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IASB to push ahead with controversial changes to IAS 19 guidance

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The International Accounting Standards Board (IASB) has confirmed it will press ahead with a series of potentially controversial amendments to its IAS 19 asset-ceiling guidance known as IFRIC 14.

A total of 10 board members agreed the move at the standard setter’s 13 December meeting.

Lane Clark & Peacock LLP’s Tim Marklew said: “I see the IFRIC 14 amendments as a huge issue for UK companies.”

He added that he saw the changes as less worrying than parallel amendments to International Accounting Standard 19, Employee Benefits (IAS 19), which deals with the need to update plan assumptions.

Last month, the LCP warned that the shift in focus of the way the committee drafted its proposals could affect more DB plan sponsors than first believed.

The IFRIC 14 changes in their current form could force schemes to recognise an additional liability where a scheme’s trustees have the power to mount a buyout.

The news comes as scheme sponsors battle to contain ballooning pension deficits brought in a low-interest-rate environment.

The International Financial Reporting Standards Interpretations Committee (IFRS IC) proposed the IFRIC 14 amendment in 2015.

It is intended to clarify how sponsors should take account of the right a third party might have to wind up a plan or adjust member benefits without the sponsor’s consent.

In general terms, the amendment means a sponsor does not have an unconditional right to a surplus if other parties can use the surplus to enhance members’ benefits.

Although a sponsor can recognise a surplus even if trustees can wind up a plan without its consent, the sponsor cannot assume a gradual settlement of plan liabilities.

It is this aspect of the proposed changes that has provoked the most concern among IASB watchers.

LCP’s Tim Marklew added: “In other words, the committee is closing off the route whereby some companies assumed a plan would simply run off in line with assumptions where the trustees have the power to buy out the scheme.”

Finally, the committee has also ruled that a decision by trustees to purchase an annuity as a plan asset does not affect the sponsor’s ability to claim a refund.

Critics of this proposal argued that it draws a false line between a buy-in and a buyout.

The latest amendment to IFRIC 14 looks at how an entity assesses the availability of a refund when other parties can either adjust member benefits or wind up a plan without the sponsor’s consent.

It does not deal with the availability of a reduction in future contributions.

Staff signalled during the meeting that they would clarify in drafting that a power to settle plan liabilities individually with plan members is not caught by the interpretation.

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