The International Accounting Standards Board (IASB) is to review the IAS 19 employee benefits to consider the “infinite variations” provided by defined benefit (DB) and defined contribution (DC) hybrid schemes.

The organisation will also re-visit issues that have arisen in the determination of a high-quality corporate bond yield used in pension fund discount rates.

In a provocative speech at the National Association of Pension Funds (NAPF) Investment Conference in Edinburgh, chairman of the IASB Hans Hoogervorst said that, while he could understand pension funds’ view that accounting standards relied too much on fair value and failed to account for long-term perspectives, he nevertheless disagreed.

He said pension funds were best served by accounting policies that reflected the economic reality as accurately as possible.

This, he said, should allow funds to resolve funding issues, rather than allow problems to fester.

Hoogervorst said the revisions to the IAS 19 standard brought in 2013 needed to bed in, but he added that hybrid systems being used by companies did not neatly fit in either the DB or DC sections of the regulations.

“Pension schemes are being transformed in a very rapid fashion,” he said.

“Hybrid schemes may be more affordable to companies, [but they] can have infinite variations, from the extremes of DB and DC, with differing degrees and forms of risk-sharing.

“The somewhat binary approach of IAS 19 struggles to deal with this new, infinitely variable pension landscape.”

Hoogervorst said the organisation was to begin a research project to develop accounting standards for all scheme types, using input from its insurance accounting standards.

“It also makes sense to consider other issues that have arisen in practice, such as the problems of determining the high-quality bond yield,” he said.

The research project, for which the IASB requested input from pension funds, could take several years, he said, as the organisation monitors the impact of its 2013 revisions.

Hoogervorst said the current IAS 19 standard now reflected the funding position in company pension schemes more accurately.

But he conceded that removing the criteria where actuarial fluctuations affected the profit and loss of a company meant some firms would now leave deficits to fester.

“Should companies really be paying dividends when big pension deficits continue to eat away at their balance sheets?” he asked.

“Arguably, the discipline of profit or loss would lead to more timely action.”

In January, the IASB approved two revisions to the IAS 19 standard to account for surpluses on sponsor balance sheets and current service costs.

Read Stephen Bouvier’s briefing on the amendments made to pension fund accounting standards during 2014