The International Financial Reporting Standards Interpretations Committee (IFRS IC) has rejected a proposal that could have limited the number of defined benefit (DB) schemes affected by a planned change to International Accounting Standard 19, Employee Benefits (IAS 19).
The change to IAS 19, exposed for public comment back in June 2015, requires plan sponsors to use updated assumptions to measure current service cost and net interest cost after a plan settlement or curtailment.
Staff had proposed restricting the scope of the amendment to capture just those plan events that affect “a significant proportion of employees covered by the plan.”
Responding to the staff proposal, committee member Tony Debell said: “This is adding a layer of complexity that would let people deal [through] a materiality judgement.”
Staff must now rethink the drafting to capture the committee’s preference for leaving the assessment of whether to measure an assessment of materiality.
The reliance on materiality and the staff’s proposed quantitative assessment were intended to restrict the numbers of times sponsors would be required to remeasure.
Staff wrote: “Because the [IASB] did not intend that an entity would apply the proposed amendments to [non-material] plan events … we recommend amending the scope of the proposals to exclude minor plan events.”
The project to amend IAS 19 addresses how a sponsor accounts for a plan amendment, curtailment or settlement that occurs during a reporting period.
The proposed amendments require sponsors to use updated assumptions going forward – even within the current accounting period.
This would mean an entity would have to calculate the net interest cost for the remainder of the current year on the basis of a remeasured net DB liability or asset.
Respondents to the June 2015 exposure draft raised a number of concerns about the proposals.
In particular, they were worried about the cost of applying the new requirements and the opportunity to game the standard to produce a particular accounting outcome.
It is possible the new requirements will force sponsors to make and account for re-measurements more frequently.
Respondents also voiced concerns about how the concept of materiality would apply, and the lack of comparability among companies.
Also during the meeting, the IFRS IC approved a further amendment to IAS 19 to clarify that an entity must recognise that a gain or loss on past service cost on settlement is a separate step from assessing the asset ceiling.
The committee opted against addressing the concern among some constituents that there is an inconsistency between IAS 19 and the requirements for interim reporting in IAS 34.
The inconsistency arises out of the requirement in IAS 34 to take account of “significant market fluctuations”.
Subject to the IASB’s signing off on the amendments, DB sponsors will have to apply them to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted.