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Case: Restructuring Costs
Fact:
Pharma Co. is considering relocating their manufacturing operations to a new area. Unfortunately, this plan includes terminating current employees. The company has issued a press release announcing their relocation intentions and communicated this plan to their employees on December 15, 2011 and December 27, 2011 respectively. As a result of this action, the company will incur certain restructuring–related costs (i.e. $0.5 million in relocation cost, $1.5 million staff training cost, and $1 million in dismantlement cost).

Issue:
Determining the appropriate accounting treatment for restructuring costs under IFRS and GAAP. Support:
The GAAP and IFRS firms were tasked with compiling an estimate of the total cost for the restructuring effort and record this estimate as an expense, with an associated restructuring liability and restructuring provision. However, the results vary significantly for the restructuring costs between the different firms. According to IAS 37 - paragraph 81, a restructuring provision should not include the retraining or relocating the continuing staff costs. Therefore, the $0.5 million relocation and $1.5 million staff training costs should not be counted as a liability on the 2011 Balance Sheet. According to paragraph 80 of IAS 37, “A restructuring provision shall include only the direct expenditures arising from the restructuring, which are those that meet the following conditions: (a) Necessarily entailed by the restructuring; and

(b) Not associated with the ongoing activities of the entity. Therefore, the $1 million cost of dismantling the old equipment should not be accrued as a restructuring cost since there is no legal liability required to perform this operation, and it was never the practice of Pharma Co. to dismantle the old equipment when abandoning a plant before. Under IAS 37 - Paragraph 71, a provision for restructuring costs is recognized only when the general recognition...
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