The Financial Reporting Council (FRC) set out Thursday ways companies can improve their reporting on provisions, and contingent liabilities and assets under IAS 37.
This reporting is particularly important, as it can provide forward-looking information to investors about a company’s exposures, the FRC explained.
It said the issues giving rise to provisions and contingent liabilities are often long-term in nature, such as climate change and other environmental obligations, or significant to the assessment of future business performance, such as onerous contracts and regulatory penalties or compensation.
In its Thematic Review: IAS 37 Provisions, Contingent Liabilities, and Contingent Assets, the FRC recommended improvements in areas including:
- Explaining how the amounts of expected outflows have been estimated, identifying the key assumptions applied, and describing the associated uncertainties;
- Disclosing the phasing of outflows companies expect to see as they utilise their provisions; and
- Describing the underlying costs for which companies make provisions.
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.