This free, guided checker walks your finance team through the key decision points for IAS 37 Asset Retirement Obligation and IAS 16 Decommissioning. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
AROs arise from environmental regulations, lease restoration clauses, mining rehabilitation requirements, or customary practice creating a constructive obligation under IAS 37.
No present obligation from a past event exists, so no decommissioning provision is recognized; reassess other potential IAS 37 obligations separately (IAS 37.14).
Official guidance: IFRS issued standards
Decommissioning costs that would not have arisen without acquiring or constructing the asset are capitalized as part of the asset cost rather than expensed immediately.
Recognize a stand-alone IAS 37 provision with the debit to profit or loss (or inventories under IAS 16.18); IAS 16 capitalization does not apply (IAS 37.14).
Official guidance: IFRS issued standards
Use engineering estimates, contractor quotes, inflation assumptions, and technology assumptions for decommissioning timing and scope. Except in extremely rare cases an entity can determine a range of outcomes reliable enough to recognize a provision, so a no-estimate conclusion needs strong support (IAS 37.25-37.26).
Obtain engineering or legal support to develop a reliable estimate; only in extremely rare cases is none possible, requiring contingent-liability disclosure instead (IAS 37.25-37.26; IAS 37.86).
Official guidance: IFRS issued standards
IAS 37.45 requires a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability when the time value of money is material.
Complete present-value measurement with a documented pre-tax discount rate before recognition is finalized (IAS 37.45; IAS 37.47).
Official guidance: IFRS issued standards
Build-up approaches may include risk-free rate, inflation, and country or technology risk premiums; the rate should reflect uncertainty in timing and amount of decommissioning cash flows.
Document a pre-tax rate reflecting current market assessments and risks specific to the liability before ARO sign-off (IAS 37.47).
Official guidance: IFRS issued standards
Capitalize the initial provision as part of the asset cost and depreciate it over the asset's useful life together with other capitalized costs.
Capitalize the initial ARO estimate in the cost of the item of PP&E rather than expensing it at recognition (IAS 16.16(c)).
Official guidance: IFRS issued standards
Each period increase in the provision due to passage of time is finance cost, not operating expense or additional asset cost after initial recognition.
Reclassify the unwinding of the discount to finance cost in profit or loss (IAS 37.60; IFRIC 1.8).
Official guidance: IFRS issued standards
IFRIC 1 governs changes in decommissioning liabilities: under the cost model, revisions to estimated cash flows or the discount rate adjust the asset's cost (IFRIC 1.5) and the adjusted depreciable amount is depreciated prospectively (IFRIC 1.7). A decrease exceeding the carrying amount, or a revision once the asset reaches the end of its useful life, goes to profit or loss.
Adjust the asset's carrying amount for the change in the liability and depreciate the adjusted amount prospectively over the remaining useful life (IFRIC 1.5; IFRIC 1.7).
Official guidance: IFRS issued standards
Increased asset cost from ARO capitalization may affect recoverable amount; test for impairment when indicators exist even if no separate indicator arose from the obligation itself.
Complete the IAS 36 indicator assessment; a materially increased carrying amount may not be fully recoverable (IAS 36.9; IAS 36.12).
Official guidance: IFRS issued standards
IAS 37 requires best-estimate updates for new information on timing, technology, inflation, and regulatory requirements affecting decommissioning costs.
Establish a reporting-date reassessment control; provisions must be reviewed and adjusted to the current best estimate at each reporting date (IAS 37.59).
Official guidance: IFRS issued standards
Disclose nature and timing of ARO, assumptions on discount rate and inflation, movements in provisions, and PP&E classes including decommissioning components.
ARO recognition, capitalization, unwinding, and disclosure appear complete (IAS 37.84-37.85; IAS 16.73). Complete the IAS 37.84-37.85 provision disclosures and the IAS 16.73 PP&E disclosures before sign-off.
Official guidance: IFRS issued standards
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