperationOfLaw, Para10Liability, Para10PresentObligation, Para10Provision, Para10RestructuringByManner, Para10RestructuringByScope, arises_from_past_event, constructive_obligation, contingent_asset, contingent_liability, established_pattern_indicating_responsibility, legal_obligation, liability, materially_changes_manner_of_business, materially_changes_scope_of_business, no_realistic_alternative_to_settling, obligating_event_occurred, obligation_from_contract, obligation_from_legislation, obligation_from_other_operation_of_law, onerous_contract, outflow_of_resources_expected, possible_asset_confirmed_by_future_events, possible_obligation_confirmed_by_future_events, present_obligation, programme_planned_and_controlled_by_management, provision, restructuring, uncertain_timing_or_amount, valid_expectation_created

en · official · sha256:2b7d79d9f76291df49ce5e30c8aaf0cfeeb088498d24657f856308a685fead5c

11 Provisions 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: (a) 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 (b) 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.

Referencing norms: Para11AccrualIsNotAProvision, Para11AccrualOverPara10, Para11TradePayableIsNotAProvision, Para11TradePayableOverPara10, accrual, trade_payable

en · official · sha256:0116106c6dfccdacb4b1675d839028d465ecdd9bed505700e036d73c3c8c0b8d

12 In 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.

Referencing norms: contingent_asset, contingent_liability, possible_asset_confirmed_by_future_events

en · official · sha256:88ca3822817396b954728cb7eed9822694fbbb6652e59596dca5690696741cca

13 This standard distinguishes between: (a) provisions — which are recognised as liabilities (assuming that a reliable estimate can be made) because they are present obligations and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations; and (b) contingent liabilities — which are not recognised as liabilities because they are either: (i) possible obligations, as it has yet to be confirmed whether the entity has a present obligation that could lead to an outflow of resources embodying economic benefits; or (ii) present obligations that do not meet the recognition criteria in this standard (because either it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or a sufficiently reliable estimate of the amount of the obligation cannot be made).

Referencing norms: contingent_liability

en · official · sha256:4199daef353ca9a9ff683a3b3ddbe225434bc13ac45b2ed37cd65e4a201bd1ab

14 A provision shall be recognised when: (a) an entity has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision shall be recognised.

Referencing norms: Para14RecogniseProvision, Para14RequiresPresentObligation, Para14RequiresProbableOutflow, Para14RequiresReliableEstimate, entity_recognised_provision, item_assessment_started, outflow_probable, outflow_probable/external, present_obligation_indicated, provision_shall_be_recognised, reliable_estimate_can_be_made, reliable_estimate_can_be_made/external

en · official · sha256:7918f9e93e14f71632bf4a50c7da4d70f1985202303292c45724cc553428e750

15 In rare cases it is not clear whether there is a present obligation. In these cases, 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 a present obligation exists at the balance sheet date.

Referencing norms: Para15DeemedPresentObligation, more_likely_than_not_present_obligation, more_likely_than_not_present_obligation/external, unclear_whether_present_obligation

en · official · sha256:32126879dae4ce9a802c8d336a21e18595467633a61a95f065467da8b06d2d05

16 In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a law suit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an entity determines whether a present obligation exists at the balance sheet date 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 balance sheet date. On the basis of such evidence: (a) where it is more likely than not that a present obligation exists at the balance sheet date, the entity recognises a provision (if the recognition criteria are met); and (b) where it is more likely that no present obligation exists at the balance sheet date, the entity discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 86).

Referencing norms: Para16NoPresentObligationMeansContingent, more_likely_than_not_present_obligation, more_likely_than_not_present_obligation/external

en · official · sha256:dc47ac7c226c84ef6a10e300599aafc3437d7e52c82fceda908bf21673e31aba

17 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: (a) where the settlement of the obligation can be enforced by law; or (b) 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.

Referencing norms: Para17ConstructiveWithValidExpectation, Para17EnforceableByLaw, Para17ObligatingEvent, Para17ObligatingEventIndicatesPresentObligation, no_realistic_alternative_to_settling, obligating_event_occurred

en · official · sha256:a732fb4c53b3d1cddabe3e24893045965d53b1aed5c5696834cdeaa369469b22

18 Financial 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 balance sheet are those that exist at the balance sheet date.

Referencing norms: Para18NoProvisionForFutureOperatingCosts, Para18OverPara10, cost_of_future_operations

en · official · sha256:2fa5c16c93814db121435875c5f4dd3523dd8c868c9e1aad97d95498d79e6214

19 It is only those obligations arising from past events existing independently of an entity's future actions (i.e. 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.

Referencing norms: Para19AvoidableByFutureActions, Para19IndependentOfFutureActions, Para19OverPara10, avoidable_by_future_actions, obligation_independent_of_future_actions

en · official · sha256:885f0a65d656d0c835d6e3d2ecb3ef60f3e9d30e3ec72c7fb0f6a834d1bbfd44

2 This standard does not apply to financial instruments (including guarantees) that are within the scope of IAS 39 Financial instruments: recognition and measurement.

