Rules of IAS 37 Pertain

¶ … 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.

Results of Exposure Draft #2

The Canadian responses to Exposure Draft #2 were fairly consistent in their content, finding that while the specifications of measurements and reporting standards showed definite improvements there were still certain issues of clarity (ACSB 2010). Other concerns that were mentioned include privacy concerns regarding the new level of information that would be required under these amendments, undue costs brought about by the need to collect and prepare reports for essentially redundant information, and a general sense that a bit too much intrusion is being attempted into certain specific contract areas (ACSB 2010). Primarily, however, the problems cited are very specific and are not widely repeated, which demonstrates a major change from the commentary provided on Exposure Draft #1.

Internationally, a broader array of criticism was noted with both exposure drafts, and with certain problems persisting in Exposure Draft #2 that had first been identified in Exposure Draft #1. Specific issues that were brought to the attention of the IASB by many different letter writers included a lack of clarity in the ultimate specific purpose of the proposed amendments, remaining confusion regarding the definition of specific terms and the recording of very specific classes and sets of obligations and situations, and the fact that present-day valuations for many obligations and liabilities that fall under IAS 37 were probably entirely inaccurate, as these liabilities would be discharged when they became due (IASB 2010). In general, these issues were more specific than those cited with Exposure Draft #1.

Given the specific issues that were raised in the comment letters to Exposure Draft #2 as well as the trend that exists in a comparison of the comment letters moving from Exposure Draft #1 to Draft #2, the adjustment that will likely be made in Exposure Draft #3 are fairly easy to predict. There will need to be a greater clarification and definition of language, especially with terms such as "settle" that do not necessarily refer to any specific action or set of actions, and the various classes of obligations and liabilities that have received proposed changes in the amendments will also need to be more concretely defined. It is also expected that certain major changes in accounting and reporting methods, such as the current valuation of future liabilities, will either be eliminated or will be mitigated by some sort of special measure that reflects the changing valuation of the given liability or obligation. This will put the amendments more in keeping with the international community's desires.

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.