The read across from US GAAP to IFRS is far from easy, despite the efforts of consultants such as Towers Watson and auditors KPMG to break it down. For example, the pensions comparison in the August 2009 edition of KPMG’s ‘IFRS Compared to US GAAP’, runs to 17 pages.
Similarly, Towers Watson’s ‘Comparison of IAS19 with FASB ASC715’ involves 41 tabulated entries, and uses identical wording in the case of just five areas of accounting treatment: the going concern concept, use of the projected unit credit method as the basis for the IAS19 actuarial calculation, the basis for the rate of return on plan assets, disclosures relating to pension cost, and the treatment of multi-employer plans as a group of single employer plans.
The fact that no one at the IASB has put in front of a board meeting either the Towers Watson document, or extracts from the KPMG manual, is largely the result of the confused evolution of the IAS19 amendment project.
When the board launched its bid to update IAS19 in June 2006, the focus was very much on eliminating the corridor and tackling the ‘troublesome’ cash balance or, on a wider definition, intermediate risk plans. Less certain was how the project would mesh with developments in the US, where the Financial Accounting Standards Board (FASB) had already concluded a project to amend FAS 87, 88, 106, and 132(R).
That effort resulted in FAS158, which, significantly, now forces defined benefit (DB) plan sponsors to recognise the funded status of a benefit plan — as the difference between plan assets at fair value (with some exceptions) and the benefit obligation — in its statement of financial position. Broadly speaking, a US GAAP balance sheet resembles an IFRS one.
The IASB planned to leapfrog the FASB by tackling the intermediate-risk plans. Pension plan presentation remained largely unaddressed in 2006 and the vague, poorly articulated ambition was for the financial statement presentation project to somehow ‘tackle’ this.
But rather than the IASB fixing plan definitions and the largely FASB-driven FSP project resolving presentation, IASB failed spectacularly to deliver with its contribution-based promises effort and ended up taking sole responsibility for coming up with the net interest approach found in the latest exposure draft. IASB’s failure means that FASB and IASB are back at square one on measurement.
So, looking at the comment letters on this year’s exposure draft from the IASB’s US constituents, a number of key themes emerge, including the sparse response to the exposure draft from US companies. Apart from the usual suspects, it was mainly companies in the energy sector that responded.
Content-wise, First Energy (comment letter 51) is largely typical of those responses. The company supports the objective of convergence effort between IASB and FASB “to achieve consistency in international accounting and financial reporting through convergence with accounting principles generally accepted in the US (US GAAP). In general, we support the IASB’s aim to make improvements to the recognition, presentation and disclosure of DB plans.”
First Energy goes on to consider what that might actually mean: “We believe that some of the proposed amendments will add unnecessarily to the technical complexity associated with accounting and reporting of employee benefits. Further, we support the existing US GAAP standards and disclosure requirements and believe that the proposed disclosure amendments will not improve the usefulness or transparency of information disclosed to the financial statement readers provided under the current guidance of either IAS19 or US GAAP.
“In light of the expressed concerns, we urge the board to pursue convergence with the FASB and defer any proposed amendment of IAS19 until there has been enough time to deliberate and agree upon a joint approach to the issues.”
And Financial Executives International (comment letter 65), raises broadly the same concerns on convergence. But the proposals for interim reporting really bug the association: “Interim remeasurements within very tight regulatory filing deadlines would not be practicable for many companies… and for companies with significant hard-to-value plan assets, interim remeasurements would be costly, time consuming and may not be available within the required 40 days for [an SEC] quarterly filing for large, accelerated filers.”