IAS 37 · Government

IAS 37 Provision Calculator
for Government

Pre-configured for government provision types: citizen litigation and judicial review claims, environmental remediation for public land, infrastructure decommissioning, and departmental restructuring provisions. Note: IPSAS 19 is the public sector equivalent.

Obligation Type

Present Obligation

Does a present obligation exist from a past event?

IAS 37 Provision Assessment Toolkit — free PDF

Complete audit toolkit: IAS 37 recognition decision flowchart, measurement methodology guide, discounting worked examples, disclosure checklist, provision type cheat sheet, and journal entry templates.

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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.
Scope Note: Pension obligations are under IAS 19/IPSAS 39, not IAS 37/IPSAS 19. Social benefit obligations may fall under IPSAS 42 rather than IPSAS 19.

IAS 37 Provisions in Government

Government and public sector entities operate within a distinct accounting framework where IPSAS 19 (Provisions, Contingent Liabilities and Contingent Assets) serves as the direct public sector equivalent of IAS 37. The recognition criteria are essentially the same — present obligation, probable outflow, reliable estimate — but the application context differs significantly. Government provisions typically involve legal claims from citizens, environmental remediation obligations for publicly owned contaminated land, infrastructure decommissioning, and restructuring provisions from departmental reorganisation. The scale of government provisions can be enormous: national environmental remediation programmes, defence infrastructure decommissioning, and mass litigation can individually run into billions. Pension-related obligations, while often the largest liability for government entities, are typically within the scope of IAS 19/IPSAS 39 (Employee Benefits) rather than IAS 37/IPSAS 19.

Measurement Considerations for Government

Government provision measurement must account for the unique characteristics of public sector obligations. Legal claims against government entities often involve public law remedies (judicial review, human rights claims) where damages frameworks differ from private litigation. Environmental provisions for historically contaminated public land may span decades and require substantial discounting. Infrastructure decommissioning provisions for ageing public assets — dams, bridges, nuclear facilities, military installations — require engineering assessments and long-term cost projections similar to private sector decommissioning but often on a larger scale. Government restructuring provisions follow the same IAS 37.70-83 criteria as private sector entities: a detailed formal plan must be communicated to those affected before a constructive obligation arises.

Regulatory Context and Audit Considerations

Government entities applying IFRS (rather than IPSAS or national public sector standards) should apply IAS 37 directly. Those applying IPSAS should apply IPSAS 19, which is aligned with IAS 37 but includes additional guidance on provisions arising from non-exchange transactions (taxes, fines, grants). Government audit bodies (NAO in the UK, Cour des comptes in France, Algemene Rekenkamer in the Netherlands) scrutinise provision adequacy and disclosure as part of the public accountability framework. Auditors should consider whether government entities have identified all material contingent liabilities, particularly from pending litigation and regulatory obligations, and whether disclosure is adequate given the public interest in government financial reporting.

Common Provision Types in Government

legal claim

Citizen litigation, judicial review challenges, human rights claims, public procurement disputes

Typical: €100K-€100M Timeline: 1-7 years Method: Best Estimate
environmental

Remediation of contaminated public land, former military sites, historical industrial sites now in public ownership

Typical: €1M-€500M Timeline: 5-30 years Method: Best Estimate
asset retirement

Infrastructure decommissioning — bridges, dams, public buildings, waste facilities

Typical: €5M-€1B Timeline: 10-50 years Method: Best Estimate
restructuring

Department reorganisation, service consolidation, agency mergers

Typical: €1M-€100M Timeline: 1-3 years Method: Best Estimate
employee termination

Civil servant redundancy provisions during government restructuring programmes

Typical: Per-employee severance × affected headcount Timeline: 6-24 months Method: Best Estimate

Worked Example: Regional Environmental Agency

A government agency is responsible for remediating a former military site contaminated with heavy metals and unexploded ordnance. Environmental assessment indicates remediation will take 12 years:

Nominal remediation cost: €24,000,000 (based on environmental engineering assessment). Timing: costs spread over 12 years but weighted toward years 3-8. Applying a weighted average timing of 6 years. Discount rate: 2.5% (government borrowing rate adjusted for risk). Present value = €24,000,000 / (1.025)^6 = €24,000,000 / 1.1597 = €20,695,000. The provision is recognised at PV with annual unwinding through finance costs. Sensitivity analysis: at 1.5% discount rate, PV = €21,945,000; at 3.5%, PV = €19,544,000.

Provision Amount
€20.695.000
Regulatory Context: IPSAS 19 is the direct public sector equivalent of IAS 37. Government audit bodies (NAO, Cour des comptes, Algemene Rekenkamer) scrutinise provision adequacy. Public sector entities face heightened transparency and accountability expectations for provision disclosure.

Frequently Asked Questions — Government

What is the relationship between IAS 37 and IPSAS 19 for government provisions?
IPSAS 19 is the public sector equivalent of IAS 37, developed by the International Public Sector Accounting Standards Board. The recognition criteria (present obligation, probable outflow, reliable estimate) are essentially identical. IPSAS 19 includes additional guidance on provisions arising from non-exchange transactions such as taxes and social benefits. Government entities applying IFRS use IAS 37 directly; those applying IPSAS use IPSAS 19. The measurement principles are aligned, including the expected value and single best estimate methods.
How should government entities provision for citizen litigation?
Government entities face litigation from citizens on grounds including administrative law challenges (judicial review), human rights claims, public procurement disputes, and negligence in service delivery. Each significant claim should be assessed individually: probability of adverse outcome based on legal advice, expected damages under the applicable legal framework (which may differ from private law damages), and legal costs. Government entities often face large volumes of similar claims (e.g., benefit overpayment disputes) where the expected value method is appropriate.
Are pension obligations provisions under IAS 37 for government?
No. Pension obligations for government employees are typically within the scope of IAS 19 Employee Benefits (or IPSAS 39 for public sector entities), not IAS 37. IAS 19 provides specific measurement requirements for defined benefit pension obligations including actuarial valuations, discount rates, and remeasurement through other comprehensive income. However, early retirement provisions as part of a restructuring programme — where employees are offered enhanced pensions to leave — may have components under both IAS 19 and IAS 37.
How should government environmental remediation provisions be measured?
Government environmental provisions for contaminated public land should follow the same IAS 37 measurement principles as private sector entities: best estimate of remediation cost based on specialist environmental assessments, discounted to present value for long-term programmes. Government entities may have access to lower discount rates reflecting sovereign borrowing costs. The provision should reflect the entity's specific legal obligation to remediate — this may arise from environmental legislation, court orders, or published government remediation commitments that create constructive obligations.
What additional disclosure requirements apply to government provisions?
Government entities face heightened transparency expectations. In addition to IAS 37.84-92 disclosure requirements, public sector accountability frameworks typically require additional information about the nature and cause of the obligation, the uncertainty around timing and amount, and the expected source of funding. Government audit bodies may publish commentary on provision adequacy in their reports to parliament. Contingent liabilities are particularly important for government disclosure because of the public interest in understanding potential exposures that could affect future public finances.

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