Following a meeting of the International Accounting Standards (IAS) board’s interpretive body in April, the International Financial Reporting Interpretations Committee (IFRIC), Eric Steedman, a senior international consultant with Watson Wyatt, was left pondering one question. What justification IFRIC staff would find within IAS19 for arguing that an additional liability might arise, first, where a plan sponsor must make future contributions at levels higher than implied by the IAS19 assessment of obligations - perhaps to meet a minimum funding requirement - and, secondly, where those funds will not ultimately revert to the sponsor.

IAS19 is clear that a sponsoring business must reduce any balance sheet asset in respect of the non-reverting contributions. However, IFRIC has gone further and argued that the sponsor must potentially increase any corresponding balance sheet liability. “Although there is an economic argument for that, it is not obvious how this is compatible with IAS19,” said Steedman in March. The answer, IFRIC argues, can be analagised from IAS37, provisions, contingent liabilities, and contingent assets.

More generally, Steedman welcomes the end of D19’s lengthy gestation. The approach to new entrants , he
adds, is broadly analogous to the long-standing approach under Canadian GAAP.

IFRIC D19, which takes effect non-retrospectively from 1 January 2008, aims to clarify the measurement of the defined benefit pension asset. IAS19 caps this asset at “the present value of economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan”.

Another way of viewing this issue, which has perplexed some preparers, is to say that if a minimum funding requirement in your jurisdiction forces you to pay money into a pension plan over and above the IAS19 assessment of liabilities, as long as that money will ultimately revert to your business, IFRIC D19 lets you skip the wait for any refund to happen before you recognise that right to a refund as an asset on your balance sheet. On the evidence of the 3 May meeting, it is likely to be some time before another interpretation on IAS19 issues emerges. Presenting an outline timetable detailing a total of eight candidates for interpretive guidance, staff had a blunt message to deliver: “We just don’t have the time to take on more IFRIC issues.”

Singling out allocation of the effects of salary increases as a priority issue, IFRIC member Mary Tokar, KPMG’s London-based head of IFRS reporting, replied: “I don’t want to be too harsh, and realism is a good thing in terms of planning and scheduling … [but] saying it’s going to take three years to have a consideration is not really a message that I want the IFRIC to be sending.”

Behind the stark message of ‘we are busy’ lies more than just a monumental failure of communication. The equally stark truth is that IFRIC’s staff are indeed busy - mainly producing agenda papers for the board’s main pensions accounting project each month. According to IFRIC member Phil Ameen, vice president and comptroller with US conglomorate General Electric, outside expertise could break the log-jam.

And were she to seize the initiative, IASB’s technical director Liz Hickey could do far worse than to send out informal feelers in the general direction of the pension consultant community.

Although the IFRIC can contract out interpretive work, it cannot delegate responsibility for producing high-quality accounting standards and guidance. “I would say that quality ought to be less of a concern if the work is ‘farmed out’, because IFRIC would still retain a quality-control role,” argues Tim Reay, principal in the international benefits team at Hewitt. “Taking on a secondee would differ very little from employing someone directly. In fact, the quality might be better, because IFRIC would benefit from taking on a secondee with the relevant experience.”

One obvious area of benefit lies in accessing a pension consultant’s extensive research resources: “There is a lot of respect for the very detailed way that IFRIC goes about things,” adds Eric Steedman. “But,” he continues, “it does take a long time, which leads to frustration and difficulties for preparers.” On the issue of collaborating more closely with IFRIC, Steedman cites the “large number of responses to exposure drafts as evidence of a general willingness in the consulting and business community to help in the interpretive and standard-setting process.”

Furthermore, he says: “We have extensive day to day expertise of helping companies interpret these and other unclear areas of the standards, and this experience gained across a wide variety of different plan types worldwide is coordinated and collated within Watson Wyatt”

“We would welcome a dialogue,” says Tim Reay, “very much so,” The ball is well and truly in IFRIC’s court.

Topics