Chronology
Timetable
Background
The objective of the overall convergence project is to eliminate a variety of differences between International Financial Reporting Standards and US GAAP. The project, which is being done jointly by FASB and IASB, grew out of an agreement reached by the two boards in September 2002.
Click here for general information about the Convergence Project.
Discussion at the July 2002 IASB Meeting
The Board concluded that the differences between IAS 19 and the national standards should be addressed in a broad-scope convergence project. The Board will discuss this issue with the Standards Advisory Council. In addition, the staff was directed to summarise the similarities and differences between the standards.
Actuarial gains and losses. In July 2002, the Board considered the first issue in the project – the recognition of actuarial gains and losses (the unexpected changes in the value of the plan). The Board noted that resolving this issue depends, in part, on the format of the performance report. IAS 19 and all national standards on pensions currently in force allow deferral of actuarial gains and losses in some way. This is not the case with the new UK standard FRS 17, which is currently optional and will come into force in 2005). IAS 19 and FAS 87 also allow full immediate recognition as an option. After discussion, the Board was asked to vote whether the '10% corridor' and 'smoothing' elements of IAS 19 should be removed. A majority of the Board members favoured eliminating both the corridor and spreading of actuarial gains and losses, subject to the discussion of the treatment of service costs during the vesting period. The staff will prepare a paper on this for the next meeting.
Discussion at the September 2002 IASB Meeting
The Board considered the scope of a project on convergence of pension accounting standards and concluded:
Include in scope of convergence project:
- How the total change in value of plan assets should be reported in a statement of comprehensive income
- Disclosure of an allocation of plan assets across broad categories, such as equities, fixed income securities, property, etc.
- Whether the immediate recognition of actuarial gains and losses arising on the defined benefit obligation should be retained as an option (as currently in IAS 19), made mandatory, or prohibited. Those who favour immediate recognition feel that the IAS 19 corridor approach amounts to 'income smoothing'. Those who support a corridor or spreading approach feel that such approach is appropriate given (i) the allocation of benefits earned to periods of service and (ii) the recognition of unvested past service cost over the vesting period.
- Whether the 'asset ceiling' of IAS 19 should be retained.
- Whether certain guidance from FASB Statements 106 and 112 (which deal with non-pension benefits) should be incorporated into a revised IAS 19.
Exclude from scope of convergence project:
- Whether the defined benefit obligation should reflect current salaries rather than expected final salaries
- Whether a defined benefit plan should, in some circumstances, be fully consolidated into the entity's financial statements.
Discussion at the November 2002 IASB Meeting
Two areas for possible convergence with US GAAP are:
(1) Consolidation of defined benefit plans:
- Whether defined benefit plans should be consolidated.
- How the assets and liabilities that result from either consolidation or nonconsolidation should be presented.
The Board concluded that the net figure of the defined benefit obligation less the plan assets should be interpreted as a reflection of the asset or liability arising from the entity's net interest in the defined benefit plan rather than as a one-line consolidation of the plan.
(2) Further guidance on the asset ceiling. The Board considered whether there should be a limit on the amount that can be recognised as an asset in respect of a surplus in a defined benefit plan. The Board had concluded that the asset should be limited to the rights the entity has to benefit from the surplus. In measuring those rights, the following hierarchy should be followed:
- first, value the entity's rights to refunds and reductions in future contributions. If this is less than the surplus, then
- second, value the entity's rights to fund increased benefits to current and future employees. No value should be ascribed to the entity's right to fund increased benefits to past employees. If the two items above together are less than the surplus, then
- third, value the entity's right not to fund future losses in the plan to the extent that the losses will be absorbed by the surplus.
Discussion at the December 2002 IASB Meeting - Corridor Approach
The Board discussed whether to retain the corridor approach in IAS 19 for the return on assets in relation to the performance reporting project. Therefore the discussion is better characterised as a reporting performance discussion IF the proposed changes to pension accounting are decided upon. That is, IF the Board decided to eliminate the corridor, how should the performance statement report the actual return on plan assets? As a result of the tentative decisions to date (removal of the pension corridor and two-column performance statement) any discussion on this matter is dependent upon successful completion of these projects.
