AASB 137 (equivalent to IAS 37) · AASB / ASIC

IAS 37 Provision Calculator
Australia

IAS 37 provision assessment with Australia-specific regulatory guidance, AASB / ASIC expectations, and local legal framework considerations.

Obligation Type

Present Obligation

Does a present obligation exist from a past event?

IAS 37 Provision Assessment Toolkit — free PDF

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IAS 37.14 — A provision shall be recognised when: (a) an entity has a present obligation from a past event; (b) it is probable that an outflow will be required; (c) a reliable estimate can be made.

IAS 37.36 — The amount recognised shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

IAS 37.39 — Where there is a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (expected value).

IAS 37.45 — Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to settle the obligation.

IAS 37.72 — A constructive obligation to restructure arises only when an entity has a detailed formal plan and has raised a valid expectation in those affected.

IAS 37 Application in Australia

Australia adopted IAS 37 through the Australian Accounting Standards Board (AASB) as AASB 137 Provisions, Contingent Liabilities and Contingent Assets. AASB 137 is the Australian equivalent of IAS 37 and is substantively identical to the IASB-issued standard, with additional Australian-specific paragraphs (prefixed 'Aus') that extend the scope to certain public sector entities and provide additional guidance for not-for-profit entities. For private sector entities, the recognition and measurement requirements are identical to IAS 37. The Australian Securities and Investments Commission (ASIC) is the principal corporate regulator and conducts financial reporting surveillance reviews that include examination of provision adequacy and disclosure quality. The Financial Reporting Council (FRC) oversees the standard-setting process and audit quality. Australia's legal framework for obligations is based on common law supplemented by extensive statute law, including the Corporations Act 2001, the Australian Consumer Law (ACL), the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), and state-specific environmental and workplace health and safety legislation. Australian entities across mining, resources, construction, and financial services carry significant provision portfolios that are a consistent focus of ASIC financial reporting surveillance.

AASB / ASIC Regulatory Expectations

ASIC has published regulatory guides (including RG 230 on disclosing non-IFRS financial information) and media releases addressing provision-related issues in financial reporting. ASIC's financial reporting surveillance programme has focused on provision adequacy, particularly for mining and resources companies with significant site rehabilitation and mine closure obligations, construction companies with defect liability and warranty provisions, and financial institutions with litigation and regulatory penalty provisions. ASIC has expressed concern that some entities underestimate provision amounts by using overly optimistic assumptions about remediation costs, litigation outcomes, or regulatory penalty severity. The AASB has issued additional guidance through its Implementation Guidance and Illustrative Examples accompanying AASB 137. The Australian Auditing and Assurance Standards Board (AUASB) sets auditing standards based on the ISAs, supplemented by Australian-specific paragraphs. ASIC's audit inspection programme, previously conducted directly and now overseen by the Auditing and Assurance Standards Board, has identified provisions as a recurring area of audit quality concern.

Practical Guidance for Australia

Australian entities applying AASB 137 should pay particular attention to the identification and measurement of provisions arising from the country's extensive regulatory framework. For mining and resources entities, the obligation to rehabilitate mine sites arises under state and territory mining legislation (e.g., Mining Act 1992 (NSW), Mining Act 1978 (WA), Mineral Resources Act 1989 (Qld)) and the EPBC Act. Mine closure provisions are typically long-term, requiring discounting at a pre-tax rate referenced to Australian Government Bond yields. The provision should cover the full estimated cost of rehabilitation including earthworks, revegetation, water treatment, and ongoing monitoring. For construction entities, provisions for defect liability under the Home Building Act 1989 (NSW) or equivalent state legislation, and warranty obligations under the Australian Consumer Law, are common. For financial institutions, provisions for remediation of customers affected by misconduct (as highlighted by the Banking Royal Commission) can be material. Australian entities should use Reserve Bank of Australia (RBA) reference rates and Australian Government Bond yields as inputs to discount rate determinations for long-term provisions.

Audit Expectations

ASIC's audit inspection programme has consistently identified the audit of provisions as an area requiring improvement. Common findings include insufficient challenge of management's assumptions for mine closure and site rehabilitation provisions, inadequate procedures to test the completeness of the provision population — particularly for legal claims and environmental obligations at subsidiary or joint venture sites, limited evaluation of the reasonableness of discount rates applied to long-term provisions, and failure to assess whether restructuring provisions meet all recognition criteria before recording. Australian auditors are expected to engage specialists for material provision estimates involving environmental remediation, actuarial assessments, or mining rehabilitation cost estimation. The AUASB's ASA 540 Auditing Accounting Estimates and Related Disclosures requires auditors to assess the methods, assumptions, and data used by management in developing provision estimates, and to consider the need for management bias indicators. ASIC has emphasised the importance of retrospective reviews comparing actual outcomes with prior-year provision estimates.

