to form a class referred to at 7.1 above also applies to contingent liabilities.
A further point noted in the standard is that where a provision and a contingent liability
arise from the same circumstances, an entity should ensure that the link between the
provision and the contingent liability is clear. [IAS 37.88]. This situation may occur, for
instance, when an entity stratifies a population of known and potential claimants
between different classes of obligation, and accounts for each class separately. For
example, an entity’s actions may have resulted in environmental damage. The entity
identifies the geographical area over which that damage is likely to have occurred and
recognises a provision based on its ‘best estimate’ of value of claims it expects to be
submitted from residents in that geographical area. In addition, there is a chance (albeit
possible rather than probable) that the pollution is found to have had an effect beyond
the geographical area established by the entity. As noted at 3.2.1 above, the latter,
‘possible but not probable’ obligation meets the definition of a contingent liability for
which disclosure is required.
Another example of when a provision and a contingent liability may arise from the same
circumstance would be where an entity is jointly and severally liable for an obligation.
As noted at 4.7 above, in these circumstances the part of the obligation that is expected
to be met by other parties is treated as a contingent liability.
It is not absolutely clear what is meant by ‘financial effect’ in (a) above. Is it the potential
amount of the loss or is it the expected amount of the loss? The cross-reference to the
measurement principles in paragraphs 36-52 might imply the latter, but in any event,
disclosure of the potential amount is likely to be relevant in explaining the uncertainties
in (b) above.
7.3 Contingent
assets
IAS 37 requires disclosure of contingent assets where an inflow of economic benefits is
probable. The disclosures required are:
(a) a brief description of the nature of the contingent assets at the end of the reporting
period; and
(b) where practicable, an estimate of their financial effect, measured using the
principles set out for provisions in paragraphs 36-52 of IAS 37. [IAS 37.89].
Where any of the information above is not disclosed because it is not practicable to do
so, that fact should be stated. [IAS 37.91]. The standard goes on to emphasise that the
disclosure must avoid giving misleading indications of the likelihood of income arising.
[IAS 37.90].
One problem that arises with IAS 37 is that it requires the disclosure of an estimate
of the potential financial effect for contingent assets to be measured in accordance
with the measurement principles in the standard. Unfortunately, the measurement
principles in the standard are all set out in terms of the settlement of obligations,
and these principles cannot readily be applied to the measurement of contingent
assets. Hence, judgement will have to be used as to how rigorously these principles
should be applied.
1954 Chapter 27
7.4
Reduced disclosure when information is seriously prejudicial
IAS 37 contains an exemption from disclosure of information in the following
circumstances. It says that, ‘in extremely rare cases, disclosure of some or all of the
information required by [the disclosure requirements at 7.1 to 7.3 above] can be
expected to prejudice seriously the position of the entity in a dispute with other parties
on the subject matter of the provision, contingent liability or contingent asset’. [IAS 37.92].
In such circumstances, the information need not be disclosed. However, disclosure will
still need to be made of the general nature of the dispute, together with the fact that,
and the reason why, the required information has not been disclosed. [IAS 37.92].
The following example, from the implementation guidance to the Standard, provides an
example of the disclosures required where some of the information required by the
standard is not given because it is expected to prejudice seriously the position of the entity.
Example 27.24: Reduced disclosure when information is seriously prejudicial
An entity is involved in a dispute with a competitor, who is alleging that the entity has infringed patents and
is seeking damages of $100 million. The entity recognises a provision for its best estimate of the obligation,
but discloses none of the information required by paragraphs 84 and 85 of IAS 37. The following information
is disclosed:
Litigation is in process against the company relating to a dispute with a competitor who alleges that the
company has infringed patents and is seeking damages of $100 million. The information usually required by
IAS 37 is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the
litigation. The directors are of the opinion that the claim can be successfully resisted by the company.
[IAS 37 IE Example Disclosures: Example 3].