Referencing norms: Para2FinancialInstrumentExclusion, financial_instrument_ias39

en · official · sha256:2fd354bb0f25ca5c26ac4268041f7ecf723827cb2d98432d11d893959d839d98

20 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 balance sheet date unless the decision has been communicated before the balance sheet date to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will discharge its responsibilities.

Referencing norms: Para20DecisionAloneIsNotConstructive, Para20OverPara10Constructive, decision_communicated_to_those_affected, management_or_board_decision

en · official · sha256:91b1af04f0ba5569da5e85e8079746d7138906d461140dd78b682bb0625b967d

21 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.

Referencing norms: Para21NewLawMakesTheEventObligating, Para21PublicAcceptanceMakesTheEventObligating, environmental_damage_caused, new_law_requires_rectification, public_acceptance_of_responsibility

en · official · sha256:2d43dc3fab95514ec0898a56dcf8f43c64791f68972a20b1f661caa841d3bccb

22 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.

Referencing norms: Para22VirtuallyCertainEnactment, proposed_legislation_not_finalised, virtually_certain_enactment, virtually_certain_enactment/external

en · official · sha256:9c100e3a1d85aa95e5289336ff4ee1b53405dc85ad0ca22b64a26a4b86eb0680

23 For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of this standard (*1), an outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e. 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 an outflow of resources embodying economic benefits is remote (see paragraph 86).

Referencing norms: Para23NotProbableMeansContingent, Para23OutflowProbable, outflow_probable, outflow_probable/external, outflow_probable_established

en · official · sha256:33cc5232e5c78ead605a831296c3efcff2f89be1949a5ff175a90f1c35285dd4

24 Where there are a number of similar obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow 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).

Referencing norms: ObligationClass, Para24ClassConsideredAsAWhole, class_outflow_probable, class_outflow_probable/external, member_of_similar_obligations

en · official · sha256:bf6542cd0a90ac13007139e9f556c85e62edf4271b739e2680061a6695fd7d36

25 The 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 balance sheet items. 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.

Referencing norms: reliable_estimate_can_be_made, reliable_estimate_can_be_made/external

en · official · sha256:ab3d91ed62efa406f7290783d1b237864633ff3fa8a5f4c588dc01ac60bd4014

26 In 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).

Referencing norms: Para26NoReliableEstimateMeansContingent, reliable_estimate_can_be_made, reliable_estimate_can_be_made/external

en · official · sha256:56cbbd7a0546493613c925abc9c64d41aaaeb94a80b0fc26a75e0519c535fbde

27 An entity shall not recognise a contingent liability.

Referencing norms: Para27NoRecognitionOfContingentLiability, entity_recognised_liability

en · official · sha256:27dc450752397db8177aefeb56677b4b8296566be0cf4535a76259b0258c33a4

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

Referencing norms: Para28DiscloseContingentLiability, Para28RemoteNeedsNoDisclosure, Para28RemoteOverDisclosure, contingent_liability_disclosed, possibility_of_outflow_remote, possibility_of_outflow_remote/external

en · official · sha256:6b76ec63c8aa90867d54e88457b6d4e81b60d5319c80865820bdef406ac66df7

29 Where 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 an outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made.

Referencing norms: Para29OtherPartiesPartIsContingent, Para29OwnPartIsProvision, jointly_and_severally_liable, part_expected_to_be_met_by_other_parties

en · official · sha256:39815aaf015faacbf77f59c712848a9d88949cc1a14f3ad3a89e60449470597f

3 Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. This standard does not apply to executory contracts unless they are onerous.

Referencing norms: Contract, Para3BothPartiesPerformedEqually, Para3NeitherPartyPerformed, both_parties_performed_equally, executory_contract, neither_party_performed

en · official · sha256:f4d7f041b9ab72117344c0c0bb0bea86203777cd2d087d2d88bfd42884371586

30 Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required 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 (except in the extremely rare circumstances where no reliable estimate can be made).

