Measurement of contribution-based promises - sweep issues arising from the second pre-ballot draft of IASB Discussion Paper

As a consequence of discussions on the second pre-ballot draft of the IASB's intended Discussion Paper Preliminary Views on Amendments to IAS 19 Employee Benefits in January 2008, the staff had recommended clarifying what was meant by the Board's preliminary view that the measurement of contribution-based promises should not include the possibility that an entity might reduce the benefits provided; express no preliminary view on credit risk; and ask a question in the Invitation to Comment on whether and how credit risk should be taken into account, as well as to change term used to describe the measurement of contribution-based promises to 'fair value assuming the benefit promise does not change'.

Some Board members thought that the measurement of contribution-based promises should take into account the possibility that an entity might not be able to make the payments necessary to satisfy the liability, while the possibility that an entity might reduce benefits for past service in the future should be ignored: only when there was an actual agreement to reduce benefits should this be taken into account. There was also disagreement with the staff view that no preliminary view on credit risk should be expressed. Some Board members were of the view that a view should be expressed, but that the question what 'credit risk' comprises should be dealt with in the project on fair value measurement and that a reference to this should be included in the discussion paper. The Board discussed the meaning and elements of credit risk that would be included in the measurement, in particular whether the term referred to the credit risk of the entity or of the individual liability. After some discussion, there seemed to be a consensus that the risk of an entity not being able to make payments in the future should be included in the measurement and that contribution-based promises should be measured at 'fair value assuming the benefit promise does not change'.

Scope of Phase I - EFRAG Discussion Paper The Financial Reporting of Pensions

In January 2008, EFRAG had published a Discussion Paper The Financial Reporting of Pensions to 'take a fresh look at - and stimulate discussion on - the principles that might be reflected in future accounting standards on pension benefits that are related to pensions'. The staff proposed the IASB acknowledge the EFRAG effort in the introductory chapter of its own forthcoming Discussion Paper and to ask whether there were additional issues which constituents think should be addressed by the Board in Phase I (of its post-employment benefits project). The Board briefly discussed the staff proposal. One Board member said that, while the EFRAG paper was narrower in scope (focusing on pensions only), its discussion of the underlying principles was much broader than Phase I of the IASB's project. As a consequence, asking for additional issues to be dealt with in Phase I entails the danger of prolonging the entire project. The chairman made it clear that the emphasis of the IASB paper should be on short-term issues and that any reference to additional issues should be to those which could be resolved in the short term. The Board agreed.