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Employee Future Benefits – Use of a Funding Valuation [Completed]

Effective date:

The amendments to Section 3462 are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2022. Earlier application is permitted but only for all of an enterprise's defined benefit plans.

Last updated:

November 2020

Overview

On April 29, 2019, the Accounting Standards Board (AcSB) released an at-a-glance bulletin entitled, Employee Future Benefits.

Firstly, the bulletin notes that the AcSB considered an issue that stakeholders raised about using the funding valuation in the measurement of the defined benefit obligation in relation to Ontario’s Provision for Adverse Deviations (the PfAD issue). The AcSB was concerned about potential diversity in practice that could arise in connection with Section 3462, Employee Future Benefits, in Part II of the CPA Canada Handbook – Accounting. The AcSB decided not to undertake any standard-setting action on the PfAD issue, but rather communicate its intent. The AcSB wrote a letter to the Canadian Institute of Actuaries to communicate its intent to reduce diversity arising in practice. The key points from this letter have been summarized in the bulletin, along with additional background information.

Secondly, Quebec’s pension regulator established a new regulation in 2016 for private sector plans in that province — the Stabilization Provision. The AcSB has been considering an application issue regarding this Stabilization Provision and Section 3462 for which diversity has been arising in practice.

In April 2019, the AcSB announced that it has set up a new project to clarify its intent regarding the use of the funding valuation in measuring the defined benefit obligation in relation to Quebec’s Stabilization Provision. The AcSB plans to issue an exposure draft no later than the third quarter of 2019 in response to stakeholder feedback about diversity arising in practice on accounting for changes in pension legislation.

On Sep­tem­ber 16, 2019, the AcSB is­sued an Ex­po­sure Draft propos­ing amend­ments to Sec­tion 3462, Em­ployee Fu­ture Ben­e­fits. The AcSB seeks feed­back on its pro­pos­als to mod­ify the guid­ance on us­ing an ac­tu­ar­ial val­u­a­tion for fund­ing pur­poses in the mea­sure­ment of the de­fined ben­e­fit oblig­a­tion. These pro­pos­als ap­ply to pri­vate en­ter­prises and not-for-profit or­ga­ni­za­tions ap­ply­ing the stan­dards in Parts II and III. Com­ments are re­quested by De­cem­ber 16, 2019.

On November 1, 2020, the AcSB issued the amendments to Section 3462 in respect of this project and included them in the CPA Canada Handbook – Accounting Part II.  Section 3462 has been amended to:

  • clarify the measurement of the defined benefit obligation (DBO) for plans with a legislative, regulatory or contractual requirement to prepare a funding valuation; and
  • remove the accommodation to allow the use of a funding valuation for defined benefit plans without a funding valuation requirement.

Significant consequential amendments include changes to Accounting Changes, Section 1506, to remove the accommodation for defined benefit plans without a funding valuation requirement to measure the DBO using a funding valuation without meeting the criterion in paragraph 1506.06(b).

The amendments are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2022. Earlier application is permitted but only for all of an enterprise's defined benefit plans.

 

Other developments

November 2020

On Sep­tem­ber 16, 2019, the AcSB issued the amendments to Section 3462 in respect of this project and included them in the CPA Canada Handbook – Accounting Part II. 

September 2019

On September 16, 2019, the AcSB issued an Exposure Draft proposing amendments to Section 3462, Employee Future Benefits. The AcSB seeks feedback on its proposals to modify the guidance on using an actuarial valuation for funding purposes in the measurement of the defined benefit obligation. These proposals apply to private enterprises and not-for-profit organizations applying the standards in Parts II and III. Comments are requested by December 16, 2019.

April 2019

On April 29, 2019, the AcSB released an at-a-glance bulletin entitled, Employee Future Benefits.

 

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