IASB Discussion Paper on Post-Employment Benefits

The International Accounting Standards Board (IASB) has published for public comment a discussion paper on IAS 19, Employee Benefits. The paper, Preliminary Views on Amendments to IAS 19 Employee Benefits, sets out the IASB’s views on how the accounting for some post-employment benefits, including pensions, could be improved.
The discussion paper, developed in consultation with the IASB’s Employee Benefits Working Group, addresses the main concerns expressed by a wide range of interested parties that the accounting model set out in IAS 19 is inadequate and should be reviewed.

Issues to Address
Constituents have pointed out that:

  • The deferral of the recognition of gains and losses leads to misleading figures in the statement of financial position.
  • The multiple options for deferring recognition lead to poor comparability across companies.
  • The lack of clarity in the definitions of benefit promises lead to inconsistencies and poor comparability for those benefit promises that include a promised return on contributions linked to an asset or an index.
  • The required measurement method is inadequate for those benefit promises that include a promised return on contributions linked to an asset or an index.

Preliminary Views
The IASB said that its preliminary views on how to address those main issues are:

  • To remove the options for deferred recognition of gains and losses in defined benefit plans.
  • To introduce a new classification of benefit promises into contribution-based promises and defined benefit promises, with a new measurement attribute for contribution-based promises.

“Accounting for pensions is a complex area of huge importance,” noted Sir David Tweedie, IASB chairman, in introducing the paper. “In some cases, the pension liability even exceeds the market capitalization of the company. The financial statement of a company must provide investors, analysts and companies with clear, reliable and comparable information on a company’s pension obligations. It is in the interest of all of us to find ways to improve this area of financial reporting, and the discussion paper on post-employment benefits is the starting point.”

The comment deadline is September 26, 2008.  For more details on the project, go to www.iasb.org.

The IASB said that it plans to re-deliberate the issues and publish an exposure draft of proposed amendments to IAS 19, with a view to issuing a revised standard by 2011.

Related Articles