AASB137_07-04_COMPoct10_01-11

Compiled AASB Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets This compiled Standard applies to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. Early application is permitted. It incorporates relevant amendments made up to and including 27 October 2010. Prepared on 26 November 2010 by the staff of the Australian Accounting Standards Board. AASB 137-compiled 2 COPYRIGHT Obtaining Copies of Accounting Standards Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: www.aasb.gov.au. Printed copies of original Standards and amending Standards are available for purchase by contacting: The Customer Service Officer Australian Accounting Standards Board Level 7 600 Bourke Street Melbourne Victoria AUSTRALIA Postal address: PO Box 204 Collins Street West Victoria 8007 AUSTRALIA Phone: (03) 9617 7637 Fax: (03) 9617 7608 E-mail: publications@aasb.gov.au Website: www.aasb.gov.au Other Enquiries Phone: (03) 9617 7600 Fax: (03) 9617 7608 E-mail: standard@aasb.gov.au COPYRIGHT © 2010 Commonwealth of Australia This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007. All existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at www.ifrs.org. AASB 137-compiled 3 CONTENTS CONTENTS COMPILATION DETAILS COMPARISON WITH IAS 37 ACCOUNTING STANDARD AASB 137 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS Paragraphs Objective Application Aus1.1 – Aus1.7 Scope 1 – 9 Definitions 10 Provisions and Other Liabilities 11 Relationship between Provisions and Contingent Liabilities 12 – 13 Recognition Provisions 14 Present Obligation 15 – 16 Past Event 17 – 22 Probable Outflow of Resources Embodying Economic Benefits 23 – 24 Reliable Estimate of the Obligation 25 – 26 Recognition of Liabilities Arising from Local Government and Government Existing Public Policies, Budget Policies, Election Promises or Statements of Intent Aus26.1 – Aus26.2 Contingent Liabilities 27 – 30 Contingent Assets 31 – 35 Measurement Best Estimate 36 – 41 Risks and Uncertainties 42 – 44 Present Value 45 – 47 Future Events 48 – 50 Expected Disposal of Assets 51 – 52 Reimbursements 53 – 58 Changes in Provisions 59 – 60 Use of Provisions 61 – 62 AASB 137-compiled 4 CONTENTS Application of the Recognition and Measurement Rules Future Operating Losses 63 – 65 Onerous Contracts 66 – 69 Restructuring 70 – 83 Disclosure 84 – 92 GUIDANCE ON IMPLEMENTING AASB 137 A. Tables – Provisions, Contingent Liabilities, Contingent Assets and Reimbursements Page 31 B. Decision Tree Page 34 C. Examples: Recognition Page 35 D. Examples: Disclosures Page 43 Australian Accounting Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets (as amended) is set out in paragraphs Aus1.1 – 92. All the paragraphs have equal authority. Terms defined in this Standard are in italics the first time they appear in the Standard. AASB 137 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies. AASB 137-compiled 5 COMPILATION DETAILS COMPILATION DETAILS Accounting Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets as amended This compiled Standard applies to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. It takes into account amendments up to and including 27 October 2010 and was prepared on 26 November 2010 by the staff of the Australian Accounting Standards Board (AASB). This compilation is not a separate Accounting Standard made by the AASB. Instead, it is a representation of AASB 137 (July 2004) as amended by other Accounting Standards, which are listed in the Table below. Table of Standards Standard Date made Application date (annual reporting periods … on or after …) Application, saving or transitional provisions AASB 137 15 Jul 2004 (beginning) 1 Jan 2005 AASB 2007-4 30 Apr 2007 (beginning) 1 Jul 2007 see (a) below AASB 2007-8 24 Sep 2007 (beginning) 1 Jan 2009 see (b) below AASB 2007-9 13 Dec 2007 (beginning) 1 Jul 2008 see (c) below AASB 2007-10 13 Dec 2007 (beginning) 1 Jan 2009 see (b) below AASB 2008-3 6 Mar 2008 (beginning) 1 Jul 2009 see (d) below AASB 2009-6 25 Jun 2009 (beginning) 1 Jan 2009 and (ending) 30 Jun 2009 see (e) below AASB 2009-12 15 Dec 2009 (beginning) 1 Jan 2011 see (f) below AASB 2010-2 30 Jun 2010 (beginning) 1 Jul 2013 not compiled* AASB 2010-5 27 Oct 2010 (beginning) 1 Jan 2011 see (f) below * The amendments made by this Standard are not included in this compilation, which presents the principal Standard as applicable to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. (a) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2007. (b) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods. AASB 137-compiled 6 COMPILATION DETAILS (c) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2008, provided that the Standards and Interpretation listed in paragraph 6 of AASB 2007-9 are also applied to such periods. (d) Entities may elect to apply this Standard to annual reporting periods beginning on or after 30 June 2007 but before 1 July 2009, provided that AASB 3 Business Combinations (March 2008) and AASB 127 Consolidated and Separate Financial Statements (March 2008) are also applied to such periods. (e) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods, and to annual reporting periods beginning on or after 1 January 2009 that end before 30 June 2009. (f) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2011. Table of Amendments to Standard Paragraph affected How affected By … [paragraph] Objective amended AASB 2007-4 [97] Aus1.1 amended AASB 2007-8 [7, 8] Aus1.4 amended AASB 2007-8 [8] 5 amended AASB 2008-3 [69] 16 amended amended AASB 2009-12 [17] AASB 2010-5 [53] 18 amended amended AASB 2007-8 [6] AASB 2007-10 [85] 25 amended amended AASB 2007-8 [122] AASB 2007-10 [88] Aus26.1-Aus26.2 (and preceding heading) added AASB 2007-9 [20] 30 amended AASB 2007-10 [88] 33 amended AASB 2007-10 [86] 35 amended AASB 2007-10 [88] 38 amended AASB 2009-12 [17] 41 amended AASB 2007-4 [97] 46 