Amended IAS 19 released: Is the Glass half-full or half-empty?

The IAS Board has eventually released the long-awaited amended standard IAS 19 Employee Benefits (a 175+ pages document!).  The main changes consist of:

• eliminating an option to defer the recognition of gains and losses, known as the ‘corridor method’, targeting improvement of comparability and faithfulness of presentation. 
• suppression of the concept of expected return on assets  and explicit requirements to consider the tax on contribution effect on DBO.
• streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income (OCI), thereby separating those changes from changes that many perceive to be the result of an entity’s day-to-day operations.
• enhancing the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. 
• amending the treatment of Termination Benefits by excluding stay-bonuses from this category and distinguishing termination as a result of employer's or the employee's decision. 

These changes - effective as from FY 2013 -  bring IAS 19 more in line with the IFRS framework. However, we can doubt they will effectively contribute to give a more reliable economic view on the financial position of the reporting entities (mthe obligation mresaurement remain highly volatile)  if as noted by many obsevers a second Phase does not complete the revision process. It is indeed not clear whether the IASB (currently in a transition phase: members have to be replaced) intends to take this on the agenda at short notice. In this case, entities would have to cope with a half-revised standard. So,...

More specifically, from a Belgian viewpoint: 

• the accounting of DC plans would not be affected by the amendments because the IAS Board eventually decided to remove the modification of back-loaded plan rule that would have seriously affected them.
• the tax impact on DBO may be significant.
• we advise to pay special attention  to the treatment of Employee contribution and Termination Benefits as well as to the impact of the suppression of the expected return on assets.

IAS 19 Employee Benefits ( Board March'11 meeting): amendment effective date 01/01/2013

During its March meeting, the IASB Board unanimously confirmed that the IAS 19 Employee Benefits amendments would be effective from 1 January 2013.  The amendment itself is still expected to be issued in April 2011.

 

IAS 19 Employee Benefits (Board Feb'11 meeting) : amendment expected in March '11

The IASB continued its discussion of the proposals in the exposure draft Defined Benefit Plans (the ED). At this meeting the Board discussed:

• the presentation of remeasurements;
• disclosure and administration costs; and
• the effective date and transition requirements.

Presentation of remeasurements

In December 2010 the Board tentatively decided to allow an entity to present remeasurements in profit or loss. In January 2011 the Board confirmed that decision but added some restrictions, such as making the election irrevocable, and asked the staff to assess whether the option should be restricted further. At this meeting the Board decided, in the light of that initial assessment, to revert to, and confirm, the proposal in the ED that remeasurements should be presented in other comprehensive income. The decision was supported by eight Board members. The remaining seven Board members would have preferred either to confirm the decision reached in January or to allow a free choice. 

Disclosure and administration costs

At the November and December 2010 Board meetings the Board asked the staff to obtain input from the Employee Benefits Working Group on particular aspects of the tentative decisions to date on disclosure and administration costs.

On the basis of this feedback the Board tentatively decided unanimously:

• to require the disclosure of the weighted-average duration of the defined benefit obligation, and that the amendments should include examples of the types of additional information that could be provided about the maturity analysis to meet the disclosure objective; and
• that administration costs related to the management of plan assets should be deducted from the return on plan assets.

The Board also decided, by a vote of nine to six, not to proceed with a requirement to disclose a disaggregation of the defined benefit obligation. Instead, the amendment should include an example of the type of disclosure that may meet the disclosure objectives.

Effective date and transition requirements

The Board decided to defer its decision on the effective date but tentatively agreed that it should not be earlier than 1 January 2013. The Board will discuss the effective date as well as early application as part of the broader consideration of the feedback received from the consultation on the Request for Views on Effective Dates and Transition Methods.

Subject to the Board's broader consideration of transition, the Board tentatively decided unanimously:

• that for entities already applying IFRSs, the amendments to IAS 19 should be applied retrospectively in accordance with the general requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except that:
• the carrying amount of assets outside the scope of IAS 19 need not be adjusted for changes in employee benefit costs that were included in the carrying amount before the beginning of the financial year in which this standard is first applied (ie previously unrecognised actuarial gains and losses and past service cost should be recognised by adjusting equity, not by adjusting the carrying amount of assets that include employee benefit costs); and
• comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation for the year of initial application of the amendments to IAS 19;
• that for entities adopting IFRSs for the first time, the amendments to IAS 19 should be applied retrospectively in accordance with the general requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards, except that the Board will allow a temporary exemption for entities adopting IFRSs with a date of transition to IFRSs before the effective date of the amendments to IAS 19. That exemption would mean that comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation.
• to confirm the proposal in the 2010 exposure draft to delete paragraphs 153-156 of IAS 19 and paragraph D10 of Appendix D of IFRS 1.

Next steps

All the Board members agreed that, subject to balloting, the Board has satisfactorily completed all the steps required in the IASB Due Process Handbook.

The Board instructed the staff to begin the balloting process for the amendment to IAS 19. The Board plans to issue the amendment by the end of March 2011.

