Restructuring provision
A constructive obligation generally arises only when an entity has a sufficiently detailed formal plan and has raised a valid expectation among those affected by starting implementation or announcing its main features. Measure the provision using direct costs necessarily caused by the restructuring and not associated with ongoing activities. Future operating losses, retraining and marketing are not included merely because they accompany the restructuring.
Worked example
Before the reporting date an entity announces a sufficiently detailed closure plan and creates a valid expectation among those affected. Direct, necessarily incurred contract-termination costs of $200,000 meet the IAS 37 recognition conditions, so it recognises that provision. Retraining for continuing operations is excluded; employee termination benefits are assessed separately under IAS 19.
Common mistake
Do not recognise a provision solely because directors privately approve a plan, include future operating losses or retraining, or apply IAS 37 instead of IAS 19 to employee termination benefits.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |