13. December 2018

IASB seeks comments on proposed amendments to IAS 37

The IASB has published the ED/2018/2 Onerous Contracts – Cost of Fulfilling a Contract (proposed amendments to IAS 37) for public consultation.

The amendments contain proposed clarifications on the costs an entity considers as the “cost of fulfilling a contract” when assessing whether a contract is onerous.

The no longer applicable IAS 11 contained requirements on the costs an entity would include when identifying, recognising, and measuring onerous construction contracts.

However, IAS 37 does not specify whether the “cost of fulfilling a contract” to deliver goods or services

  • comprise only the incremental cost of fulfilling that contract (incremental cost approach), or
  • include an allocation of other costs that directly relate to the contract (directly related cost approach) in addition to the incremental cost.

As this gives rise to diversity in practice in defining onerous contracts, a clarification of the IAS 37 onerous contract requirements are deemed necessary.

The Board proposes specifying the “cost of fulfilling a contract” to comprise the cost that directly relate to the contract, rather than to comprise the incremental cost only. They take the view that the directly related cost approach provides a more faithful representation of the cost of fulfilling a contract.

The Exposure Draft can be obtained here. The comment period ends on 15 April 2019.