EFRAG Submits Comment Letter on IASB’s Exposure Draft Provisions – Targeted Improvements

On 1 April 2025, EFRAG submitted its Comment Letter on the IASB’s Exposure Draft IASB/ED/2024/8 Provisions—Targeted Improvements (the ED).

The ED proposes amendments to two aspects of IAS 37 Provisions, Contingent Liabilities and Contingent Assets:

  • The criteria for recognising a provision—specifically, the requirement for the entity to have a present obligation arising from a past event (the present obligation recognition criterion); and

  • The requirements for measuring a provision related to:

    • The type of cost an entity includes when estimating future expenditure required to settle its present obligation; and

    • The rate an entity uses to discount that future expenditure to its present value.

EFRAG assesses that while the proposals related to the present obligation criterion clarify the requirements for some types of provisions, they create less clear guidance for others. Additionally, EFRAG finds that the proposals increase reliance on judgement, which may not lead to a reduction in compliance costs. A consequence of amending the present obligation recognition criterion is the withdrawal of IFRIC 21. While EFRAG welcomes this development, it notes that the ED does not fully address concerns previously raised regarding IFRIC 21.

EFRAG supports the proposed improvements to the measurement of provisions – specifically, the clarification of required expenditure and the specification that the discount rate should be a risk-free rate, excluding non-performance risk. However, EFRAG highlights in its letter several areas requiring further guidance and clarification.

EFRAG also considers that the IASB could be able to finalise the amendments related to measurement faster than those related to the present obligation recognition criterion.

Detailed responses to the ED’s questions, along with EFRAG's suggestions and recommendations, are available in EFRAG’s Comment Letter.

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