IASB trips up in corridor
GLOBAL - A bid by the International Accounting Standards Board (IASB) to relax the requirements of IAS19 in respect of discount rate determination has run into the sand as staff and board have failed on three occasions to finalise transitional arrangements.
Project staff admitted in a meeting paper presented to the board on 24 July they "forgot" that some of their constituents would continue to apply IAS19's so-called 'corridor' method in the wake of any changes affecting the determination of a discount rate.
On 21 July, the board had approved a proposal seeking leave to amend paragraph 78 of IAS19.
The change, which will come as welcome relief in some jurisdictions, removes the requirement to use a government bond rate to discount a defined benefit pension obligation under IAS19, in the absence of a deep market in high-quality corporate bonds.
Commenting on the developments, Tim Reay, an international benefits principal with Hewitt told IPE: "For international companies the tremendous thing is that you are going to get consistent results across countries irrespective of whether there is a deep market in corporate bonds or not."
Also welcoming the board's decision, Eric Steedman, a consultant actuary with Watson Wyatt, said: "I'm very positive about this change. It has gotten rid of an anomaly, although that's not to say that there aren't countries where people will be left scratching their heads, because the answer does not necessarily present itself on a plate. But now at least everyone will be trying to do the same thing."
Giving the board's tentative decision a more cautious welcome, Deborah Cooper, a principal with consulting actuaries Mercer, noted: "Countries like US and the UK start from the same point, but countries where there has never been a deep market sometimes will not have a point to start from [and] ... it creates new issues in determining what is going to be a fair and comparable measure."
Tripping up the board in its bid to push through the amendment was the IAS19 corridor method, which is used by some businesses reporting under IAS19 to smooth out volatility in their pensions bottom line.
Any entity applying both the corridor and the discount rate change on a retrospective basis, staff have conceded, would have to "determine the defined benefit obligation for each year since the inception of the plan in order to determine the net cumulative unrecognised gains or losses at the date of application".
The issue is set to return to an extraordinary session of the board on 4 August where staff will now ask the board to support prospective application of any amendment.
In their 21 July meeting paper, staff advised the board not to fast-track the discount rate amendment ahead of scrapping the corridor.
Also during the 21 July meeting session, IASB project manager Andrea Pryde revealed that: "Because presentation is important to this project, in that context we are planning to delay publication of the ED pending further review in September."
By fast-tracking the amendment, the board had hoped to avoid delaying its changes on discount rates.
The latest round of u-turns and confusion follows the refusal by IASB at its March meeting to amend IAS19's requirements on determining a discount rate.
During that meeting, the board concluded it was outside the scope of its so-called Phase One project to address issues affecting the measurement of defined benefit obligations.
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