IAS 37 · Energy

IAS 37 Provision Calculator
for Energy

Pre-configured for energy provision types: decommissioning and asset retirement obligations (oil rigs, nuclear plants, wind farms), environmental remediation, onerous power purchase agreements, and carbon emission obligations.

IAS 37 · LIVEv2026.04Legal Claim

Provision recognition, documented.
Not just calculated.

Session
0xD8AF
Reporting Date
FY 2026
Probability
75%
provision.conf
recognition.conf
ias37.md
01// engagement— IAS 37.84
02entity_name=
03reporting_date=
04currency=
06// obligation_type— IAS 37.10
07obligation.type=
09// recognition_criteria— IAS 37.14
10obligation_exists=
11probability_pct=% · >50% = probable
✓ probable threshold met (IAS 37.23)
12can_reliably_estimate=
Three-criteria checklist (IAS 37.14 — all must be met):
13
14
15
Three-criteria recognition checklist (IAS 37.14)
16// measurement— IAS 37.36-47
17method=
18best_estimate=€
20best_estimate.rationale=
Best-estimate rationale (IAS 37.36-40)
24// risk_uncertainty_adjustment— IAS 37.42-44
Risk & uncertainty considerations (IAS 37.42-44):
25
26
27
28
29
31risk_adj.rationale=
Risk & uncertainty adjustment (IAS 37.42-44)
34// discounting— IAS 37.45-47
35expected_timing_years=years
36pre_tax_rate=%
Rate derivation factors (IAS 37.47):
37
38
39
40
41
43discount.rationale=
Discounting · rate + rationale + unwinding (IAS 37.45-47 · 60)
48// reimbursement_rights— IAS 37.53-58
49virtually_certain=
recognition threshold
No reimbursement right that meets the 'virtually certain' threshold (IAS 37.53).
Reimbursement rights (IAS 37.53-58)
66// onerous_contract— IAS 37.66-69
67contract_revenue=€
68cost_of_fulfilling=€
69termination_penalty=€ · if terminate
Enter revenue + fulfilment cost to assess.
Onerous contract assessment (IAS 37.66-69)
74// prior_year_movement— IAS 37.84 · ISA 540
75prior_year_provision=€ · closing
76entity_revenue=€ · for benchmark
77total_liabilities=€
78materiality=€
Prior-year movement + benchmarks (ISA 540)
82// ias_12_deferred_tax— IAS 12.24
83tax_rate=%
Recognise DTA only to the extent that sufficient taxable profit is available (IAS 12.24).
IAS 12 deferred tax (IAS 12.24)
88// risk_warnings— rule engine · ISA 540
✓ No risk warnings raised.
Risk warnings · 8-rule engine (ISA 540)
92// disclosure_and_conclusion— IAS 37.84-92
Tick disclosure items addressed in FS note:
93IAS 37.84(a)
94IAS 37.84(b)
95IAS 37.84(c)
96IAS 37.84(d)
97IAS 37.84(e)
98IAS 37.85(a)
99IAS 37.85(a)
100IAS 37.85(b)
101IAS 37.85(c)
102IAS 37.86
103IAS 37.89
104IAS 37.92
99conclusion.narrative=
Disclosure checklist + conclusion (IAS 37.84-92)
recognize·—€·Ctrl+E
previewwp-ias37-2026.pdf
🔒 LOCKED
IAS 37 working paper preview
Meet all three recognition criteria and enter a measurement amount to see your IAS 37 working paper render.
PROVISION
—
enter amount
PRIMARY
CLASSIFICATION
RECOGNIZE
IAS 37.14
PROBABILITY
75%
probable
METHOD
Best Est.
IAS 37.40
EXPORT (EMAIL TO UNLOCK)

Email unlocks the free download.

No payment required. Unlock above to download the full working paper.

