IAS 37Chapter 8Lesson 2
Restructuring: when to provide, and for what
Step 1 of 9Learning objectives
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A restructuring (closing sites, discontinuing a business, removing a layer of management…) gives rise to a provision only if the general conditions are met, in particular a constructive obligation at the reporting date: a detailed formal plan, and a valid expectation raised in those affected by starting to implement it or by a sufficiently specific announcement. A board decision alone is not enough; the sale of an operation commits the entity only once a binding sale agreement is signed. The provision includes only the direct expenditures, necessarily entailed by the restructuring and not associated with ongoing activities.
Learning objectives
- Identify the events that may constitute a restructuring.
- Determine whether a constructive obligation to restructure exists at the reporting date: detailed formal plan, valid expectation raised by starting implementation or a sufficiently specific announcement.
- Assess the effect of a decision not communicated, an announcement after the reporting date (disclosure under IAS 10) and a sale with no binding agreement.
- Distinguish eligible direct expenditures from excluded costs, then calculate and record the restructuring provision.