The International Accounting Standards Board (IASB) is proposing changes to IAS 19 and IFRIC 14 – the international accounting standards that govern the way in which companies account for their defined benefit pension scheme and other post-retirement benefits.
Recognition of a surplus
The current rules allow a company to recognize a surplus in the pension scheme as an asset on its balance sheet, though only to the extent that that surplus may be available to the company in the form of a refund or as a deduction from contributions for future benefit accrual. The IASB proposes that a surplus should not be recognized if other parties, such as scheme trustees, could use the surplus for other purposes (for example to improve members’ benefits) without the company’s consent.
At present, a company can base its recognition of an asset on the assumption of the gradual settlement of liabilities if liabilities have been settled on a gradual basis to date. The proposed amendment will prevent a company from making this assumption if the trustees have a unilateral power to wind the scheme up.
However, the trustees’ power to buy annuities as scheme assets or make other investment decisions without changing scheme members’ benefits does not affect the availability of a refund.
Past service cost and settlement
The IASB proposes amending IAS 19 to clarify that, where a past service cost arises or there is a settlement:
- the past service cost or the gain or loss on settlement is recognized in Profit or Loss and
- any change in the amount of surplus that can be recognized as an asset is recognized in Other Comprehensive Income.
Scheme amendments, settlements and curtailments
The IASB proposes amending IAS 19 to specify that, after a scheme amendment, settlement or curtailment:
- the current service cost and the net interest cost in the current reporting period before the occurrence of the amendment, settlement or curtailment are measured using the assumptions as at the previous balance sheet date but
- the current service cost and the net interest cost for the period after the amendment, settlement or curtailment are determined using the assumptions applied to measure the effect of the amendment, settlement or curtailment.
Implementation
The IASB is consulting on the proposed amendments until 19 October 2015. However, it proposes that the changes be applied retrospectively.