Recognition of a restructuring provision

As the effects of the COVID-19 pandemic continue to be felt around the world, many companies need to adjust their operations and make some longer-term changes to business plans. Some companies may consider downsizing or discontinuing specific operations, while other companies may plan to explore a new business opportunity. All of these may lead to restructuring.

Keywords: Mazars, Thailand, Accounting, COVID-19, Restructuring provision, TAS 37, TFRS for NPAEs

23 November 2020


As a result of COVID-19, the management of Company A decides to shut down a factory in Thailand. Subsequently, the management of Company A announces its plan, specifying which facility will be closed, the estimated timing of the closure, and the approximate number of employees it plans to make redundant in 2020.

The management has estimated a restructuring provision of THB 15 million for this. The details of the restructuring provision are as follows:


Total (in Thai baht)

Cost of termination and severance payment


Cost for breaking a lease
(terminating a rental contract before the end of the contract)


Provisions for onerous contracts





When can Company A recognize the restructuring provision in the financial statements? 


The Federation of Accounting Professions of Thailand has issued guidelines for Provisions, Contingent Liabilities, and Contingent Assets (TAS 37), stating that a restructuring provision is recognized only when both of the following conditions are met:

1. A constructive obligation to restructure arises only when an entity:

1.1  has a detailed formal plan for the restructuring, identifying at least:

  • the business or part of a business concerned;
  • the principle locations affected;
  • the location, function, and approximate number of employees who will be compensated for termination of their services;
  • the expenditures that will be undertaken and when the plan will be implemented; and

1.2  has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

2. A provision shall be recognized when:

2.1 An entity has a present obligation (legal or constructive) as a result of a past event;

2.2 It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

2.3 A reliable estimate can be made of the amount of the obligation.

In addition, termination and severance payments for employees made redundant as part of the restructuring are recognized in accordance with the specific requirements of TAS 19, Employee Benefits, or TFRS for NPAEs, which state that the entity must recognize this obligation as an expense when the entity has a present legal, constructive obligation to provide employee benefits, and it is probable that an outflow of economic benefits will be required to settle the obligation.

For more information, please visit the TFAC's website