Criticisms Of Ias 37

Question 1

Judgement

Answer 1

Provision are estimated liabilities and ias 37 requires judgement. This increases risk of bias and reduces compatibility

Question 2

Inconsistent

Answer 2

Before recognizing a provision it requires assessing if outflow of economic benefits is probable - this is inconsistent with other standards such as IFRS 9

Question 3

Out dated

Answer 3

Was issued years ago and does not reflect current thinking of iasb

Question 4

Best estimate

Answer 4

Guidance in this area is lacking

Question 5

Types of cost

Answer 5

Does not specify what types of cost should be included when measuring a provision

Question 6

Risk

Answer 6

States that entity may need to make a risk adjustment to provision but does not specify when to do this or how to calculate the adjustment

Question 7

Contingent assets

Answer 7

Not recognized unless inflow of benefits is virtually certain - lacks guidance about the meaning of virtually certain

Question 8

Timing

Answer 8

Timing difference when one entity recognizes a contingent liability and other entity recognizes contingent asset

Question 9

Revised framework

Answer 9

Exposure draft on the framework proposes removing the probable outflow criteria. Ias 37 would therefore become inconsistent with the revised framework

Question 10

Contradictory guidance

Answer 10

1. Says obligating event is one where entity has no realistic alternative but to settle the obligation
2. Says not to recognize provision if liability can be avoided by future actions - even if unrealistic