ICAI's Detailed Response to IASB Exposure Draft on Onerous Contracts

This document presents the comments of The Institute of Chartered Accountants of India (ICAI) on the International Accounting Standards Board's (IASB) Exposure Draft 'Onerous Contracts- Cost of fulfilling a contract - Proposed amendments to IAS 37'. The ICAI broadly agrees with the proposed clarifications and provides detailed responses to specific questions raised in the Exposure Draft. The document highlights the applicability of Ind AS Standards in India, which are converged with IFRS, and provides an annexure with a structured response to the IASB's queries. The ICAI's comments cover aspects like the definition of costs directly related to a contract, examples of such costs, and considerations for measuring onerous contract provisions, including whether economic benefits should be considered zero in cases of penalties for non-fulfillment. The document emphasizes the due process followed by the ICAI, including stakeholder consultations, in formulating its response. The ICAI's response aims to provide clarity and contribute to the refinement of the IASB's proposed amendments to IAS 37.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
Mr. Hans Hoogervorst April 5, 2019
Chairman
International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
Dear Mr Hoogervorst
Sub: Comments of the Institute of Chartered Accountants of India (ICAI) on IASB's Exposure
Draft ‘Onerous Contracts- Cost of fulfilling a contract - Proposed amendments to IAS 37’.
The Accounting Standards Board (ASB) of The Institute of Chartered Accountants of India (the
ICAI) welcomes the Exposure Draft on ‘Onerous Contracts- Cost of fulfilling a contract’ (Proposed
amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets) and broadly agrees
with the proposed clarifications.
As you are aware, in India, the Ind AS Standards notified under the Companies Act, 2013, are
applicable for preparation of Financial Statements of public interest entities (comprising listed
companies and unlisted companies with equity over $40mn). These Ind AS are converged with IFRS
and is followed by nearly 28,000 companies as of end of March 2018.
ASB comments on the Exposure Draft ED/2018/2 ‘Onerous Contracts- Cost of fulfilling a contract’
(Proposed amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets) are
given in Annexure A. The comments are based on a due process which comprises:
 ASB issuing an exposure draft within India, inviting all stakeholders to offer their comments (60
days time was given for comments);
 Deliberation at the ASB on the Exposure Draft issued by IASB together with the comments
received.
With kind regards
CA. M.P Vijay Kumar
Chairman
Accounting Standards Board
Institute of Chartered Accountants of India.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
Annexure A
S.
No.
Question Response
1. The IASB proposes to specify in paragraph
68 of IAS 37 that the cost of fulfilling a
contract comprises the costs that relate
directly to the contract (rather than only the
incremental costs of the contract). The
reasons for the IASB’s decisions are
explained in paragraphs BC16 – BC28.
Do you agree that paragraph 68 of IAS 37
should specify that the cost of fulfilling a
contract comprises the costs that relate
directly to the contract? If not, why not, and
what alternative do you propose?
We agree with the proposed clarification.
2. The Board proposes to add paragraphs
68A–68B which would list costs that do,
and do not, relate directly to a contract. Do
you have any comments on the items listed?
Are there other examples that you think the
Board should consider adding to those
paragraphs? If so, please provide those
examples.
We agree with the examples of costs listed in
paragraphs 68A and 68B that do, and do not,
relate directly to a contract.
3. Do you have any other comments on the
proposed amendments?
With regard to measurement of onerous
contract provision, although BC 14 of the
Exposure Draft states that an entity could
measure an onerous contract provision by
including the same costs as it used to identify
the contracts as onerous, it would be
appreciated if such a clarification is provided
specifically in the Standard.
In case a contract is considered onerous based
on penalty payable due to possible non-

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
fulfilment of a contract, it is not clear whether
economic benefits should be considered as
zero.