amended AASB 2009-12 [17] 54 amended AASB 2007-8 [6] 75 amended amended amended amended AASB 2007-8 [6] AASB 2007-10 [88] AASB 2009-6 [83] AASB 2009-12 [17] AASB 137-compiled 7 COMPILATION DETAILS Table of Amendments to Guidance Paragraph affected How affected By … [paragraph] A, title, rubric, heading amended AASB 2010-5 [54-55] A, Reimbursements amended AASB 2007-8 [6] B, title, rubric, heading amended AASB 2010-5 [56] C, title, rubric, heading amended AASB 2010-5 [57] C, Example 2A amended AASB 2007-4 [97] C, Example 6 amended AASB 2009-6 [84] C, Example 10 amended amended AASB 2007-10 [87, 88] AASB 2009-6 [84] D, title, rubric, heading amended AASB 2010-5 [58] General Terminology Amendments References to ‘reporting date’ and ‘each reporting date’ were amended to ‘end of the reporting period’ and ‘the end of each reporting period’ respectively by AASB 2007-8. These amendments are not shown in the above Tables of Amendments. AASB 137-compiled 8 COMPARISON COMPARISON WITH IAS 37 AASB 137 and IAS 37 AASB 137 Provisions, Contingent Liabilities and Contingent Assets as amended incorporates IAS 37 Provisions, Contingent Liabilities and Contingent Assets as issued and amended by the International Accounting Standards Board (IASB). Paragraphs that have been added to this Standard (and do not appear in the text of IAS 37) are identified with the prefix “Aus”, followed by the number of the relevant IASB paragraph and decimal numbering. Compliance with IAS 37 Entities that comply with AASB 137 as amended will simultaneously be in compliance with IAS 37 as amended. AASB 137-compiled 9 STANDARD ACCOUNTING STANDARD AASB 137 The Australian Accounting Standards Board made Accounting Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets under section 334 of the Corporations Act 2001 on 15 July 2004. This compiled version of AASB 137 applies to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 27 October 2010 (see Compilation Details). ACCOUNTING STANDARD AASB 137 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS 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. Application Aus1.1 This Standard applies to: (a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity; (b) general purpose financial statements of each other reporting entity; and (c) financial statements that are, or are held out to be, general purpose financial statements. Aus1.2 This Standard applies to annual reporting periods beginning on or after 1 January 2005. [Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.] AASB 137-compiled 10 STANDARD Aus1.3 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005. Aus1.4 The requirements specified in this Standard apply to the financial statements where information resulting from their application is material in accordance with AASB 1031 Materiality. Aus1.5 When applicable, this Standard supersedes AASB 1044 Provisions, Contingent Liabilities and Contingent Assets as notified in the Commonwealth of Australia Gazette No S 450, 26 October 2001. Aus1.6 AASB 1044 remains applicable until superseded by this Standard. Aus1.7 Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004. Scope 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 onerous1; and (b) [Deleted by the IASB]; (c) those covered by another Australian Accounting Standard. 2 This Standard does not apply to financial instruments (including guarantees) that are within the scope of AASB 139 Financial Instruments: Recognition and Measurement. 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. 4 [Deleted by the IASB] 5 When another Australian Accounting Standard deals with a specific type of provision, contingent liability or contingent asset, an entity 1 ‘Onerous contract’ is a defined term. AASB 137-compiled 11 STANDARD applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on: (a) construction contracts (see AASB 111 Construction Contracts); (b) income taxes (see AASB 112 Income Taxes); (c) leases (see AASB 117 Leases). However, as AASB 117 contains no specific requirements to deal with operating leases that have become onerous, this Standard applies to such cases; (d) employee benefits (see AASB 119 Employee Benefits); and (e) insurance contracts (see AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts, and AASB 1038 Life 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 scopes of AASB 4, AASB 1023 or AASB 1038. 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. AASB 118 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 AASB 118. 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. 8 Other Australian Accounting 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. 9 This Standard applies to provisions for restructuring (including discontinued operations). When a restructuring meets the definition of a discontinued operation, additional disclosures may be required by AASB 5 Non-current Assets Held for Sale and Discontinued Operations. AASB 137-compiled 12 STANDARD Definitions 10 The following terms are used in this Standard with the meanings specified. 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 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. 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 legal obligation is an obligation that derives from: (a) a contract (through its explicit or implicit terms); (b) legislation; or AASB 137-compiled 13 STANDARD (c) other operation of law. 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. 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 provision is a liability of uncertain timing or amount. 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. Provisions and Other Liabilities 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. AASB 137-compiled 14 STANDARD Relationship between Provisions and Contingent Liabilities 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. 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