As part of its continual deliberations surrounding the Exposure Draft Defined Benefit Plans published 29 April 2010, the Board considered the following topics:
- Presentation of remeasurements
- Feedback on tentative decisions to date
- Project status
- Effective date of any amendments and transitional requirements
As part of its 21 January 2011 meeting, the Board tentatively decided that:
- although remeasurements should be presented in other comprehensive income, in some circumstances it would be appropriate to allow an entity to elect to present remeasurements in profit or loss (primarily to address accounting mismatches) for a given plan
- the election to present remeasurements in profit or loss would need to be irrevocable
- when an entity makes that election, amounts previously recognised in other comprehensive income should not be reclassified to profit or loss.
As a result of the Board's tentative decision that an election to present remeasurements in profit or loss would be on a plan-by-plan basis and would be irrevocable, the staff performed outreach and identified challenges to this presentation, including when a change in facts and circumstances would trigger reassessment of the irrevocable election to present remeasurement in profit or loss.
Accordingly, the staff asked the Board to reconsider its previous tentative decision that would allow an election and instead confirm the proposal in the Exposure Draft that the remeasurements component should be presented in other comprehensive income, as, in the staff's view, this would be the simplest, most understandable alternative and has received wide support from respondents to the Exposure Draft.
In evaluating this proposal, the Board noted certain drawbacks with the proposal in the Exposure Draft, including:
- introducing an accounting mismatch for a small number of entities
- expanding the use of other comprehensive income when the Board has yet to consider the presentation of the statement of comprehensive income more broadly
- proceeding with changes to the presentation of defined benefit cost when the Board has yet to consider the measurement of defined benefit plans
- eliminating presentation in profit or loss for first-time adopters who currently recognise all defined benefit cost through profit or loss.
The Board noted, however, that limiting the choice of presentation would improve the comparability of financial statements; a fundamental objective of the Exposure Draft serving to reduce the current options in IAS 19.
Likewise, the Board concluded that although the changes included in the remeasurement component may provide information that assists with an assessment of the uncertainty of future cash flows, many regard those changes as not providing useful information about the likely amount and timing of future cash flows. Therefore, inclusion of the remeasurement component as an item of other comprehensive income would provide further clarity in distinguishing the remeasurement component from service and finance costs.
As a result of this discussion, the Board reversed its previous tentative decision from the 21 January 2011 meeting that would have allowed for an irrevocable election on a plan-by-plan basis to present the remeasurement component in profit or loss or other comprehensive income; instead confirming the proposal in the exposure draft that the remeasurement component should be presented in other comprehensive income by an eight-to-seven vote.
In prior Board meetings, the staff was asked to gather feedback from the Employee Benefits Working Group members on tentative decisions to date, inclusive of any staff recommendations for necessary amendments to tentative decisions reached.
As a result, discussion points included:
- disclosure of risk exposure
- disaggregating the defined benefit obligation
- disclosure of information about the maturity profile of the defined benefit obligation
- presentation of administrative costs.
As a result of discussions, the Board confirmed:
- no change is required to the tentative decision to focus the disclosure of risks that the participation in a defined benefit plan exposes the entity to risks that are unusual or specific to the entity, without requiring excessive detail about generic risks;
- disaggregation of the defined benefit obligation would be required at a minimum when an actuarial valuation is performed, and that entities are required to carry forward this information in periods when no actuarial valuation is performed, with related disclosure of the date of last actuarial valuation;
- an entity should disclose the duration of the liability by outlining the weighted average duration of the liability, with clarity surrounding any unique maturity profile components
- costs related to managing plan assets should be deducted from the return on plan assets with no specific requirements for the presentation of other administrative costs.
Several Board members expressed concern about the prescriptive nature of the disaggregation requirements. The Board members would prefer the inclusion of factors that should result in disaggregation of the defined benefit obligation. This view was confirmed by the majority of Board member, and the staff will consider such recommendations in future updates.
All tentative decisions to date were summarised for Board member review, with Board members asked to comment as to whether they intend to dissent from the amendments to IAS 19 based on tentative conclusions reached. Three Board members expressed potential intention to dissent, for reasons including failure to present pension-related costs within profit or loss, as well as concerns with respect to net reporting and other comprehensive income reporting without recycling, as outlined in the Exposure Draft.
In conjunction with discussion above, as well as previous Board meetings, the Board discussed the potential effective date of the amendments to IAS 19, as well as the transition timeline and requirements surrounding such amendments.
The Board confirmed that the effective date of required amendments to IAS 19 will be no earlier than 1 January 2013, but no consensus was reached on the effective date because the Board will consider the effective date and early adoption considerations as part of its broader considerations of the feedback received from the request for views on effective dates and transition consultation.
Transition requirements, like the effective date, will be discussed at a future meeting; however, the following tentative decisions were reached:
- for entities already applying IFRSs, the amendments to IAS 19 should be applied retrospectively in accordance with the general requirements of IAS 8, except that:
- the Board specify that the carrying amount of assets outside the scope of IAS 19 need not be adjusted for changes in employee benefit costs that were included in the carrying amount before the beginning of the financial year in which this amendment; and
- the Board specify comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation for the year of initial application of the amendments to IAS 19.
- for entities adopting IFRSs for the first time, the amendments to IAS 19 should be applied retrospectively in accordance with the general requirements of IFRS 1, except that:
- the Board allows a temporary exemption for entities adopting IFRSs with a date of transition before the effective date of the amendments to IAS 19 that comparatives need not be presented for the disclosures for the sensitivity of the defined benefit obligation.