IAS 19 Employee Benefits : From the Board - Remeasurement & Curtailment/Settlement

During its January meeting, the Board continued the discussions with regard to

• presentation of remeasurement: the Board tentatively decided that, although remeasurements should be presented in other comprehensive income, there were circumstances in which it would be appropriate to allow an entity to elect to present remeasurements in profit or loss (primarily to address accounting mismatches) for a given plan. 
• curtailment & settlement: the Board tentatively proposed recognition rules for
• gains and losses resulting from  a curtailment or plan amendment arising as part of a restructuring plan or is linked to termination benefits
• termination benefits arising as a part of plan amendment arises as part of a restructuring plan

More information available at this link.

"IAS 19 Employee Benefits : prémices d'une mutation" has been issued by Kluwer

This booklet (64 pages) link published by Kluwer analyses and comments the recent proposals made by the IAS Board with respect to IAS 19  in its Exposure Draft ED/2010/3 Defined Benefit Plans: Proposed amendments to IAS 19. The table of contents is available here.

IAS 19 Employee Benefits : From the Board - Belgian DC plans saved?

The IASB has tentatively decided to keep the criterion to classify a plan as "back-end loaded" unchanged (see yellow paragraph hereunder). As a result, the Belgian DC schemes would not result in undesired and artificial accounting liabilities.

Hereunder, excerpt from IASB Update December 2010 http://media.iasb.org/December%202010%20IASB%20Update.html

The IASB discussed the proposals in the exposure draft Defined Benefit Plans relating to settlements and curtailments, multi-employer plans and other matters addressed in the exposure draft or arising from the comment letters on the ED.

Settlements and curtailments

The Board tentatively decided:

•          to amend the definition of curtailment to limit it to a significant reduction in the number of employees covered by a plan. The definition of a curtailment would no longer include a reduction in benefits for future service. However, in some cases, past service cost arises if a change in benefits for future service results in a change in benefits attributed to past service.

•          to amend the definition of settlements to exclude plan amendments that result in past service cost and curtailments and to amend the definition of non-routine settlements to exclude benefit payments in accordance with the terms of the plan.

•          to require past service cost and gains and losses on curtailments and non-routine settlements to be presented in the service cost component.

•          to require gains and losses on routine settlements to be presented in the remeasurements component.

•          to confirm the proposals in the exposure draft for the disclosure of past service cost, curtailments and non-routine settlements but not to require distinguishing between these items if they occur together and are presented in the same component.

Multi-employer plans

The Board tentatively decided:

•          to retain the requirement in IAS 19 Employee Benefits that an entity should account for its participation in a defined benefit multi-employer plan in the same way as for any other defined benefit plan unless insufficient information is available, in which case an entity should account for the plan as if it were a defined contribution plan;

•          to confirm the disclosure requirements proposed in the exposure draft for multi-employer plans, but amended to limit the disclosure of the withdrawal liability to qualitative information and to specify that an entity should recognise and measure any withdrawal liability in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and

•          to confirm the disclosures proposed in the ED for multi employer plans treated as if they were defined contribution plans with the following amendments:

•          to reduce the period for the required disclosure of future contributions from 5 years to 1 year.

•          to require an indication of an entity's level of participation in a plan. Such a requirement could be met by disclosing the proportion of total members or the proportion of total contributions.

Other issues

The Board tentatively decided:

•          to require plan administration costs to be expensed as incurred, for practical reasons. The Board directed the staff to seek feedback on this decision from the Employee Benefits Working Group.

•          to confirm the proposals in the ED for the accounting for taxes payable by the plan.

•          to confirm the proposed clarification in the ED that mortality assumptions include current estimates of expected changes in mortality.

•          to withdraw the proposal in the ED to incorporate IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction into IAS 19.

•          to withdraw the proposal in the ED that would have required entities to consider expected future salary increases in determining whether a benefit formula allocates a materially higher level of benefit in later years.

•          not to make any additional amendments regarding interim reporting.

•          to confirm the proposal in the ED to update the disclosures:

•          for defined benefit state plans to be consistent with the disclosures for defined benefit multi-employer plans if the information for the state plans is available.

•          for group plans to be consistent with the disclosures for defined benefit plans, and for group plans to allow the information to be included by cross-reference to disclosures in the parent's financial statements if:

•          the parent's financial statements separately identify and disclose the information required for the group plan, and

•          the parent's financial statements are available to users of the financial statements on the same terms as the financial statements of the entity and at the same time

IAS Board to rediscuss some points proposed by the IAS 19 ED

In the week of 13 December, the IASB Board will discuss the following topics:

• settlements and curtailments
• multi-employer plans
• tax and administration costs

The April ED submitted new approach for these specific issues. Many comments followed in reaction to these propositions. They will be now re-discussed.

More information can be found in the forthcoming "IAS 19 Employee Benefits: les prémices d'une mutation" (authored by J.-Ph. Aoust and R. Renard) to be published by Kluwer.