Format
HTML → PDF
Pages
6–10
Price
FREE
or CtrlE

IAS 37 provisions in Energy

Energy and utility companies carry some of the largest and most complex provisions in any industry. Decommissioning and asset retirement obligations for oil rigs, nuclear power plants, wind farms, and other energy infrastructure can individually exceed billions of euros and span timeframes of 20-50+ years. These long-horizon obligations make discounting critically important — the present value of a €500 million decommissioning obligation 30 years in the future at a 4% discount rate is approximately €154 million, a dramatic difference that must be prominently disclosed. The energy sector's provision landscape also includes environmental remediation for contaminated sites, onerous power purchase agreements, carbon emission obligations, and regulatory penalties for environmental violations. The interaction between decommissioning provisions and property, plant and equipment under IAS 16 and IFRIC 1 is a central feature of energy company financial statements.

Measurement considerations for Energy

Decommissioning provisions require specialist engineering estimates of the physical work required, current cost estimates for that work, assumptions about technological developments that may affect future costs, and a pre-tax discount rate reflecting the time value of money and risks specific to the obligation. The provision is recognised at the present value of the best estimate and unwound annually through finance costs. IFRIC 1 governs changes in existing decommissioning obligations: increases or decreases in the estimated cost adjust the related PP&E asset (increasing or decreasing the asset's carrying amount), with the adjustment depreciated over the remaining useful life. If the asset has been fully depreciated, the entire adjustment flows through profit or loss. For onerous power purchase agreements, the May 2020 IAS 37 amendment is particularly relevant: the cost of fulfilling now includes allocated costs that relate directly to the contract, not just incremental costs.

Regulatory context and audit considerations

Energy companies operate under extensive environmental regulation that creates legal obligations for decommissioning and remediation. Nuclear decommissioning is subject to specific regulatory frameworks in each jurisdiction, often involving dedicated decommissioning funds. Oil and gas decommissioning is regulated by bodies such as the OPRED (UK), SodM (Netherlands), and national mining authorities. Renewable energy decommissioning obligations are becoming increasingly significant as first-generation wind farms and solar installations approach end of life. Carbon emission obligations under the EU Emissions Trading System (EU ETS) create provisions when actual emissions exceed allocated allowances. Auditors of energy companies must evaluate the completeness and adequacy of decommissioning provisions, often engaging specialist engineers to assess the reasonableness of cost estimates.

Common provision types in Energy

asset retirement

Decommissioning obligations for oil rigs, nuclear power plants, wind farms, solar installations — often the largest single provision item

Typical: €10M-€10B per facility Timeline: 20-50+ years Method: Best Estimate
environmental

Site remediation for contaminated land, water pollution, soil contamination from energy operations

Typical: €5M-€500M Timeline: 5-30 years Method: Best Estimate
onerous contract

Onerous power purchase agreements, gas supply contracts with take-or-pay commitments at above-market prices

Typical: NPV of future losses Timeline: 5-25 years Method: Best Estimate
regulatory penalty

Environmental violations, emission quota penalties, safety standard breaches

Typical: €1M-€100M Timeline: 1-5 years Method: Best Estimate
contaminated land

Remediation of land contaminated by energy operations — drilling, refining, power generation, storage

Typical: €2M-€200M per site Timeline: 5-30 years Method: Best Estimate

Worked example: NorthSea Energy BV

An offshore oil platform is expected to be decommissioned in 25 years. Engineering estimates indicate the following decommissioning cost at current prices, which must be discounted to present value:

Nominal decommissioning cost: €180,000,000. Timing: 25 years. Discount rate: 3.0% (pre-tax rate reflecting time value and risks specific to the liability). Present value = €180,000,000 / (1.03)^25 = €180,000,000 / 2.0938 = €85,952,000. Year 1 unwinding: €85,952,000 × 3.0% = €2,578,560 (Dr Finance costs / Cr Provision). The provision is recognised with a corresponding increase in the oil platform's PP&E cost (IAS 16.16(c)). The dramatic difference between nominal (€180M) and PV (€86M) demonstrates why discounting is critical for long-horizon provisions.

