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Rechnung! It is a generic German word for accounting. And to English ears it sounds curiously like ‘reckoning', which is ironic given the situation facing German's pension plan sponsors. "Acute", was how Watson Wyatt-Heissmann's Alfred E Gohdes put it at a roundtable meeting held on 3 June in Frankfurt.

In fact, he went further than that. Summing up the International Accounting Standards Board's (IASB) proposals to revise International Accounting Standard 19, he reasoned that: "If IAS19 was broken, you could say that the new standard is kaputt."

The picture to emerge in the wake of the 3 June meeting, is that were proposals from the IASB to become GAAP, something between 60% and more than 99% of Germany's pension provision could jump classification from its existing defined benefit accounting to the IASB's proposed fair value model. And although the IASB staff representative at the meeting, Jenny Lee, appeared to express genuine surprise at the news, IPE's research reveals that the pensions team had a direct warning.

The real shock on 3 June came courtesy of Bayer AG's group controller, Rolf Funk. "We have already performed an analysis of our 100-plus pensions plans and 99% and up is in the category of contribution-based promises," revealed Funk. IPE checked, and Bayer is standing by its numbers.

Jenny Lee, currently one half of the IASB's pensions team, neatly encapsulated the shock that many in the room felt.

"Can I ask why that is?" The answer: "We allow for each year of service a building block and we in principle don't have plans which are fixed at the end salary." In other words, it is not only the British who have career average plans.

An IPE analysis of comments delivered to the IASB's pensions team at the 27 June 2007 meeting of the IASB's Standards Advisory Council reveals that the board had a direct warning of its present difficulties from the executive chairman of the German Accounting Standards Committee, Heinz-Joachim Neubürger.

"I have some quite strong views on the defined benefit approach you are suggesting here. The defined benefit [notion], the way you phrase it, sometimes because of legal restrictions or tax environment in a jurisdiction, it is just not do-able and I believe if we devise a standard it should be neutral because [certain plans] are now catered for," began Neubürger.

Warnings rarely come much clearer than that. But just in case it was not plain enough, he continued that the thrust of the project seemed to him to be catering to a different legal environment. "And [so] we need to think about how to phrase the defined-return type of accounting rule if you like. So I see a big problem here."

He might have seen one, but it seems no-one else at the IASB did. Perhaps it was his deadpan delivery. "There are many variations to defined benefit which would warrant from an economic - and I mean really substance type of perspective - a different type of accounting treatment than is proposed here," he continued. "So it is too narrow an approach that you are presenting here and I am more than happy later on, on a bilateral basis, to comment further on this."

The questions facing the pensions team at the IASB are twofold. By what process was Neubürger's advice either acted on or ignored, and why? And, did the IASB's pensions team take up his offer of exploring the issue further?

One of the striking features of Neubürger's observations is the extent to which he takes on board the concerns of many diverse constituencies into a few short sentences. "If we were to have people from unions in this SAC group, do you think they would feel the same way as we do? The thing is, we need to consider what sort of constituencies are going to be affected."

You can tell he has done this for real. Although in a US-centric environment, he really needs to inject a little drama into his presentation style: bad news has to sound bad.

He continued: "It doesn't change necessarily what we are saying, and I fully support an economic approach - if there is a liability, recognise a liability and do not ignore it - but the point is then, for instance, a changed standard needs to be implemented and you may be running into a little bit of a problem there. That is what I just wanted to point out. We need to consider the effects we are causing by what we are deciding and recommending."

As the scale of opposition to the IASB's proposals builds, a summary of Neubürger's remarks proves prescient: recognise a liability, both where it exists and where it represents a real economic outcome, but consider the impact of your proposals on individual jurisdictions and their social security and tax law frameworks. Oh, and pensions are as much, if not more, a human resources issue as an accounting issue. If ever there were an object study in not letting theoretical accountants run your workforce, the IASB's discussion paper is that lesson.

As the chickens came home to roost, it is hard not to compare the IASB with the former inhabitants of the Tal der Ahnungslosen - the Valley of the Clueless. Back in the days of the German Democratic Republic, the inhabitants of an area around Dresden, unable to receive West German television signals, were jokingly regarded as out of touch.

In fact, at times it is a challenge to know whether anyone speaks to anyone else in the IASB's Cannon Street bunker. During a 17 June discussion on the issue of revamping the IASB's workplan - ahead of a possible adoption of IFRS by the US - the IASB's chairman Sir David Tweedie asked: "Have we had any feedback from that at all?" He was referring to the contribution-based plan definition. Not yet, David, but you will.

The IASB launched its discussion paper on pensions accounting in March. The board proposed, among other changes to the existing accounting regime, a new definition of contribution-based pension plans. One aim of the IASB's drive on pensions accounting and its new plan classification is to improve the accounting for what it has dubbed "troublesome" cash-balance-type plans.

IASB has split its work on pensions into two clear phases. Following completion of Phase I, which should conclude with an improved version of IAS19 in place by 2011, the board plans to launch a full-scale review of pensions accounting with the US FASB. The project has run into controversy over plans to change the accounting for the UK's career average plans from the projected unit credit method to a fair value model.

The sting in the tail - for Bayer, among others - is that all so-called actuarial gains and losses go immediately into profit or loss under the new contribution-based methodology. IASB has proposed a soft landing for traditional final-salary plans. In addition to full immediate recognition in income, IASB has put out for discussion two alternative treatments that by disaggregating pension cost between operating and financing to varying degrees effectively lessen the impact on earnings.

Presenting a marginally less apocalyptic vision of Germany's future pensions accounting landscape Gohdes explained that, "in Germany we have troublesome plans with a guarantee component. We have always said that those are DB promises… In the future that will more of less reverse. So the defined benefit promises will under the new classification system make up 3% - in my estimation 2% - of all promises in Germany, and from 70-80% will be contribution based."

The picture left Hewitt Associates' Tim Reay unsurprised. "Germany has plans with capital guarantees, and under the proposed model these would be contribution-based plans. These are effectively defined contribution plans where the value of the guarantee is not so material as to make a vast amount of difference." But questions remain, he warns: "What we need to know is how many of the 60% of plans - on the Watson Wyatt Heissmann figures - that will switch classification are defined contribution plans with a guarantee, and how many are of the career-average type described by Rolf Funk."

But true to the code of leaving the best till last, the real surprise came in response to a question from this journalist about the links between the IASB and its US counterpart, the Financial Accounting Standards Board, on the issue of financial statement presentation.

IASB member Phillippe Danjou dodged the issue - and so he should, he is not responsible - and so it fell to Jenny Lee to tell a slightly bemused audience that: "I would suggest that you [ask] a member of staff on the financial statement presentation project because I am not clued up enough about FSP to answer."

She continued: "What we have decided for financial statement presentation … what is in the discussion paper … clearly they are interrelated. What we do not want to do is to have the pensions project held back by lack of progress on the financial statements project which has been going on for quite a long time."

Admitting that you are not clued up an on issue is one thing - a welcome breeze of transparency from the Cannon Street bunker - but where an issue is "clearly … interrelated" to the pensions discussion paper, now might be a good time to start catching up.

There again, if the IASB pulls the plug on FSP for the sake of US adoption of IFRS, she will have wisely saved her energies.

As Audi's CFO might well say, this stuff is hardly Vorsprung durch Rechnung.

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