Future operating losses
IAS 37 prohibits provisions for future operating losses because those losses do not meet the definition of a liability or the recognition criteria for a provision. Anticipated losses may indicate that assets need an impairment assessment. A separate present obligation, such as an onerous contract, is assessed under its own requirements. Do not confuse a forecast loss with a liability arising from a past obligating event.
Worked example
A retailer expects its stores to lose $100,000 next year because demand is falling. It does not recognise a $100,000 provision for those future operating losses; it considers whether the forecast indicates asset impairment or an onerous contract.
Common mistake
Recognising a provision for future operating losses merely because they are probable and can be estimated.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |