Convergence Topics

Date recorded:


IAS 19, Employee Benefits

The Board discussed two areas for possible convergence with US GAAP:

(1) Consolidation of defined benefit plans:

  • Whether defined benefit plans should be consolidated.
  • How the assets and liabilities that result from either consolidation or nonconsolidation should be presented.

The Board concluded that the net figure of the defined benefit obligation less the plan assets should be interpreted as a reflection of the asset or liability arising from the entity's net interest in the defined benefit plan rather than as a one-line consolidation of the plan.

(2) Further guidance on the asset ceiling. The Board considered whether there should be a limit on the amount that can be recognised as an asset in respect of a surplus in a defined benefit plan. The Board had concluded that the asset should be limited to the rights the entity has to benefit from the surplus. In measuring those rights, the following hierarchy should be followed:

  • first, value the entity's rights to refunds and reductions in future contributions. If this is less than the surplus, then
  • second, value the entity's rights to fund increased benefits to current and future employees. No value should be ascribed to the entity's right to fund increased benefits to past employees. If the two items above together are less than the surplus, then
  • third, value the entity's right not to fund future losses in the plan to the extent that the losses will be absorbed by the surplus.
The Board discussed possible guidance on the application of the above hierarchy. Discussion is expected to continue in December.

IAS 35, Discontinuing Operations

The Board discussed three possible areas for converging IAS 35, Discontinuing Operations, and FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets:

(1) IAS 35 makes no distinction between operations that are disposed of by sale and those disposed of otherwise (for example, by abandonment). Under SFAS 144, however, an operation that is abandoned cannot be reported as discontinued until it is abandoned whereas an operation that is held for sale can be reported as discontinued prior to disposal. The distinction under SFAS 144 arises due to the different measurement basis of assets classified as held for sale vs. those held and used.

(2) The criteria for the "initial disclosure event" in IAS 35 are similar to those in IAS 37 for the purpose of recognising a restructuring provision. The possible amendment to IAS 35 for (1) above might result in a restructuring provision that relates on an operation that will eventually be classified as discontinued being initially recognised in continuing operations and subsequently reported as part of discontinued operations. The Board discussed whether it would need to amend IAS 37 if it converages with SFAS 144.

(3) SFAS 144 sets out how operations classified as discontinued should be reported. The Board discussed poossible amendments it might make to the disclosure requirements of IAS 35 in the light of both SFAS 144 and the IASB's performance reporting project.

Discussion of convergence of IAS 35 will be continued at the Board's December meeting.

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