EFRAG feeds back on IASB exposure draft on provisions improvements
The European Financial Reporting Advisory Group (EFRAG) has released a feedback statement on the International Accounting Standards Board’s (IASB) Exposure Draft (ED) Provisions – Targeted Improvements.
EFRAG’s statement summarises stakeholder feedback and explains how it informed EFRAG’s final comment letter (FCL), submitted to the IASB on 1 April 2025, in response to the IASB’s ED IASB/ED/2024/8.
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The ED proposed amendments to three aspects of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
These include the criteria for recognising a provision, specifically the requirement for a present obligation from a past event, the requirements for measuring a provision related to future expenditure and the discount rate used to bring that expenditure to present value.
The FCL assessed that the proposals create less clear guidance for some types of provisions.
Additionally, EFRAG found that the proposals increase reliance on judgement, which may not lead to a reduction in compliance costs.
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By GlobalDataA consequence of amending the present obligation recognition criterion is the withdrawal of IFRIC 21 Levies.
EFRAG welcomed this but noted that the Exposure Draft did not fully address previously raised concerns regarding IFRIC 21.
EFRAG recommended that the IASB refine definitions of legal and constructive obligations, specify criteria for exchange transactions, define qualifying past events, clarify actions taken over time and determine when an entity cannot avoid an action.
EFRAG also suggested field-testing the requirements and improving examples in the proposed guidance for IAS 37.
In the FCL, EFRAG supported proposed improvements to the measurement of provisions, specifically the clarification of required expenditure and specifying a risk-free discount rate, excluding non-performance risk.
However, EFRAG highlighted several areas needing further guidance and clarification.
EFRAG suggested that the IASB could finalise the measurement amendments more quickly than those related to the present obligation recognition criterion.
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