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IASB ED/2018/2 Onerous Contracts—Cost of Fulfilling a Contract (Proposed amendments to IAS 37)

The International Accounting Standards Board (IASB) proposes to amend IAS 37 Provisions, Contingent Liabilities and Contingent Assets to specify which costs a company should include when assessing whether a contract will be loss-making.

A company determines that a contract will be loss-making—and describes it as onerous—if the costs the company expects to incur to fulfil the contract are higher than the economic benefits it expects to receive from it.

The IASB Exposure Draft specifies that the costs of fulfilling a contract include both incremental costs, such as the costs of materials, and an allocation of other costs directly related to the contract, such as the depreciation charge for equipment the company uses to fulfil contracts. 

The amendments will provide greater clarity to companies and help ensure the Standard is applied consistently. The changes are most relevant for companies in the manufacturing, construction and services sectors, and may result in some companies recognising costs earlier than previously.

To download the Exposure Draft, click here.

Invitation to comment

The Exposure Draft is open for comment until 15 March 2019.

You may provide your comments online or email us at technical@masb.org.my.