The Board tentatively agreed to eliminate the current approach in IAS 19 and require that the actual return on plan assets be recognised in the performance statement. The Board concluded on the following presentation in the performance statement:
| | Income and Expenses Other than Remeasurements | Remeasurements |
|---|
| Business Activities | Service Costs | Actuarial gains and losses on the pension liability |
| Financial Assets (subset of Business Activities) | | Actual return on plan assets (similar to other assets held by the company) |
| Financing | Interest Costs | |
As a result of this decision, an entity must decide whether the pension assets are available for sale, held for trading or held to maturity at the purchase date. The change in the value of pension assets would be accounted for similarly to respective assets held outside of the pension plan.
Net Reporting
The Board reiterated its earlier tentative decision that pension assets and liabilities shall be reported on a net basis on the balance sheet.
Definitions of Defined Benefit Plans, Defined Contribution Plans, and Plan Assets
The Board noted that the definition of a defined contribution plan in IAS 19 was open to misinterpretation. The Board tentatively decided to amend the definition of a defined benefit plan to encompass any plan where the employer may have an obligation in the future.
Certain defined contribution plans provide the participants with the opportunity to share in the contributions forfeited by people who leave the plan. In many cases an employer will have the ability to reduce future contributions as a result of the forfeited benefits to date. The Board concluded that the ability to reduce future contributions is an asset that should be recorded at its present value with the offset to pension expense for the period.
Discussion at the January 2003 IASB Meeting
At a previous meeting, the Board discussed whether to retain the corridor approach in IAS 19 for the return on assets in relation to the performance reporting project. Therefore the discussion was better characterised as a reporting performance discussion if the proposed changes to pension accounting are decided upon. That is, if the Board decided to eliminate the corridor, how should the performance statement report the actual return on plan assets? As a result of the tentative decisions to date (removal of the pension corridor and two-column performance statement) any discussion on this matter depends on successful completion of these projects.
The Board reiterated its previous conclusion to eliminate the current approach in IAS 19 and require that the actual return on plan assets be recognised in the performance statement. The Board also reiterated its previous conclusion that the following presentation in the performance statement should be required:
| | Income Before Remeasurement | Remeasurement |
|---|
| Business Activities | Service Costs | Actuarial gains and losses on the pension liability |
|---|
| Financial Assets (subset of Business Activities) | | Actual return on plan assets (similar to other assets held by the company) |
| Financing | Interest Costs | Other actuarial gains and losses |
|---|
As a result of this decision, an entity must decide whether the pension assets are available for sale, held for trading, or held to maturity at the purchase date. The change in the value of pension assets would be accounted for similarly to respective assets held outside of a pension plan.
The Board discussed the accounting when, for example, an employee is issued a pension benefit of 500 to be received at the end of 5 years. After year two, the employer decides to double that benefit to 1,000. The current approach in IAS 19 is to account for the portion related to prior service as a prior service cost. The Board reiterated this approach with a 9 to 5 vote. Those objecting preferred a straight-line approach.
The Board also decided to require that entities disclose in their annual financial statements the total fair value of assets by class. The Board noted that IAS 19.120(c)(iii) requires that the company disclose the fair value of plan assets anyway. Therefore, the Board assumes that it should not be too difficult to provide the disclosure by class of asset. A few Board members believed the disclosure by class would be too burdensome and potentially could not be audited in the time frame necessary for an annual report, especially for large multinational corporations.
The Board requested the staff develop a set of guidelines related to classes that should be disclosed. One Board member suggested classes such as equities, fixed return instruments, variable return instruments, and other. The Board also stated that investment in assets or equities of the entity should be disclosed.
The Board discussed practical problems related to the potential elimination of the corridor. The suggestion was that the surplus in plans and the deficit in other plans should be presented separately on the balance sheet if material.
The Board discussed a fact pattern where a large multinational has a general pool of assets that it uses to fund several different pension schemes (in substance similar to a multi-employer plan). The Board agreed that companies should be allowed the same exception in paragraph 30 of IAS 19 for use of defined contribution accounting when sufficient information is not available to use defined benefit accounting.
The Board also concluded that the difference between the change in the pension surplus and the change in the pension asset should be recorded in the remeasurement column in the performance statement.
At a previous meeting, the Board decided to require sensitivity analysis disclosures related to health care cost trend rates. The Board indicated that certain other sensitivity analysis should be disclosed. The staff will identify candidates for this requirement and will provide a paper to the Board for discussion at a future meeting. Regardless of whether a series of candidates can be identified, the Board noted that if the information is material and disclosure of such information is not required by IAS 19, then the requirements in IAS 1 would require such analysis be disclosed.
