IAS 37 · Technology

IAS 37 Provision Calculator
for Technology

Pre-configured for technology provision types: intellectual property and patent litigation, GDPR and data breach penalty provisions, onerous fixed-price project contracts, and rapid restructuring for business pivots.

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.

No spam. Unsubscribe anytime.

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 Provisions in Technology

Technology companies face a provision landscape dominated by intellectual property litigation and data privacy penalties. Patent infringement claims are exceptionally common in the technology sector, with major companies often involved in dozens of simultaneous IP disputes. These claims can result in provisions ranging from millions to hundreds of millions of euros, and the binary nature of patent litigation outcomes makes probability assessment particularly challenging. Data breach penalties under GDPR (up to 4% of global annual turnover or €20 million, whichever is higher) represent a newer but increasingly significant provision category. Onerous contract provisions for loss-making fixed-price software development projects are another common IAS 37 item, particularly for technology companies undertaking bespoke enterprise solutions where scope creep and technical complexity cause costs to exceed contracted revenue. The technology sector also sees rapid restructuring cycles as companies pivot business strategies, exit geographic markets, or rationalise post-acquisition operations.

Measurement Considerations for Technology

IP litigation provisions in technology require specialised legal assessment because patent disputes are often highly technical and outcomes are difficult to predict. The single best estimate method applies to individual claims, but the probability assessment must consider: the validity of the patent being asserted, the strength of any invalidity defences, the breadth of potential damages (which can include lost profits and reasonable royalties), and the likelihood of settlement versus trial. For GDPR penalty provisions, the amount assessment should consider the factors regulators use to determine fines: the nature and severity of the breach, the number of affected individuals, the degree of cooperation with the supervisory authority, and any relevant previous violations. Onerous contract provisions for software projects require careful estimation of the cost to complete, including both direct development costs and an allocation of directly related costs (per the May 2020 IAS 37 amendment).

Regulatory Context and Audit Considerations

Technology companies face regulatory scrutiny from multiple directions: data protection authorities (GDPR enforcement), competition authorities (antitrust — relevant for dominant platforms), consumer protection regulators, and sector-specific regulators for fintech, healthtech, and regulated technology applications. Each regulatory regime creates distinct provision obligations with different measurement characteristics. Auditors should assess whether technology companies have adequately identified all regulatory exposures that might give rise to provisions or contingent liabilities, including jurisdictions beyond the entity's home country where services are provided to users.

Common Provision Types in Technology

legal claim

Patent infringement, copyright violations, IP licensing disputes — technology's dominant provision category

Typical: €1M-€500M Timeline: 2-5 years Method: Best Estimate
regulatory penalty

GDPR fines for data breaches, antitrust penalties, consumer protection violations

Typical: Up to 4% of global turnover (GDPR) Timeline: 1-4 years Method: Best Estimate
onerous contract

Loss-making fixed-price development projects where costs exceed contracted revenue

Typical: Project loss amount Timeline: Remaining project duration Method: Best Estimate
warranty

Hardware warranty provisions — SLA guarantees for uptime and performance

Typical: 1-3% of hardware revenue Timeline: 1-3 years Method: Expected Value
restructuring

Rapid restructuring for business pivots, technology stack changes, geographic market exits

Typical: Primarily severance costs Timeline: 3-12 months Method: Best Estimate

Worked Example: CloudServe Technologies BV

CloudServe faces a patent infringement claim from a competitor alleging that its cloud orchestration platform infringes two US patents. Legal counsel assesses a 60% probability of an adverse outcome:

Outcome Probability Amount
Claim dismissed — defence succeeds 40% €0
Settlement — licence fee payment 35% €4.200.000
Full judgment — damages + ongoing royalty 25% €12.800.000

Expected value = (40% × €0) + (35% × €4.2M) + (25% × €12.8M) = €0 + €1,470,000 + €3,200,000 = €4,670,000. Legal defence costs (estimated regardless of outcome): €850,000. Total provision = €4,670,000 + €850,000 = €5,520,000. The probability of outflow exceeds 50% (60% chance of adverse outcome), so recognition as a provision is required.

Provision Amount
€5.520.000
Regulatory Context: GDPR creates significant provision exposure for technology companies handling personal data. Competition law provisions may arise from antitrust investigations. IP litigation provisions should consider cross-jurisdictional patent assertion patterns.

Frequently Asked Questions — Technology

How should patent infringement provisions be measured for technology companies?
Patent infringement provisions should use the single best estimate method for individual claims. The assessment requires specialist IP legal counsel and should consider: the validity of the asserted patents, potential damages (lost profits methodology or reasonable royalty), likelihood of settlement versus trial, and jurisdictional factors. Legal defence costs should be included in the provision regardless of the expected outcome because they represent a probable outflow. Multiple potential outcomes should be considered even when using the single best estimate — adjust the estimate if the distribution of outcomes is skewed.
How should GDPR fine provisions be estimated under IAS 37?
GDPR provisions should consider the factors regulators use to determine fines: the nature and gravity of the infringement, whether it was intentional or negligent, the categories and number of individuals affected, measures taken to mitigate damage, and cooperation with the supervisory authority. The maximum fine (4% of global turnover or €20M) is the ceiling, not the expected amount. Historical penalty data from the entity's supervisory authority provides a useful reference point. The provision should include the expected fine plus costs of remediation, notification, and legal representation.
When does a fixed-price software project become an onerous contract under IAS 37?
A fixed-price software development project becomes onerous when the unavoidable costs of completing the contract exceed the expected revenue. The 'costs of fulfilling' include both incremental costs (additional developer time, cloud infrastructure) and an allocation of directly related costs (project management, quality assurance) per the May 2020 IAS 37 amendment. The provision equals the lower of the net cost of fulfilling (costs minus revenue) and the penalty for terminating the contract. This should be reassessed at each reporting date as project estimates evolve.
How should SLA guarantee provisions be measured for technology companies?
Service Level Agreement (SLA) guarantees — such as 99.9% uptime commitments with financial penalties for breaches — create provisions measured using the expected value method if the entity has a large number of SLA contracts. Historical SLA breach data, weighted by the probability and amount of service credits or penalties due, provides the basis. For individual significant SLA guarantees, specific assessment is more appropriate. The provision should also consider whether SLA breaches trigger customer termination rights that create additional loss exposure.
Can technology companies offset IP litigation provisions with counter-claim expectations?
Counter-claims in IP litigation cannot be offset against the provision for the original claim. IAS 37 requires each obligation to be assessed independently. A counter-claim is a separate contingent asset that can only be recognised when realisation is virtually certain — a much higher threshold. It should be disclosed as a contingent asset when an inflow is probable but not virtually certain. Gross presentation is required: the provision for the claim against the entity and any asset for the counter-claim must be shown separately.

Other Industry Calculators

General (Hub) Manufacturing Retail Banking Insurance Real Estate Healthcare Energy Construction Nonprofits Government Transportation Hospitality Agriculture

Related IFRS Tools

IFRS 9 ECL Calculator IFRS 16 Lease Calculator Going Concern Checklist Materiality Calculator