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Employment Benefits Discount Rate: Anything Wrong with Expected Return on Plan Assets?

Jan 04, 2018

On January 4, 2018, the Public Sector Accounting Board (PSAB) published an article about the debate on whether the expected return on plan assets, commonly used in the public sector in discounting obligations for funded benefit plans, is an appropriate discount rate for determining benefit obligation.

A recent stock contribution made by Boeing to its pension plan illustrates the debate over using the expected return on plan assets as the discount rate in determining employment benefit obligation.

The PSAB is considering the appropriate discount rate guidance that should be provided in its employment benefits standard. The expected return on plan assets is usually used in calculating the obligation of fully or partially funded benefit plans in the public sector.

Review the full article on the PSAB's website.

Employment Benefits Discount Rate: Any Case for a Current Rate?

Feb 05, 2018

On February 5, 2018, the Public Sector Accounting Board (PSAB) published an article about the debate on whether a current rate, an average rate or a projected rate would be appropriate for the discount rate used in determining benefit obligation.

Employees of U.S. nuclear power firm Westinghouse Electric Co. got a surprise recently. The Pension Benefit Guaranty Corp. (PBGC), a U.S. government agency that insures certain U.S. private employer pension plans, had estimated that the Westinghouse pension plan was under-funded by US$937 million.

The news came as a shock because the plan had been considered fully funded in its most recent report, filed with the U.S. Department of Labor in 2015. This shortfall is massive, given that the plan had US$926 million in assets. However, the shortfall did not arise from mismanagement, fraud or aggressive plan investment strategy. Instead, it was due to the different discount rates used by the company and the PBGC.

The Westinghouse example, however, demonstrated the implications of using an average rate versus a current market rate in estimating benefit obligation, and the implications of using different lengths of period for the average rate.

Review the full article in PSAB's website.

IPSASB issues exposure draft proposing new requirements for lease accounting

Jan 31, 2018

On January 31, 2018, the International Public Sector Accounting Standards Board (IPSASB) published Exposure Draft 64 "Leases". The draft proposes new requirements for lease accounting covering both lessors and lessees to replace IPSAS 13 "Leases". Comments are requested by June 30, 2018.

The IPSASB proposes a single right-of-use model for lease accounting that will replace the risk and rewards incidental to ownership model in IPSAS 13.

For lessees, the ED proposes to adopt the right-of-use model in IFRS 16, Leases.

However, the ED proposes a departure from IFRS 16's requirements for lessor accounting. As converging with the requirements for lessors under IFRS 16 would “give rise to a number of public sector specific issues”, the IPSASB also proposes a right-of-use model for lessor accounting specifically designed for public sector financial reporting.

Proposals for new public sector specific guidance on concessionary leases for both lessors and lessees are also contained in the exposure draft.

Review the press release and exposure draft are available on the IPSASB's website.

IPSASB proposes strategy and work plan for 2019-2023

Feb 02, 2018

On February 2, 2018, the International Public Sector Accounting Standards Board (IPSASB) proposed a new strategy and work plan for 2019 through 2023. Comments are requested by June 15, 2018.

The strategic objective of the IPSASB is stated as strengthening public financial management through increasing adoption of the International Public Sector Accounting Standards (IPSAS). The IPSASB intends to deliver this objective through developing IPSAS and other high-quality financial reporting guidance for the public sector and raising awareness of IPSAS and the benefits of accrual adoption.

To develop standards on critical areas in public sector accounting, the IPSASB proposes to take on three new major public sector specific projects:

  • accounting for natural resources,
  • discount rates, and
  • differential reporting.  

The IPSASB will also continue to strive to maintain convergence with International Financial Reporting Standards (IFRSs).

Review the proposed strategy and work plan and supporting material on the IPSASB's website.

Webinar on the presentation of amalgamations in IPSAS 40

Mar 15, 2018

On March 15, 2018, the International Public Sector Accounting Standards Board (IPSASB) released a video intended to help users understand the requirements regarding amalgamations in IPSAS 40, "Public Sector Combinations", which IPSASB released in February 2017. The Standard applies from January 1, 2019 with earlier adoption encouraged.

IPSAS 40 uses the modified pooling of interests method of accounting for amalgamations. Because this approach does not require comparative figures to be restated, the presentation requirements may be different from other versions of the pooling of interests method that entities have used previously.

View the short video (11 minutes) on the IPSASB's website.

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