EUROPE - Two major pensions consultancy firms have broadly welcomed the recent move by the IASB to amend its asset-ceiling interpretation of IFRIC 14.

Commenting on an announcement from the IASB on 28 May, Tim Reay, consultant at Hewitt Associates, told IPE that he broadly welcomed the development. (See earlier IPE story: IASB admits unintended consequences to IFRIC 14)

"These amendments clarify that where you have a surplus of funds in a pension plan, to the extent that you can derive a value from that surplus, you will in future be able to recognise it," said Reay.

Charles Rodgers, a consultant with Watson Wyatt, also added: "I think the wording has addressed the situation in some jurisdictions where if you pay more contributions into a fund than is strictly necessary, you will be able to recognise that surplus as an asset on your balance sheet."

He explained that some jurisdictions felt IFRIC 14 penalised them unfairly because the overpaid contributions were, at least in part, recoverable.

IASB said last week it is was amending IFRIC 14 to fix an "unintended consequence".

"As a result of the interpretation, entities are in some circumstances not permitted to recognise as an asset some prepayments for minimum funding contributions," the board explained.

News first emerged of the flaw in IFRIC 14, which addresses the interaction between the IAS 19 measure of a liability and any parallel minimum funding requirement, at the 6 November IFRIC meeting.

IASB project manager Anne Mc Geachin said she had identified a potential flaw in paragraph 22 of the interpretation. In its amended drafting, the board has proposed deleting paragraph 22 completely.

And at paragraph 20 of the amended consensus, IASB has now proposed new wording to confirm that an entity should recognise an asset if it makes an MFR prepayment linked to "future service ... before being required to do so."

The board has also substituted references to "future accrual of benefits" with "future service".

Explaining its new approach in the Basis for Conclusions, IASB argued: "[T]he future excess of MFR contributions over service cost does give an economic benefit to the entity because it relieves the entity of an obligation that it would otherwise incur in the future."

Interested parties have until 27 July 2009 to comment on the changes.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email