Referencing norms: Para30ContingentLiabilityBecomesProvision, Para30OutflowBecameProbable, outflow_became_probable

en · official · sha256:02772f83dd9fb08993cab82d23e2685e3d87809b2fbd267c3a666fd8d26bdeba

31 An entity shall not recognise a contingent asset.

Referencing norms: Para31NoRecognitionOfContingentAsset, entity_recognised_asset

en · official · sha256:df75d08c479e5d6138b5ce61ab55d9c68b60f95c7347b11cca5ef8d05e866eaa

32 Contingent 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.

Referencing norms: Para32ContingentAssetFromUnexpectedEvent, possible_inflow_of_economic_benefits, unplanned_or_unexpected_event

en · official · sha256:fe241cf544c1f2f35b553223786eb5605642538f740f5cacacca32b9b426fc6e

33 Contingent 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.

Referencing norms: Para33OverPara32, Para33VirtuallyCertainIsNotContingent, asset_and_income_recognised, virtually_certain_inflow, virtually_certain_inflow/external

en · official · sha256:cafc6bcf23c29d9a34fb752e8c2d90cfaca8c632d91f2c30798276f4ac49a13f

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

Referencing norms: Para34DiscloseWhenInflowProbable, contingent_asset_disclosed, inflow_probable, inflow_probable/external

en · official · sha256:82b6f6e2dfae2112aceb2285f2c1445a234aac09061a193aaaebc2a89a025264

35 Contingent 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).

Referencing norms: Para35RecogniseWhenVirtuallyCertain, asset_and_income_recognised, virtually_certain_inflow, virtually_certain_inflow/external

en · official · sha256:5357411052de4b7d32c50a2bd504401b346f95e9fd583a64e9951552517cd77f

4 [Deleted]

en · official · sha256:7018a142de296165c17c92c639ce625e6e018bdecc4ddcacba48fb595cc1377a

5 Where 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, IFRS 3 Business combinations addresses the treatment by an acquirer of contingent liabilities assumed in a business combination. Similarly, certain types of provisions are also addressed in standards on: (a) construction contracts (see IAS 11 Construction contracts); (b) income taxes (see IAS 12 Income taxes); (c) leases (see IAS 17 Leases). However, as IAS 17 contains no specific requirements to deal with operating leases that have become onerous, this standard applies to such cases; (d) employee benefits (see IAS 19 Employee benefits); and (e) insurance contracts (see IFRS 4 Insurance contracts). However, this standard applies to provisions, contingent liabilities and contingent assets of an insurer, other than those arising from its contractual obligations and rights under insurance contracts within the scope of IFRS 4.

Referencing norms: Para5AnotherStandardApplies, Para5OnerousOperatingLeaseStaysInScope, Para5cOverPara5, another_standard_deals_with_item, onerous_operating_lease_item

en · official · sha256:4c15d328f1a8d8604cc23bce45ea0c69f4656860381d53ff70bc79153dab549c

6 Some amounts treated as provisions may relate to the recognition of revenue, for example where an entity gives guarantees in exchange for a fee. This standard does not address the recognition of revenue. IAS 18 Revenue identifies the circumstances in which revenue is recognised and provides practical guidance on the application of the recognition criteria. This standard does not change the requirements of IAS 18.

Referencing norms: Para6OverPara1, Para6RevenueRecognitionNotAddressed, revenue_recognition_question

en · official · sha256:e4c568bd17af177a194f1d0b162140112867fb3f3b5dbbcff2cfe45a89f55641

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

Referencing norms: Expenditure, Para61ProvisionUsed, Para61UseOnlyForTheOriginalPurpose, expenditure_set_against, provision_used

en · official · sha256:a52ff8da86e3f7445435e45924ae57c002c5b67cfe663e15e6d23534b1287ede

62 Only 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.

Referencing norms: Para62RelatesToOriginalProvision, expenditure_of_the_purpose_originally_recognised, expenditure_relates_to_original_provision

en · official · sha256:e305539a24efd890c40ba6c9051031b5dfcbe8870d0fb65c11c8f8509598de4c

63 Provisions shall not be recognised for future operating losses.

Referencing norms: Para63NoProvisionForFutureOperatingLosses, future_operating_loss

en · official · sha256:c3e6335b64efd126f0e1d6ed50fb6313dd1d94941861d951000f9815ae46ea93

64 Future 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.

Referencing norms: Para64FutureOperatingLossIsNotALiability, Para64OverPara10

en · official · sha256:d241535eef6e264ba3c0f672bc18c4a6d53e3cc25ba4bf5cd8b3d366c097c1df

65 An 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.

Referencing norms: Para65ImpairmentIndication, expectation_of_future_operating_losses, impairment_test_required

en · official · sha256:1174e60b06b28483dc0c4b122b5c1511153cb0932c26fa7d9a076aebaeafad66

7 This 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.

Referencing norms: Para7CarryingAmountAdjustmentExclusion, carrying_amount_adjustment

en · official · sha256:69f09077cc2eba2edc80d127c057aa06a865f77dee6c619ecf6d3948a6ada0b1

8 Other 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.

en · official · sha256:1f5ee05e9a7a66393b922b521dfc735713b98d7062c295fa6d5b9d3cd9a34277

9 This 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.

Referencing norms: Para9RestructuringProvisionsInScope, restructuring

en · official · sha256:84a1bb26cc93a51e128ad0a8578cb60be084057e572c45af58cd2dbf73db636b

INTERNATIONAL ACCOUNTING STANDARD 37 Provisions, contingent liabilities and contingent assets