The International Accounting Standards Board (IASB) has tentatively agreed a package of both mandatory and recommended defined-benefit (DB) pensions disclosures that it hopes will provide both investors and users of financial statements with more relevant information.

Aishat Akinwale, project manager at IASB, said: “The board decided to take a blank page approach to explore whether new or different information about employee benefits would more effectively meet the needs of stakeholders.”

The decision means that the board has now reached preliminary agreement on five of the specific areas of disclosure it identified during its July meeting round.

Those five disclosures, which are set out in the IASB official November meeting summary, IASB Update, cover information about:

- the amounts in the primary financial statements (paragraphs 11-17);

- the nature and risks of the plans (paragraphs 18-23);

- the time period over which payments to closed plans will continue to be made (paragraphs 38-41);

- the significant actuarial assumptions (paragraphs 42-48); and

- the drivers of change in the net defined benefit liability or asset (paragraphs 49-55).

The board was unable, however, to reach an agreement on a sixth disclosure proposals, which staff had drawn up to address “the expected future cash flows resulting from the defined benefit obligation” (paragraphs 24-37).

Staff agreed to put in further work on the drafting and bring it back to a future meeting for the board to consider.

The basis for the board’s work on DB disclosures is the draft guidance it developed last year to assist it in developing and drafting disclosure requirements.

This guidance is currently based around the premise of using specific disclosure objectives to elicit relevant information supported by a catch-all or high-level disclosure.

Disclosures under International Financial Reporting Standards (IFRSs) have developed in a haphazard and standard-specific fashion over several decades.

This means that although a disclosure in one standard might have influenced the board when it updated existing or developed new disclosures in particular areas of accounting, there was no over-arching principle or roadmap for it to follow.

\This new approach, however, is intended to prompt preparers to step back and consider whether, as a whole, the disclosures they are making provide users with the information they need to allocate capital.

Earlier during the meeting, IASB members also approved a staff proposal to set a framework for the wording of the draft disclosure requirements (see paragraph 7, Agenda Paper 11A).

The staff told the meeting that the board should use:

- prescriptive ‘shall’ language when an item of information would always be essential to satisfy a specific disclosure objective, and

- less prescriptive language such as ‘shall consider’ or ‘will normally disclose’ when referring to specific items of information that could be used to meet those objectives.

This decision essentially reconfirmed that board’s 24 July decision about the use of the same wording.

IASB vice-chair Sue Lloyd said: “I tried to make people aware it’s not a checklist, but also in the same sort of phrase, reminding them they need to meet the objective, which I think is going to be the key for success.”

“I think it does give us the best opportunity to explore this approach and to see whether it would make a change,” she added.

Refining standards

In terms of the next steps on the project, project manager Aishat Akinwale said: “[W]e will bring to a future meeting a paper that compares the board’s tentative decisions so far with the existing requirements in IAS 19 and analyse whether further refinements are necessary to those decisions.”

Separately, the IASB also agreed on a tentative package of four disclosures under International Financial Reporting Standard 13, Fair Value measurement.

Pension scheme sponsors could be required to refer to IFRS 13 where they hold assets such as quoted equity instruments that must be measured at fair value.

The standard, which deals with the mechanics of measured assets at fair value, is also relevant where an entity is required to disclose a fair value for an asset – even if the asset is not held at fair value.

According to the official IASB workplan, the board plans to issue an exposure draft on the proposals for public comment during the second half of next year.

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