On 16 December 2004, the International Accounting Standards Board (IASB) published an amendment to IAS19. All EU-listed companies must comply with IAS19 (as amended) for accounting periods starting on or after 1 January 2005. Other EU companies may be required to adopt IAS19, or may be allowed to continue with local accounting standards, as regulated by individual member states.
The European Actuarial Consulting Services (EURACS) has developed a model to enable companies to comply with the new IAS19 and assess the implications of the options permitted.
For some time now, the IASB has been dissatisfied with the option within IAS19 to defer the recognition of
actuarial gains/losses, and has expressed its desire to make fundamental changes to IAS19, in particular to require the immediate recognition of actuarial gains/losses in the main income statement. These intended fundamental changes to IAS19 are not likely to be seen for several years.
In the meantime, an EU Regulation was passed in 2002 requiring the consolidated accounts of all EU-listed companies to comply with IAS19 for accounting periods starting on or after 1 January 2005. This would have required UK and Irish listed companies, who had already adopted or disclosed results on the FRS17 standard, to change to the IAS19 approach only to be faced with a further change when the fundamental review of IAS19 is completed in a few years time. Hence, this amendment to IAS19 has been made to allow UK and Irish companies to continue to use the FRS17-style reporting of employee benefits costs.
Although the IASB has issued the new IAS19, it still requires the approval of the EU before it is applied to the consolidated accounts of EU-listed companies.
The main change is the introduction of an additional option for the treatment of actuarial gains/losses by full recognition outside the profit and loss account, in a separate statement of recognised income and expense, that is, FRS17-style reporting. This now means that there are three options for the treatment of actuarial gains/losses:
q Immediate and full recognition outside the profit and loss account;
q Deferred recognition through the profit and loss account;
q Immediate and full recognition through the profit and loss account.

Implications
For EU-listed companies that have already been reporting under IAS19, the changes merely involve an expansion of the disclosure notes. Nevertheless, these companies may wish to explore the implications of changing to the FRS17-style treatment of actuarial gains/losses, which in some cases may have a beneficial effect on the profits declared in the profit and loss account.
Other EU-listed companies, that have been using local accounting standards to date, will need to decide on which option to adopt for the treatment of actuarial gains/losses. These companies should also consider the treatment of the surplus/deficit on the first time adoption of IAS19. Here they have two options:
q Full and immediate recognition of the surplus/deficit on the balance sheet as a prior year restatement; or
q Reconstruction of all actuarial gains/losses since the inception of the plan using the deferred recognition approach. The resulting surplus/deficit would then be recognised on the balance sheet as a prior year restatement.
The above decisions could have a significant impact on the way employee benefits are reflected in a company’s financial statements.
Nigel Hacking, FIA partner, Barnett Waddingham LLP, which is a member of EURACS network

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