IAS 37 proposed amendments for measuring and reporting contingent liabilities

¶ … rules of IAS 37 pertain to the measuring and reporting of liabilities that are not covered by other standards and rules published by the IASB, "such as liabilities to decommission assets and liabilities arising from legal disputes" (IFRS 2010). The major changes that were proposed as amendments to IAS 37 involved the recognition of certain obligations not entirely or clearly defined by the IASB as liabilities, requiring stricter measurement and reporting measures for these obligations (IFRS 2010). The proposed amendments would also change current regulations by requiring liabilities for which measurement was impossible to still be reported, with uncertainties displayed in the measurement rather than leading simply to omission (IFRS 2010). This would mean that a more accurate representation of liabilities would be achieved in balance sheets, and not only in notes that are provided as explanations and addendums to these required balance sheets (IFRS 2010).

The proposed amendments and request for comment issued by the IASB received a great deal of response and suggestions. Many of the recommendations, adjustments, and direct responses to the questions asked by the IASB involved the new proposed methods for measuring certain obligations and liabilities, with a variety of concerns raised from a variety of corners (IFRS 2010). One recurrent theme in the commentary on the proposed amendment is a dislike for the inclusion of certain costs in the measuring of liabilities when they run the possibility of being reflected elsewhere on the balance sheet, as well, such as external costs that will be paid from stated resources.

Exposure Draft Differences

The issues with Exposure Draft #1 primarily consisted not of objection to the definition of contingent liabilities or attempts to measure and report these contingent or non-financial liabilities, but rather had to do largely with specifics of those these contingent liabilities were to be calculated and reported (IFRS 2010). The same basic commentary applies to constructive obligations, another form of non-financial liability or responsibility taken on by a company; under the proposed amendment, these obligations would be quantified according to what would be "rationally paid" regardless of how they were going to be paid for (IASB 2005). Problems in both the quantification of these non-financial liabilities (i.e. In the measurement of their specifics) and the method of their reporting on company balance sheets were raised in comments on the first draft (IFRS 2010). These issues were largely addressed in Exposure Draft #2 by a consideration of different funding resources to be used in discharging these responsibilities and liabilities (IASB 2010).

The issues that are raised with Exposure Draft #2 are essentially part of the same areas of concern that were identified in comments to Exposure Draft #1, primarily because Draft #2 really only addressed the concerns that were raised with Draft #1 (IASB 2010). Other minor changes were made, but ultimately concerns still primarily exist in regards to precisely what has to be measured and how it has to be reported. Comments and concerns were addressed, but some uncertainties with the proposed regulation and their effects remain.

Personal Comment and Reflection

Despite their lack of clarity and the existence of a few redundancies and other issues, the proposed amendments definitely bring a positive change to the existing standards. The valuation of non-financial future liabilities and obligations will always be something of an imperfect science, and clearly there are issues in the methods proposed by these amendments. The specific methods of valuation proposed in the initial amendment and even in Exposure Draft #2 raised obvious concerns among accountants and related officials and professionals in the international community, but the attempt to value these liabilities is definitely worthwhile.

Due to the degree to which large portions of the proposed amendments have been accepted by accountants on an international basis and the avid interest in commenting on specific features of the amendment rather than rejecting the proposed changes wholesale, it seems quite likely that these amendments will be adopted in some form at some point in the relatively near future. There is no doubt that accounting for the types of liabilities and obligations that fall under IAS 37 is necessary in reporting an accurate picture of a company's balance sheets, and IAS 37 as it now stands does not do an adequate job of this; these amendments will be adopted because they are a necessary part of improving accounting standards. As to when this adoption will actually take place, it is probably at least a year out; allowing for the drafting of another exposure draft, another round of comment and adjustment, and finally the drafting and adopting of the amendments in their final form.

The goal of the IASB is to provide a standardized system of accounting and reporting so that businesses can actually be analyzed and compared in a meaningful way. Without making certain changes to IAS 37 and the manner in which certain non-financial liabilities and obligations are met, this goal will remain elusive at least to a small degree. All aspects of a business that have an ultimate financial impact must be included in the accounting reports and balance sheets of the company if an accurate valuation and assessment is to be achieved, and that is the precise purpose behind the proposed amendments to IAS 37.