Discussion at the February 2003 Meeting
The staff proposed that the scope of the project be expanded to consider amongst other matters:
- The definition of plan assets.
- Consolidation of plans.
- Various measurement issues (in particular the use of fair value for liabilities).
- Final vs Current salaries.
The staff believed that this would not delay the anticipated date of publication of an exposure draft as it had been agreed that this would only be done once an exposure draft on performance reporting was ready, and this will be towards the end of the year.
The Board noted that although these issues are, they cannot be resolved in the short term. Consequently the Board did not agree to expand the scope.
Regarding terminology, the Board agreed to used "plan liabilities" instead of obligations and "defined benefit asset or liability" to refer to the amount presented on the entity's balance sheet.
The Board discussed the criteria to be used to limit the amount recognised as an asset by means of the asset ceiling. It was proposed that the following should apply:
- value the entity's rights to refunds and reductions in future contributions. If this is less than the surplus, then
- value the entity's rights to fund increased benefits to current and future employees. No value should be ascribed to the entity's right to fund increased benefits to past employees. If these two items together are less than the surplus, then
- value the entity's right not to fund future losses in the plan to the extent that the losses will be absorbed by the surplus.
There was considerable debate as to the merits of the third item above. This was particularly as a result of jurisdictional differences as to the allowed access to these amounts by entities. The Board finally agreed that the asset ceiling should be deleted (8-6), but after further discussion it agreed that an asset may be recognised only if it meets the definition of an asset and that the above criteria would be included as guidance.
Disclosure
Discussion at the May 2003 IASB Meeting
The Board agreed to include sensitivity disclosure requirements in respect of significant actuarial assumptions. This disclosure would be required individually for each significant assumption.
In July 2003, the Board agreed to add the following additional disclosure requirements related to defined benefit plans:
- Five-year history of the surplus/deficit and (asset and liability amounts should be presented separately).
- Five-year history of experience adjustments.
The Board believes the disclosure of the surplus/deficit (gross presentation) over the last five years will give information about the volatility of the plan and of any emerging trends, for example, persistent over- or under-funding. Experience adjustments are the actuarial gains and losses that arise because of differences between the actuarial assumptions made at the beginning of the period and actual experience during the period. The Board believes a five-year history of experience adjustments gives information about the reliability of the amounts recognised based on those assumptions (ie the service cost and interest cost).
Discussion at the December 2003 IASB Meeting
The Board considered both issues that should be addressed in a longer-term project and a short-term proposal to permit immediate recognition of actuarial gains and losses in a different manner to that permitted by IAS 19. The staff recommended:
The Board agreed with adopting both the longer-term and short-term projects under a and b above.
The Board agreed (13-1) to expose the option mentioned in c above provided the Basis for Conclusions states that the Board believes this is a temporary position, it improves financial reporting in this area as the balance sheet would reflect a more accurate position, and the actuarial gains and losses in the longer-term should not be in equity. It was agreed that the statement referred to should be given the name specified in the appendix to the revised IAS 1.
The Board agreed with the proposals in d(1) (vote 9-5), (b), and (c) above. It was agreed that the staff would also examine the recent FASB pronouncement on employee benefit disclosure to determine whether convergence could be achieved.
Discussion at the January 2004 IASB Meeting
The limited revision to IAS 19 includes:
- adding an option to recognise actuarial gains and losses outside of the income statement,
- adding an exemption from defined benefit plan accounting for subsidiaries, and
- additional disclosures.
During the discussions, it was noted that six Board members would potentially dissent because of the proposed exemption for subsidiaries from defined benefit plan accounting. One Board member noted that the subsidiary could dividend up to the parent the plan contribution without recognising an expense under this proposal. The Board will address this issue further at its February or March meeting.
The Board decided to add the following disclosure requirements to IAS 19:
- A reconciliation of beginning and ending balances of the benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: service cost, interest cost, contributions by plan participants, actuarial gains and losses, foreign currency exchange rate changes, benefits paid, plan amendments, business combinations, divestitures, curtailments, settlements, and special termination benefits.
- A reconciliation of beginning and ending balances of the fair value of plan assets showing separately, if applicable, the effects during the period attributable to each of the following: actual return on plan assets, foreign currency exchange rate changes, contributions by the employer, contributions by plan participants, benefits paid, business combinations, divestitures, and settlements.