As it can be seen in the above example, an entity applying the ‘seriously prejudicial’
exemption is still required to describe the general nature of the dispute, resulting in a
level of disclosure that many entities might find uncomfortable in the circumstances.
References
1
IASB Work Plan, July 2018.
9
IFRIC Staff Paper – Negative interest rates:
2
IFRIC Update, July 2014, p.7.
implication for presentation in the statement of
3
IFRIC Update, September 2017
comprehensive income, January 2015, p.6.
4
FASB ASC Topic 450, Contingencies, 10 Exposure Draft ED/2013/5: Regulatory Deferral
para. 450-20-30-1.
Accounts, IASB, April 2013, para. BC15.
5
Discounting in Financial Reporting, ASB, 11 Request for Views Agenda Consultation 2011,
April 1997.
IASB, July 2011, Appendix C.
6
Discounting in Financial Reporting, ASB, 12 ED/2013/5, para. BC10.
April 1997, para. 2.10.
13 IASB work plan, July 2018.
7
IFRIC Update, March 2011, p.4.
14 IAS 19, Employee Benefits, Example
8
IFRIC Update, January 2015.
illustrating paras. 159-170.
Provisions, contingent liabilities and contingent assets 1955
15 IFRIC Update, March 2018.
26 IASB Update, June 2005, p.1.
16 IASB work plan, July 2018.
27 IASB Update, May 2012, p.8.
17 IFRIC Update, December 2003, pp.4-5.
28 IASB Update, January 2015, p.10.
18 Exposure Draft of Proposed Amendments to
29 IASB Work Plan 2017-2021 Feedback
IAS 37 Provisions, Contingent Liabilities and
Statement on the 2015 Agenda Consultation,
Contingent Assets (IAS 37 ED) and IAS 19
November 2016.
Employee Benefits (IAS 19 ED), IASB, June
30 Directive 2002/96/EC of the European Parliament
2005, para. 58.
and of the Council of 27 January 2003 on waste
19 IASB work plan, July 2018.
electrical and electronic equipment and Directive<
br />
20 IFRIC 3, Emission Rights, IASB, December
2003/108/EC of the European Parliament and of
2004, para. 6.
the Council of 8
December 2003 amending
21 IFRIC 3.5.
Directive 2002/96/EC on waste electrical and
22 IFRIC 3.6.
electronic equipment.
23 IFRIC 3.7.
31 IFRIC Update, March 2018.
24 IFRIC 3.8.
32 IFRIC Update, May 2018.
25 IASB Update, June 2005, p.1.
1956 Chapter 27
1957
Chapter 28
Revenue
1 INTRODUCTION ........................................................................................... 1975
1.1
The distinction between income, revenue and gains .................................. 1975
2 IFRS 15 – OBJECTIVE, EFFECTIVE DATE AND TRANSITION .................... 1976
2.1
Overview of the standard .................................................................................. 1977
2.1.1
Core principle of the standard ......................................................... 1978
2.1.2
Changes to the standard since issuance ......................................... 1979
2.2
Effective date ...................................................................................................... 1980
2.3
Transition methods ............................................................................................ 1981
2.3.1
Definition of a completed contract ................................................. 1982
2.3.2 Implementation
questions
on definition of completed
contract ................................................................................................. 1983
2.3.2.A
Elements in a contract to be considered ................... 1983
2.3.2.B
Identification of a contract under legacy IFRS ........ 1984
2.3.2.C
Determination whether all goods or services
have been transferred ................................................... 1985
2.3.2.D
Some or all of revenue has not been
recognised under legacy IFRS ..................................... 1986
2.3.2.E
Delayed recognition of revenue due to
collectability concerns .................................................. 1987
2.3.2.F
Transfer of a licence under legacy IFRS ................... 1988
2.3.2.G
Transfer of loyalty points under legacy IFRS ......... 1990
2.3.3
Full retrospective adoption .............................................................. 1991
2.3.3.A
Does an entity have to apply elected practical
expedients to all periods and to all contracts? ......... 1994
2.3.3.B
Consequences of applying transition practical
expedients: accounting for completed
contracts excluded from transition ............................ 1994
2.3.4
Modified retrospective adoption .................................................... 1994
1958 Chapter 28
2.3.4.A
Entity-wide election of modified retrospective
method: all contracts or contracts that are not
completed ........................................................................ 1998
2.3.5
Transition disclosures in interim financial statements in
the year of adoption ........................................................................... 1998
2.3.6 Other
transition
considerations
.......................................................
