What is the impact of recording restructuring provisions

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Restructuring is an action taken by a company to significantly modify the financial and operational aspects of the company. A restructuring can comprise numerous costly activities, including termination or relocation of a business, a change in management structure and lay-offs. IFRS (IAS 37.72 specifically) require companies to recognize restructuring provisions (i.e., liability) and restructuring costs (i.e., expense) before the restructuring actually occurs, when "a detailed formal plan is adopted and has started being implemented or announced to those affected".

Requirements:

Using the conceptual framework, discuss

Problem a) What are the definition of liability and the recognition criteria of liability?

Problem b) Based on your discussion of part a), why does IAS 37.72 require a provision (i.e., liability) to be recognized when a company plans to close their business locations (i.e., before the actual closure) and only when "a detailed formal plan is adopted and has started being implemented, or announced to those affected"?

Problem c) What is the impact of recording restructuring provisions on the company's income statement and balance sheet?

Reference no: EM132965437

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