EXPOSURE DRAFT AND COMMENT LETTERS: ONEROUS CONTRACTS—COST OF FULFILLING A CONTRACT

The International Accounting Standards Board (the IASB) has published for public comment proposed amendments to 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.

The proposed amendments originate from a request to the IFRS Interpretations Committee for clarification of which costs to include in this assessment.A company determines that a contract will be loss-making—and describes it as onerous—if the costs the company expects to incur to fulfill the contract are higher than the economic benefits it expects to receive from it.

The IASB has proposed to amend IAS 37 to specify 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 fulfill 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.

The Institute would like to receive your comments on the proposed amendments by 15 March 2019. Comments should be sent by email to standards@icpau.co.ug.