Disclosure of provisions

Learning objectives

• Prepare the reconciliation of movements for each class of provision (opening, additions, amounts used, reversals, unwinding of the discount and effect of a change in the rate, closing).L2, L3
• Identify the qualitative disclosures for each class: nature, timing, uncertainties, major assumptions, expected reimbursements.L2, L3
• Determine the classes of provisions according to whether the nature of the items is sufficiently similar.L3, L4

Normative references

• IAS 37 §84For each class of provision, the entity discloses: the carrying amount at the beginning and end of the period; additional provisions made in the period, including increases to existing provisions; amounts used; unused amounts reversed; the increase in the discounted amount arising from the passage of time and the effect of any change in the discount rate. Comparative information is not required.
• IAS 37 §85For each class of provision, the entity discloses: a brief description of the nature of the obligation and the expected timing of any resulting outflows; an indication of the uncertainties about their amount or timing, with, where necessary, the major assumptions made concerning future events (para. 48); the amount of any expected reimbursement, stating the amount of any asset recognised for it.
• IAS 37To group provisions or contingent liabilities into a class, their nature must be sufficiently similar for a single statement about them to fulfil the requirements of paras. 85(a) and (b) and 86(a) and (b); for example, normal warranties and amounts that are the subject of legal proceedings do not form a single class.
• IAS 37Where a provision and a contingent liability arise from the same set of circumstances, the disclosures in paras. 84 to 86 are made in a way that shows the link between them.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

10 questions

• The objective of IAS 37 is limited to setting recognition criteria for provisions; what the entity states in its notes about these items is governed entirely by other standards.L1
• Under the objective of IAS 37, which aspects of provisions and contingencies should the notes enable users to understand?L1
• For the reconciliation of each class of provision, comparative information for the previous period is not required.L2
• Valréane's "site restoration" class shows: opening provision {opening}; provisions made {additions}; amounts used {used}; unused amounts reversed {reversed}; increase due to the passage of time {unwinding}. Compute the closing provision in the reconciliation.L2
• For its "litigation and contractual warranties" class, Wimerane has: opening balance {opening_balance}; new provisions {new_provisions}; reversals of unused amounts {reversals}; unwinding and effect of the change in the discount rate {time_and_rate_effect}; closing balance {closing_balance}. What amount of provisions used must appear in the reconciliation?L3
• For each class of provision, what qualitative information must Ardenay disclose?L2
• Barvelle is considering presenting its normal product warranties and the amounts at stake in legal proceedings as a single "other provisions" class. Is this acceptable?L3
• Cavelline's reconciliation for its "decommissioning" class shows an unexplained difference between the opening balance plus the movements presented and the closing balance. Additions, amounts used and reversals are correct. What is the most likely cause?L3
• Where a provision and a contingent liability arise from the same set of circumstances, the disclosures are made in a way that shows the link between them.L3
• Dornavel is preparing its classes of provision. Which groupings meet the requirement of a sufficiently similar nature?L4