Australia-Specific Considerations

Australia-specific IAS 37 considerations are dominated by the mining and resources sector, which generates some of the most significant and complex provisions in Australian corporate reporting. Mine closure and site rehabilitation provisions can run to billions of dollars for large mining operations and require expert geological, environmental, and engineering assessments. The Australian Government's requirement for financial assurance (bonds or bank guarantees) for mine rehabilitation creates a direct regulatory incentive for accurate provision estimation, as the financial assurance amount is typically linked to the estimated rehabilitation cost. Environmental obligations also arise under the EPBC Act for matters of national environmental significance, and under state-specific legislation such as the Contaminated Land Management Act 1997 (NSW). The Australian Consumer Law creates broad consumer guarantee obligations that may give rise to product warranty provisions, particularly for manufacturers and importers. Litigation provisions in Australia should consider the Federal Court Rules 2011 and state court procedures, the availability of class actions under Part IVA of the Federal Court of Australia Act 1976, and the increasing prevalence of litigation funding, which has expanded class action activity significantly. The Fair Work Act 2009 governs employee entitlements relevant to restructuring provisions, including redundancy pay and notice requirements.

Common Audit Inspection Findings — Australia

Mine closure provision estimates not independently challenged — auditor accepted management's rehabilitation cost assumptions without specialist assessment

Completeness of legal claim provisions not adequately tested — class action exposure identified in board minutes but no provision or contingent liability disclosed

Discount rate for long-term rehabilitation provisions not adequately assessed — rate not anchored to Australian Government Bond yields

Restructuring provision recognised before all AASB 137 criteria met — detailed formal plan not communicated to affected employees prior to reporting date

Retrospective review of prior-year provision estimates not performed — no comparison of actual rehabilitation costs with previously recognised provision amounts

Frequently Asked Questions — Australia

How does AASB 137 relate to IAS 37?
AASB 137 is the Australian equivalent of IAS 37 and is substantively identical to the IASB-issued standard for private sector entities. The AASB adds Australian-specific paragraphs (prefixed 'Aus') that extend the scope to certain public sector and not-for-profit entities, but these do not modify the recognition or measurement requirements for for-profit entities. All amendments to IAS 37 issued by the IASB are adopted by the AASB through corresponding amendments to AASB 137. Australian entities applying AASB 137 are therefore applying the same requirements as entities applying IAS 37 globally.
What does ASIC focus on when reviewing provision adequacy?
ASIC's financial reporting surveillance focuses on several provision areas: mine closure and site rehabilitation provisions for resources entities, ensuring that estimates reflect current costs and regulatory requirements; construction defect and warranty provisions, particularly following the Opal Tower and other building defect incidents; financial institution provisions for customer remediation following the Banking Royal Commission findings; and litigation provisions for class actions under Part IVA of the Federal Court Act. ASIC has expressed concern about entities that use overly optimistic assumptions to minimise provisions.
How does Australian environmental law create provision obligations?
Australian environmental obligations arise under federal legislation (primarily the EPBC Act) and state/territory legislation. For mining, each state has its own mining act requiring rehabilitation plans and financial assurance. The Contaminated Land Management Act 1997 (NSW) and equivalent state legislation create obligations for contaminated site remediation. The 'polluter pays' principle applies under most Australian environmental statutes. Entities must assess whether current or former operations have created environmental obligations, engage specialists to estimate remediation costs, and recognise provisions under AASB 137 when an obligation exists, outflow is probable, and the amount can be reliably estimated.
What are country-specific provision considerations for Australian mining companies?
Australian mining companies face some of the most significant provision challenges globally. Mine closure provisions must cover rehabilitation of disturbed land, removal of infrastructure, treatment of contaminated water, revegetation, and long-term monitoring — often spanning decades. State regulators require financial assurance (bank guarantees or bonds) linked to the estimated rehabilitation cost. AASB 137 requires these provisions to be discounted using a pre-tax rate. The provision is recognised with a corresponding asset under AASB 116, with subsequent changes reflected through AASB Interpretation 1. Underestimation of mine closure provisions has been a consistent ASIC focus area.
What are common ASIC audit inspection findings related to provisions?
ASIC audit inspections have identified recurring deficiencies including: insufficient challenge of mine closure provision estimates — auditors accepted management's cost assumptions without independent expert assessment, inadequate testing of completeness of legal claim provisions particularly for class action exposure, failure to evaluate the appropriateness of discount rates for long-term provisions, limited retrospective review of prior-year provision estimates against actual outcomes, and insufficient audit procedures over the completeness and accuracy of data inputs used in actuarial or statistical provision models. ASIC has emphasised the need for auditors to engage specialists for material provision estimates.

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