- A narrative description (along with amounts) of the basis used to determine the overall expected long-term rate of return on assets assumption, such as the general approach used, the extent to which the overall rate of return on assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined.
- The employer's best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position presented. Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions.
- Sensitivity analysis for all key assumptions on the aggregate of the service and interest cost components of the benefit costs.
- Any substantive commitment, such as a past practice or a history of regular benefit increases, used as the basis for accounting for the benefit obligation should be disclosed in the summary of the plan.
Discussion at the February 2004 IASB Meeting
The treatment of group defined benefit plans in the separate financial statements of entities within the group
The staff proposed amendments to IAS 19 that would bring group plans within the scope of the provisions for multi-employer plans. The staff informed the Board that IFRIC is proposing an interpretation in respect of multi-employer plans.
The Board agreed that this should apply to those entities that would fall under the conditions in IAS 27 for not preparing group financial statements. Otherwise IAS 19 would apply and a reasonable basis of application should be applied.
Whether actuarial gains and losses that are recognised outside the income statement should be recognised in a separate component of equity
The Board considered the issue of whether actuarial gains and losses that are recognised outside the income statement, in a statement of total recognised income and expenses, should be shown in a separate component of equity and not included in retained earnings.
The staff recommended that actuarial gains and losses should be recognised immediately in retained earnings, not a separate component of equity.
The Board agreed.
Whether, when actuarial gains and losses are recognised immediately, an amount in equity represented by the defined benefit asset or liability should be presented separately
The staff recommended not requiring the separate presentation of the amount of equity represented by the defined benefit asset or liability.
The Board agreed.
How should an adjustment relating to the asset ceiling be treated when actuarial gains and losses are recognised outside income
The Board considered whether the affect of the asset ceiling limit should be treated as an actuarial gain or loss and recognised outside the income statement or as an adjustment to be recognised in the income statement.
The staff recommended treating the entire impact of the asset ceiling as an actuarial gain or loss.
The Board agreed.
Whether the sensitivity information previously proposed by the Board should form part of the short-term amendments
The Board agreed to not include this within the short-term amendments.
Discussion at the March 2004 IASB Meeting
The Board considered a pre-ballot draft of a proposed exposure draft. The staff identified two issues for further consideration.
Capitalisation of post-employment benefits
Paragraph 62 of IAS 19 notes that other IFRSs require the inclusion of employee benefit costs, including post-employment benefit costs, within the cost of assets such as inventories or property, plant, and equipment. The Board discussed whether, if actuarial gains and losses are recognised immediately, their full amount should be capitalised.
IAS 19 currently requires that if an entity recognises actuarial gains and losses in full in income, an appropriate proportion of the gains and losses must be included in the employee benefit costs that are capitalised.
The staff proposed that IAS 19 be amended so that only the current service cost is eligible for capitalisation.
The Board did not necessarily disagree with the staff's recommendations but believed the issue could not be dealt with adequately in this exposure draft.
The title of the statement of changes in equity that excludes transactions with owners
The staff recommended using the title "statement of total recognised income and expense" and proposed a consequential amendment to the illustrative example in IAS 1.
The Board agreed to retain the description in the revised IAS 1 appendix, being "statement of recognised income and expense".
No Board members indicated they would dissent from the exposure draft.
Discussion at the September 2004 IASB Meeting – Employee Benefits
Basis for amending recognition of voluntary termination benefits
Under the present requirements of IAS 19, termination benefits payable as a result of an employee's decision to accept voluntary redundancy (voluntary termination benefits) are recognised when the entity is 'demonstrably committed' to provide those termination benefits.
In December 2002, the Board decided to change this requirement to converge with the recognition requirements for 'special termination' benefits in SFAS 88 Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. Special termination benefits are described in SFAS 88 as "benefits to employees in connection with their termination of employment [that are] offered only for a short period of time". Special termination benefits are recognised when the employee accepts the offer and the amount can be reasonably estimated.
The staff has concluded that an entity does not have a present obligation to provide voluntary termination benefits until the individual accepts the offer because before this time there is no mutual understanding of the arrangement. The staff also notes that the entity may have the discretion to avoid paying termination benefits up until the point that the employee accepts the offer (because the entity might be able to withdraw the offer or refuse the employee's acceptance of the offer).
The Board agreed with the staff and decided not to go into the detail of what 'short-term' means.
Early retirement versus voluntary redundancy
The Board discussed this issue and concluded that IASB staff should consult FASB pension experts with a view to presenting any new information in October.
