Constructive Obligation (ISAP 3) – As defined by the IASB in paragraph 10 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets , as amended in October 2010, by IFRS 9, Financial Instruments: “an obligation that derives from an reporting entity's actions where:
- by an established pattern of past practice, published policies or a sufficiently specific current statement, the reporting entity has indicated to other parties that it will accept certain responsibilities; and
- as a result, the reporting entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.”
In paragraph 4(c) of IAS 19 Employee Benefits, the IASB further states “reporting entity has no realistic alternative but to pay employee benefits .”