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Accounting body delays work on DB surplus refund rules

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The International Accounting Standards Board (IASB) has delayed work on a controversial project to amend rules regarding how defined benefit (DB) scheme surpluses are treated.

During a board meeting last week, IASB staff indicated that they would develop a revised amendment to the IFRC 14 rules, with scope for the board to release it for a further round of public feedback.

The proposed amendment to IFRIC 14 was intended to clarify how a DB scheme sponsor should assess its right to a refund of a surplus – and therefore how it should report this on its balance sheet – if the scheme rules allowed parties such as a trustee board to control the surplus.

The IASB has indicated that the impact of the changes would be felt most in the UK.

The board could attempt to align the release of the amendment with any work it does on its research project into pension benefits that depend on asset returns.

IASB member Mary Tokar said: “I very much agree with not finalising the amendment that was proposed.”

The former KPMG audit partner added that she did not want to stall the project while the board made progress on the research effort.

Instead, Tokar urged the board to complete the IFRIC 14 amendment and then assess the timeline on the research project in order to determine when best to release the amendment.

IASB staff said they expected to start work on the pensions research project “imminently within a month or two”.

The board’s interpretations committee started work on IFRIC 14 in 2014, looking at the surplus reporting issue, and published a series of draft amendments for public comment in June 2015.

The IASB decided at its September 2017 meeting to carry out further research into the issue before finalising the amendments. In particular, the board wanted to see whether it could establish a more principles-based approach to enable sponsors to assess the availability of a refund of a surplus.

As it currently stands, the proposed amendments to IFRIC 14 are narrow in scope. In particular, they explain that, if a third party, such as a board of trustees, has the right to wind up a plan, the sponsor cannot assume the plan will unwind in accordance with the plan assumptions. Instead, the sponsor must account for the full settlement of the plan’s liabilities in a single event.

The IASB has also established that sponsors can dodge the impact of the changes by making what staff called “non-substantive changes” to scheme rules.

As a result, the IASB said it wanted to carry out further work on the project in a bid to develop a more principles-based approach.

The staff noted in the meeting paper that it should be possible to develop principles to assess when a sponsor should assume a gradual or more sudden settlement of plan liabilities.

Although staff did not set out in detail what the wider scope might involve, they did say that it was a factor in their decision to align the work on IFRIC 14 with the separate research project.

In the UK, the Financial Reporting Council has encouraged companies to apply the requirements of the now-abandoned IFRIC 14 amendment as if they had been finalised.

IASB staff confirmed that some UK companies “were already making some disclosures”.

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