Initial discussion of responses to discussion paper
The IASB staff introduced a high-level summary of comments it had received on the IAS 19 discussion paper. The main issues identified in the comment letters were summarised in the Agenda Paper. The Board concentrated its discussion on two broad areas:
- the definition and scope issue related to contribution-based promises, and
- how pension items would be presented in the financial statements.
The staff noted that most respondents were critical about the Board's proposals for contribution-based promises. Some stated that the proposals were more problematic than the current requirements. In particular:
- The scope of contribution-based promises, as defined in the discussion paper, was too wide and suggested that the Board should restrict the scope to promises that are 'problematic' to account for using IAS 19.
- The measurement proposed represented a fundamental change in measurement for many post-employment benefit plans. It would be preferable, and possible, to deal with the 'troublesome promises' within the existing framework of IAS 19.
A Board member queried whether those constituents who raised these issues were the same as those who favoured retaining the corridor and expected returns approaches. The staff subsequently stated that there was not a strong correlation between the two groups.
The staff noted that they were surprised by the level of concern about contribution-based promises and the estimates in some jurisdictions that many (or most) defined benefit plans would be reclassified as contribution-based promises. The staff was not convinced that this was the intention of the Board. The staff also admitted that there were more problems 'patrolling the boundary' between defined benefit and contribution-based promises and with their measurement than they had appreciated.
Financial statement presentation
The staff also noted that most respondents supported the Board's preliminary view that all changes in the defined benefit obligation and in plan assets should be recognised in the period in which they occur (that is, that smoothing mechanisms should be deleted from IAS 19). However, there were diverse views on financial statement presentation.
Board members, speaking of conversations and formal meetings with constituents, suggested that there was a high degree of acceptance among constituents that the deferral mechanisms in IAS 19 were no longer defensible and should be removed; however the price of removal was that financial statement presentation needed to be addressed as a matter of urgency.
The staff noted that, when the discussion paper was being drafted, the IAS 19 team had been directed by the Board not to address financial statement presentation matters. Subsequently, the Board (together with the FASB) had issued their Discussion Paper and Preliminary Views on Financial Statement Presentation in October 2008, and that there was now greater scope for cooperation between the two teams. In particular, at the December 2008 Board Meeting, staff from both projects will be present when the Board discusses presentation issues related to the IAS 19 discussion paper.
The Board discussed some of the tension points in the financial statement presentation project that comments received on the IAS 19 discussion paper had highlighted. In particular, the 'cohesiveness principle' in the financial statement presentation discussion paper might be seen by some as preventing disaggregating pension expense between the service element (operations) and the financing charge on the balance sheet obligation (financing). Other Board members disagreed and thought that disaggregation would be an accounting policy choice. Others saw an opportunity to discuss disaggregation in financial statements more generally.
The staff noted that the discussion would help them to determine what could be done within the time available to complete this phase of the IAS 19 project.
In December 2008 the Board will discuss:
- the scope of an exposure draft to be developed from the discussion paper; and
- the comments on the recognition and presentation of defined benefit promises.