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Proposed Amendments to IAS 37 — Measuring Termination Benefits

Date recorded:

At its September meeting, the Board considered a first draft of the exposure draft of amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The exposure draft also includes complementary amendments to the requirements for termination benefits in IAS 19 Employee Benefits.

At the September meeting, the staff proposed that termination benefits should be measured at fair value. However, some Board members raised concerns about this proposal and asked the staff to reconsider the issue. The staff therefore presented their new proposals to the Board.

The staff recommended retaining the existing requirement in paragraph 139 of IAS 19 (i.e. where termination benefits fall due more than 12 months after the balance sheet date, they shall be discounted using the discount rate [used to discount post-employment benefit obligations]', i.e. a discount rate 'determined by reference to market yields on high quality corporate bonds') for measuring termination benefits, but:

(a) specifying that when termination benefits fall due more than 12 months after the balance sheet date, an entity should subsequently follow the recognition and measurement requirements for post-employment benefits; and

(b) clarifying that when termination benefits are provided through a post-employment benefit plan, the liability and expense recognised initially includes only the value of the additional benefits that arises from the providing those termination benefits.

It was noted by the staff that this recommendation will result in some termination benefits being accounted for similarly under US GAAP and IFRS. Nonetheless, reconciling items will still arise for some termination benefits (particularly those provided for involuntary termination) because of difference in either recognition or measurement.

The Board commented that the Staff had done very well in a difficult area and that it was impressed by, and supported, the proposals.

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