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Amendments to IAS 19

Date recorded:

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.