1999
2.3.7
First-time adopters of IFRS ............................................................ 2000
2.4
Definitions .......................................................................................................... 2000
3 IFRS 15 – SCOPE ....................................................................................... 2001
3.1
Other scope considerations ............................................................................. 2002
3.2
Definition of a customer ................................................................................... 2003
3.3 Collaborative
arrangements
............................................................................
2004
3.4 Interaction
with
other standards .................................................................... 2004
3.4.1
Implementation questions on scope .............................................. 2006
3.4.1.A
Islamic financing transactions .................................... 2006
3.4.1.B
Certain fee-generating activities of financial
institutions ...................................................................... 2006
3.4.1.C
Credit card arrangements ............................................ 2008
3.4.1.D
Credit card-holder rewards programmes ................ 2008
3.4.1.E Contributions
.................................................................
2008
3.4.1.F Fixed-odds
wagering contracts .................................. 2009
3.4.1.G
Pre-production activities related to long-term
supply arrangements .................................................... 2009
3.4.1.H Sales
of
by-products
or scrap materials ................... 2009
3.4.1.I Prepaid
gift cards .......................................................... 2010
4 IFRS 15 – IDENTIFY THE CONTRACT WITH THE CUSTOMER ................. 2011
4.1
Attributes of a contract ......................................................................................2012
4.1.1
Implementation questions on attributes of a contract ................2012
4.1.1.A
Master supply arrangements (MSA) ...........................2012
4.1.1.B
Free trial period ............................................................. 2013
4.1.1.C
Consideration of side agreements ............................. 2014
4.1.2
Parties have approved the contract and are committed to
perform their respective obligations ............................................. 2014
4.1.3
Each party’s rights regarding the goods or services to be
transferred can be identified ............................................................ 2015
4.1.4
Payment terms can be identified ..................................................... 2015
4.1.5 Commercial
substance ..................................................................... 2016
4.1.6 Collectability
......................................................................................
2016
4.1.6.A
Assessing collectability for a portfolio of
contracts ......................................................................... 2019
4.1.6.B
Determining when to reassess colle
ctability ........... 2019
Revenue
1959
4.2
Contract enforceability and termination clauses ........................................ 2020
4.2.1
Implementation questions on contract enforceability and
termination clauses ............................................................................2021
4.2.1.A
Evaluating termination clauses and
termination payments in determining the
contract duration ...........................................................2021
4.2.1.B
Evaluating the contract term when only the
customer has the right to cancel the contract
without cause ................................................................. 2022
4.2.1.C
Evaluating the contract term when an entity
has a past practice of not enforcing
termination payments .................................................. 2023
4.2.1.D Accounting
for
a
partial termination of a
contract ........................................................................... 2023
4.3
Combining contracts ......................................................................................... 2024
4.3.1
Portfolio approach practical expedient ........................................ 2026
4.4
Contract modifications ..................................................................................... 2026
4.4.1
Contract modification represents a separate contract ............... 2029
4.4.2
Contract modification is not a separate contract ......................... 2031
4.4.3
Implementation questions on contract modifications ............... 2034
4.4.3.A
Reassessing the contract criteria if a contract is
modified .......................................................................... 2034
4.5
Arrangements that do not meet the definition of a contract under
the standard ........................................................................................................ 2034
4.5.1
Implementation questions on arrangements that do not
meet the definition of a contract under the standard ................ 2036
4.5.1.A
Determining when a contract is terminated for
the purpose of applying paragraph 15(b) of
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 386