Exposure Draft: Proposed Amendments to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures.
The Board began its deliberations of the exposure draft to add an option to IAS 19 to allow actuarial gains and losses to be recognised directly in equity and presented in a statement of recognised income and expense (SORIE). The Board decided to confirm its intention to undertake a comprehensive review of accounting for post-employment benefits in the future. The Board also decided (11-3) to continue towards finalising the proposals in the exposure draft as immediate recognition in equity would be more transparent than deferred recognition.
The Board also decided to:
- Amend IAS 19 so that entities that adopt the option must treat the effect of the asset ceiling in the same way as the other options;
- Prohibit recognition of actuarial gains or losses recognised in the SORIE in profit or loss in a later period (that is, no 'recycling'); and
- Require presentation of the actuarial gains and losses in the balance sheet as a component of retained earnings.
The Board also discussed the issue of allocating benefit obligations among members of a group plan. No decisions were taken. The staff will present to the Board examples of allocations that can be made reasonably and those the staff believe can not be made reasonably. Two Board members expressed intent to dissent to the final standard.
April 2004: Exposure Draft of Proposed Amendments to IAS 19
On 29 April 2004, the IASB issued an exposure draft: Proposed Amendments to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures. The amendments would introduce an option for an entity to recognise actuarial gains and losses in full as they arise, outside profit or loss, in a statement of changes in equity that shows total recognised gains and losses (sometimes called comprehensive income). This proposal is similar to the requirements of the UK standard, FRS 17 Retirement Benefits. The IASB concluded that, pending further work on post-employment benefits and on reporting comprehensive income, the Board believes that the approach in FRS 17 should be available as an option to IFRS preparers. IAS 19 would also continue to permit recognition of actuarial gains and losses in profit or loss, either in the period in which they occur or spread over the service lives of the employees. Almost all entities currently using IAS 19 choose to spread actuarial gains and losses. The exposure draft also would:
- Extend the application of multi-employer plan accounting to entities within a consolidated group that meet certain criteria.
- Add disclosures to (a) provide information about trends in the assets and liabilities in a defined benefit plan and the assumptions underlying the components of the defined benefit cost and (b) bring the disclosures in IAS 19 closer to those required by the US standard SFAS 132 Employers' Disclosures about Pensions and Other Postretirement
Benefits, which was revised in December 2003.
The IASB seeks comments by 31 July 2004. Click for IASB Press Release (PDF 26k).
Discussion at the October 2004 IASB Meeting
Disclosures
The Board discussed certain disclosure issues in the exposure draft (ED) of proposed amendments to IAS 19:
Staff recommended that further information be disclosed about plan assets (by major asset class, including the expected rate of return), although US GAAP does not have a similar requirement (SFAS 132). Staff noted that this disclosure is required by UK GAAP.
There was some debate regarding the usefulness of this disclosure, particularly for multi-national entities considering that different expected rates of return would prevail at country/jurisdiction level and not necessarily at the 'major asset class' level. Aggregation of information to the major asset class level would negate the usefulness of the disclosure.
The Board voted 8 to 6 against the staff recommendation; therefore the disclosure will not be required in IAS 19.
There was general support for the requirement of sensitivity information about medical cost trends. SFAS 132 requires this disclosure. Board members made the point that the focus when considering this disclosure, should be based on the materiality of medical costs in the context of the entity. Staff were asked to make this clear in the drafting together with the fact that specifying a 1% change would be inappropriate in jurisdictions with high inflation. Subject to these amendments, the Board voted 13 to 1 for this requirement to be included in IAS 19.
The ED proposed the disclosure of the amounts for the current period and previous four periods of the present value of the defined benefit obligation, the fair value of the plan assets, the surplus or deficit in the plan, and the experience adjustments arising on the plan assets and liabilities. SFAS 132 does not require these disclosures. FRS 17 in the UK does. Staff recommended that this requirement not be included in IAS 19.
General discussion ensured with Board members making the points that:
- the requirements were viewed as information overload;
- the UK requirement was intended to be an anti-avoidance type mechanism that would guard against preparers achieving a certain accounting outcome in certain years but reversing that in subsequent years;
- there would be no significant additional cost to preparers for providing this information as it is required for each year (the ED proposes that the preparer merely provides a summary of the current year together with the past four periods; information which should be readily available from its previous financial statements). The point was made that it would be logical that the preparer extracted this information and not the user.