Provision Amount
€85.952.000
Regulatory Context: Oil and gas decommissioning is regulated by national authorities (OPRED UK, SodM Netherlands, BSEE US). Nuclear decommissioning involves dedicated regulatory frameworks and funding mechanisms. EU ETS creates carbon emission obligations. Environmental legislation creates remediation obligations for contaminated sites.

Frequently asked questions: Energy

How should oil rig decommissioning provisions be measured under IAS 37?
Oil rig decommissioning provisions should be measured at the present value of the best estimate of the cost to dismantle, remove, and restore the site. Engineering assessments provide the nominal cost estimate based on current technology and prices. This is discounted using a pre-tax rate reflecting the time value of money and risks specific to the liability (typically 2-4%). The provision is recognised with a corresponding increase in PP&E under IAS 16.16(c). Annual unwinding of the discount is charged to finance costs. Changes in the estimate adjust the related asset under IFRIC 1.
Why is the present value so much lower than the nominal cost for energy decommissioning?
Long time horizons create dramatic discounting effects. A €100M obligation 30 years away at 3.5% discount rate has a present value of only €36M — the discount reduces the provision by 64%. This is why IAS 37.45 requires discounting when the time value effect is material. Energy companies must present both the nominal and discounted amounts in their notes, with sensitivity analysis showing the effect of discount rate changes. The annual unwinding of the discount creates a finance cost that increases the provision each year, gradually closing the gap between PV and nominal as the decommissioning date approaches.
How does IFRIC 1 affect energy decommissioning provision changes?
IFRIC 1 (Changes in Existing Decommissioning, Restoration and Similar Liabilities) requires that changes in decommissioning estimates adjust the related PP&E asset, not profit or loss. If the revised estimate increases, the asset and provision both increase; if it decreases, both decrease. The adjustment to the asset is depreciated over its remaining useful life. However, if the asset has been fully depreciated, the entire adjustment goes through P&L. This is particularly relevant for mature oil fields or aging nuclear plants where changes in decommissioning estimates can be significant.
How should onerous power purchase agreements be provisioned for energy companies?
Onerous PPA provisions arise when the cost of generating or purchasing electricity under a long-term contract exceeds the revenue from selling it. The provision equals the lower of: (a) the net cost of fulfilling the PPA (total cost minus expected revenue for the remaining term) and (b) the penalty for terminating the contract. Since May 2020, the cost of fulfilling includes allocated costs that relate directly to the contract. For long-term PPAs, the provision should be discounted to present value. Material changes in energy market prices may trigger reassessment.
How should carbon emission provisions be calculated under the EU ETS?
Carbon emission provisions arise when an entity's actual emissions exceed its allocated allowances under the EU ETS. The provision is measured at the cost of purchasing the necessary allowances to cover the shortfall, based on the market price of carbon allowances at the reporting date. If the entity holds purchased allowances to cover the deficit, the provision may be nil but the allowances should be assessed for impairment. IFRIC 3 (Emission Rights) was withdrawn, and practice varies — some entities recognise a provision for the full annual obligation while others net against allowances held.
What discount rate should energy companies use for decommissioning provisions?
IAS 37.47 requires a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. For energy decommissioning, this typically ranges from 2-4% depending on the jurisdiction, the currency of the obligation, and the specific risks. Government bond yields provide a starting point for the risk-free rate, with adjustments for the risks specific to the decommissioning obligation (not the entity's own credit risk — IAS 37.47 explicitly prohibits this). The discount rate should be reviewed at each reporting date and the provision restated if it changes.

Other industry calculators

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

Related audit tools

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

Further reading

Get practical audit insights, weekly.

No exam theory. Just what makes audits run faster.

290+ guides published20 free toolsBuilt by practicing auditors

No spam. We’re auditors, not marketers.