AIB Group
Group Financial Control
Bankcentre,
Ballsbridge,
Dublin 4,
Ireland
International Accounting Standards Board,
First Floor,
30 Cannon Street,
London, EC4M 6XH,
United Kingdom.
15th May, 2010
Exposure Draft
Measurement of Liabilities in IAS 37: Proposed amendments to IAS 37
Dear Sirs,
Allied Irish Banks p.l.c. welcome the opportunity to comment on the IASB Exposure
Draft ED/2010/1 Measurement of Liabilities in IAS 37.
Following a review of the above Exposure Draft, please see our responses to the
questions posed below:
Question 1 – Overall requirements
The proposed measurement requirements are set out in paragraphs 36A–36F.
Paragraphs BC2–BC11 of the Basis for Conclusions explain the Board’s reasons for
these proposals.
Do you support the requirements proposed in paragraphs 36A–36F? If not, with
which paragraphs do you disagree, and why?
Response Question 1
Subject to the two issues identified below, we agree with the measurement
requirements as set out in paragraph 36A-36F. The overall requirements do provide a
better measurement regarding liabilities. The approach to the estimation of the
amount an entity should measure its liability at the end of the reporting period to be
relieved of the present obligation sounds rational.
1.The proposal that service-related obligations would be measured including a profit
margin for those services.
Allied Irish Banks, p.l.c.
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This is to be included irrespective of whether the entity intends that the work will be
carried out by an in-house team or by external contractors. We disagree with the
requirement to include a hypothetical profit for obligations that the entity would
satisfy by undertaking the service itself.
2. Proposal to include a Risk Adjustment
The proposal to include a risk margin adjustment to incorporate the risk that the
actual outflow of resources might differ from those expected questions the actual
measurement of the liability as set out in paragraphs 36A-36F.
There is limited guidance in the Exposure Draft as to the exact circumstances as to
when the risk adjustment should be used. Perhaps some disclosure around this area
in the notes to the financial statements would prove more useful to the reader.
Question 2 – Obligations fulfilled by undertaking a service
Some obligations within the scope of IAS 37 will be fulfilled by undertaking a service
at a future date. Paragraph B8 of Appendix B specifies how entities should measure
the future outflows required to fulfil such obligations. It proposes that the relevant
outflows are the amounts that the entity would rationally pay a contractor at the future
date to undertake the service on its behalf.
Paragraphs BC19–BC22 of the Basis for Conclusions explain the Board’s rationale
for this proposal.
Do you support the proposal in paragraph B8? If not, why not?
Response Question 2
We do not support the proposal in paragraph B8 (b) for obligation fulfilled by
undertaking a service. As outlined above we do not believe in the concept of including
a profit margin when the obligation is fulfilled by the entity’s own employees. The
cost of the obligation is that cost which the entity estimates it will incur to fulfil the
obligation itself.
In the period where the liability is initially recognised, the hypothetical profit margin
will reduce income. It will have the effect of increasing income in the period when the
liability is derecognised, thereby distorting the performance of the company in both
periods. This will prove misleading for the user of the financial statements.
Question 3 – Exception for onerous sales and insurance contracts
Paragraph B9 of Appendix B proposes a limited exception for onerous contracts
arising from transactions within the scope of IAS 18 Revenue or IFRS 4 Insurance
Contracts. The relevant future outflows would be the costs the entity expects to incur
to fulfil its contractual obligations, rather than the amounts the entity would pay a
contractor to fulfil them on its behalf.
Paragraphs BC23–BC27 of the Basis for Conclusions explain the reason for this
exception.
Do you support the exception? If not, what would you propose instead and why?
Response Question 3
Yes we support the exception. Any changes to the measurement of onerous sales and
insurance contracts should be postponed until completion of the IASB’s project on
revenue recognition and insurance contracts.
Allied Irish Banks, p.l.c.
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Please contact me with any queries.
Yours sincerely
__________________
Marian Sweeney
Senior Manager-Group Financial Control.
Allied Irish Banks, p.l.c.
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