EUROPE - Market commentators have incorrectly assessed the effects of IFRIC 14 on pension schemes, the International Accounting Standard Board (IASB) said today.

The body responsible for setting of accounting standards has clarified the conditions under which additional liabilities on a company's balance sheet are recognised, because of minimum funding requirements, are very limited.

"Only if both the entity has a statutory or contractual obligation to pay additional amounts to the plan and the entity's ability to recover those amounts in the future by refund or otherwise is restricted, is an additional liability recognised, " the IASB said in a statement.

"Since the release of the Interpretation, the IFRIC has observed several press articles and statements by market commentators providing an inaccurate assessment of the effect of IFRIC 14," the IASB noted.

This clarification was released two days after consultants Hymans Robertson warned UK companies "in an extreme case" IFRIC 14 would turn "what was previously an IAS19 asset into a deficit, despite the fact that nothing has changed in the pension scheme simply because the company promised to fund the pension scheme more prudently than the IAS19 level".

In today's statement, the IASB also pointed out IFRIC 14 clarified the disputed issue of recognizing a surplus in a pension plan.

"Under IAS 19, some have argued that a surplus is not available to a plan sponsor unless it is immediately realisable at the balance sheet date. IFRIC 14 states that the employer only needs to have an unconditional right to use the surplus at some point during the life of the plan or on its wind up in order for a surplus to be recognized."

Tthe organisation has also stressed the IFRIC interpretation neither changes scheme funding requirements nor influences entities' rights to a refund of surplus assets in the pension scheme.

It added whether or not IFRIC 14 applied to a particular entity depends on factors such as the exact terms of the pension plan, regulatory requirements and the relevant jurisdiction.

In issuing its interpretation. the IASB has also compiled a document of frequently asked questions and answers.