Post-employment Benefits: IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The Board received a staff analysis of comments received as a result of its proposed amendment of IFRIC 14 Prepayment of a Minimum Funding Requirement (ED/2009/4). It also redeliberated its conclusions in that exposure draft (ED).

The staff briefly introduced its comment letter analysis. The staff noted that some respondents wished the IASB to extend its amendments to the measurement of surpluses, not only repayments, but the Board agreed with the staff that such an extension was beyond the scope of the project.

The Board agreed to proceed with the amendment to IFRIC 14 such that it address only the treatment of a prepayment of a minimum funding requirement.

The Board considered whether to provide additional guidance on the definition of 'unconditional right to a refund' in IFRIC 14. The Board agreed that no elaboration was necessary.

The ED proposed to delete IFRIC 14 paragraph 22. In response to concerns raised by respondents about whether the other amendments proposed replaced all the requirements of paragraph 22, the Board decided to retain the paragraph.

The Board agreed that the amendments should be applied from the beginning of the earliest comparative period presented in the first financial statements in which the entity applies IFRIC 14.

Post-employment benefits - IAS 19 Discount Rate

The Board received a staff analysis of comments received on its proposed amendment of IAS 19 Discount Rate for Employee Benefits (ED/2009/10). It also redeliberated its conclusions in that exposure draft (ED).

The staff noted that 100 comment letters were received; in addition, there had been correspondence with constituents since the staff papers for this meeting had been released.

The staff said that the comments were polarised: those who were in favour of the change were strongly so; those against were equally strong in their opposition. In addition, it was apparent that the exposure process had highlighted a number of areas in which the proposal would create problems of which the staff were previously unaware. The Board's proposals could lead to greater diversity in practice rather than less. As a result, the staff presented three alternatives:

• Require government bond rates to be used when it is difficult to estimate a high quality corporate bond rate, rather than when there is no deep market in high quality corporate bonds. The staff would consider further what is meant by 'difficult' if the Board decides to proceed on this option;
• Continue with the ED proposal to eliminate the requirement to use a government bond rate; or
• Keep the existing requirement to refer to a government bond rate when there is no deep market in high quality corporate bonds - in other words, stop the project.

Board members engaged in a vigorous debate. Some challenged that staff analysis as simplistic and disingenuous. Others noted that the proposed amendment illustrated the danger of forcing an entity to use a measurement input that matched neither the currency nor duration of its defined benefit obligation.

Board members expressed dissatisfaction with all three alternatives. However, ultimately there was not sufficient support among Board members to ratify the amendments. Consequently, the requirement in IAS 19 paragraph 78 to use the government bond rate in the absence of a high-quality corporate bond rate would remain in force.

Next steps for proposed amendments to IAS 19 relating to termination benefits

The staff reminded the Board that it had published an Exposure Draft of proposed amendments to IAS 19 addressing termination benefits in June 2005 (this was issued in conjunction with the proposed amendments to IAS 37).

The Board had considered comments received and had concluded its redeliberations in May 2008. However, the amendments had not been balloted or published pending further deliberations on IAS 37. With the conclusion of redeliberations on IAS 37, the staff asked for the Board's intentions for the IAS 19 issues.

The Board directed the staff to prepare a ballot draft of the amendments and that the amendments should be issued as soon as they are ready. No Board members indicated their intention to dissent. Ms McConnell indicated that she would likely abstain, since all redeliberations occurred prior to her appointment as an IASB member.

Timing of effective date and transition

The staff proposed that the amendments to IFRIC 14 and IAS 19 for termination benefits should be effective for annual periods beginning on or after 1 January 2013, with early application permitted.

Board members reacted angrily to this suggestion, noting that the Board had been told that constituents wanted these amendments quickly and yet the staff was proposing an effective date several years in the future, while permitting early adoption. As such, the staff were suggesting that the Board promote non-comparability. IFRIC 14 was admittedly flawed, yet the staff were reluctant to require the improved version to be implemented.

In their defence, the staff suggested that they were trying to avoid multiple changes being inflicted on constituents. However, Board members noted that this defence was predicated on the Board completing its work on post-employment benefits accounting by 2013, something that the Board might not be able to achieve.

The Board directed that the amendments be effective for annual financial reporting periods beginning on or after 1 January 2011, with early adoption permitted.