Document ID: chunk:federal_register_of_legislation:F2023C00402:reg:97:p10
Version: federal_register_of_legislation:F2023C00402
Segment Type: reg
Provision Reference: reg 97 (pt 10/56)
Character Range: 286286–289343

is presently entitled is a cancellation of a debt owed to the entity and is, in substance, a refund of promised consideration.  Therefore, the capacity to cancel future funding to which the entity is presently entitled would make the arrangement enforceable by legal or equivalent means.

     BC33            In contrast to the capacity referred to in paragraph BC32, a transferor's capacity to withhold future funding to which the entity is not presently entitled is substantially different.  The ability of a funding provider to withhold future, uncommitted, funding is a source of economic compulsion for the funding recipient.  This is because the recipient might be economically compelled to undertake a present activity to secure that future funding.  Economic compulsion is not, of itself, a source of enforceability of a promise.  In other words, circumstances affecting possible future transactions are not a feature of existing contractual rights and obligations.

     BC34            The Board observed that, if economic compulsion were sufficient to make a promise enforceable, a government's explicit and implicit promises to provide social benefits (such as age pensions, and health and education services) potentially would qualify as enforceable obligations in a wide range of circumstances.  Consequently, a government might identify liabilities for benefits for which members of the community have yet to qualify, as the government would be economically compelled to provide the benefits at some point in the future (for example, on an aggregate basis, there is no doubt that of those already born, a significant percentage will survive to qualify for the aged pension and will need to receive various health services).  The Board currently considers that identifying liabilities so broadly would not provide useful information about a government's present financial position, although information about likely future transfers of social benefits would be useful for long-term fiscal sustainability reporting.  The Board notes that the IPSASB is presently considering the range of recognition points in its project on accounting for social benefits.

     BC35            Feedback to the guidance provided in ED 260 indicated constituents would continue to have difficulty applying the 'enforceable' criterion, despite the proposed additional guidance.  In considering the feedback received, the Board significantly expanded the 'enforceability' guidance to include a range of factors that could potentially result in an enforceable arrangement.  The Board clarified that a return obligation is merely an indicator of enforceability, and not the only indicator.  The Board also noted that where parties to the arrangement need to mutually agree on any changes to the use to which transferred funds are put, that this constitutes enforceability, as neither party has the ability to unilaterally make decisions regarding the assets transferred.  The Board noted, however, that the guidance is general in nature and, while it is intended to