The Board voted 13 to 1 against the staff recommendation; therefore IAS 19 will contain this disclosure requirement.
Group Plans
The ED proposed that, in their separate or individual financial statements, group entities that met specified criteria could treat group plans as multi-employer plans. Group entities that did not meet the criteria should apply defined benefit accounting using a reasonable basis of allocation. Subsequent to the September discussions, the staff recommended that IAS 19 be amended to require defined benefit group plans that share risks between individual group entities to be accounted for in the separate or individual financial statements of the group entities as follows:
- by measuring the plan in accordance with IAS 19 based on assumptions applicable to the plan as a whole (it is assumed that this information will generally be available to the group as a whole); and
- allocating the plan to individual group entities in accordance with the current agreement or stated policy for charging out the net defined benefit cost, if there is such an agreement or policy; or
- if there is no such agreement or policy, to the individual group entity that is legally the sponsoring employer for the plan.
The Board noted that the staff proposal would be problematic but agreed with the recommendation, to be supported by additional disclosure requirements, as the best solution at this point.
Multi-Employer Plans
IFRIC's concerns about the draft interpretation D6 were relayed to the Board – primarily measurement and allocation difficulties. The point was made that the accounting for group plans and multi-employer plans should be consistent. The Board decided to make a clarification through its project on amending IAS 19 (not an amendment) that where there is an agreement, the allocation for accounting purposes under a multi-employer plan should be on the basis of that agreement provided the information is available.
December 2004: Amendment to IAS 19 Adopted
The IASB has finalised an amendment to IAS 19 Employee Benefits to allow the option of recognising actuarial gains and losses in full in the period in which they occur, outside profit or loss, in a statement of recognised income and expense. This option is similar to the requirements of the UK standard, FRS 17 Retirement Benefits. The Board concluded that, pending further work on post-employment benefits and on reporting comprehensive income, the approach in FRS 17 should be available as an option to preparers of financial statements using IFRSs. The amendment also provides guidance on allocating the cost of a group defined benefit plan to the entities in the group. Click for IASB Press Release (PDF 56k).
June 2005: IASB proposes amendments to provisions standard and related amendments to IAS 19
On 30 June 2005 the IASB published and invited comment on proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (to be retitled Non-financial Liabilities) and complementary limited amendments to IAS 19 Employee Benefits. The amendments to IAS 37 would change the conceptual approach to recognising non-financial liabilities. Entities would be required to recognise in their financial statements all obligations that satisfy the definition of a liability in the IASB's Framework, unless they cannot be measured reliably. Uncertainty about the amount or timing of the economic benefits that will be required to settle a liability would be reflected in the measurement of that liability instead of (as is currently required) affecting whether it is recognised. This change would enhance financial reporting because some liabilities previously only disclosed in the notes to the financial statements will now be included in the balance sheet. Moreover, it would make the IASB approach consistent with the approach under US GAAP.
Comments are due by 28 October 2005.
Click to Download the IASB Press Release (PDF 69k).
Main proposals in the exposure draft that relate to employee benefits:
The ED specifies that a non-financial liability for a cost associated with a restructuring should be recognised only when the definition of a liability has been satisfied for that cost. Accordingly, a cost associated with a restructuring is recognised as a liability on the same basis as if that cost arose independently of a restructuring. Specific guidance for accounting for costs that are often associated with a restructuring is proposed as follows:
- termination benefits to encourage employees to leave service voluntarily (voluntary termination benefits) should be recognised when employees accept the entity's offer of those benefits.
- termination benefits provided as a result of an entity terminating employment (involuntary termination benefits) should be recognised when the entity has communicated its plan of termination to the affected employees and the plan meets specified criteria, unless the involuntary termination benefits are provided in exchange for employees' future services (ie in substance they are a ‘stay bonus'). In such cases, the liability for those benefits should be recognised over the period of the future service.
- a liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is recognised when the entity ceases using the right conveyed by the contract (in addition to any liability recognised if the contract was previously determined to be onerous). For example, the costs of an ongoing operating lease commitment on a property that is to be vacated is recognised when the entity ceases to use the leased property.
- the cost of terminating a contract before the end of its term is recognised when the entity terminates the contract in accordance with the contract terms.
Discussed at the February 2006 IASB Meeting
With minor clarification, the Board approved the staff's plan of issues to be reconsidered and those that do not require reconsideration (re-affirmation instead).
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