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IAS 19 — Remeasurement at a plan amendment or curtailment

Date recorded:

The Committee received a request to clarify the accounting treatment in accordance with IAS 19 for issues related to the remeasurement of the net defined benefit liability (asset) (“DBL”) in the event of a plan amendment or curtailment in IAS 19.

This issue was discussed by the Committee in May 2014, and the Committee tentatively decided to develop an amendment to IAS 19 to address the concern raised.

The purpose of this paper was to provide a proposal for an amendment to IAS 19; provide an analysis of its costs and benefits; and ask the Committee whether it agreed with the staff recommendation.

The Project Manager introduced Agenda Paper 5: Remeasurement at a plan amendment or curtailment, and asked the Committee members whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

One Committee member noted that she agreed with the outcome, but wondered whether the point the Committee was trying to communicate could be made more simply.  She noted that the point was that, if there was a remeasurement of the net defined benefit obligation (“DBO”) during the period, be it as a result of a plan amendment, curtailment, a settlement, a significant market fluctuation during the year, or because the entity decided to remeasure during the year, the assumptions that were used to determine the net DBO at the date of the remeasurement should be used in calculating current service cost and net interest in the post event period.  She also noted that she would like to see the Basis for Conclusions to IAS 19 amended, in particular, paragraphs 58 and 64, which were the paragraphs that were causing the problems.

In response to a comment from a Committee member with respect to frequency of measurements, the Director of Implementation Activities clarified that the amendment should not change the frequency of remeasurements required by the standard, and that the amendment was only clarifying what should be done in the event of a remeasurement.  He added that the staff could make this clearer in the Basis for Conclusions to IAS 19 if needed.

Another Committee member noted that she also agreed with the staff recommendation.  With respect to the issue of additional costs to the entity resulting from the amendment, she noted that a remeasurement of the assets and liabilities and recalculation of the service cost by the actuary would create additional effort and cost on the side of the preparer. She noted that previously entities would have used service cost and net interest cost calculated based on assumptions at the end of the prior year, so depending on the number of or complexity of plans, additional costs to the entity could result.

She further noted that the amendment eliminated a difference between US GAAP and IFRS in this specific area.

Another Committee member noted that overall, he agreed with the direction the staff had taken.  He noted that the paper talked about requiring remeasurement in situations where there were significant market fluctuations, but that this was not picked up anywhere in the proposed amendment.  Accordingly, he noted that he was unclear as to whether the Committee was proposing that IAS 19 should pick up remeasurement from the point forward of a significant market fluctuation and noted that he would be concerned with that extension of the remeasurement requirements of IAS 19, and would be more in favour of the remeasurement being limited to plan amendments, curtailments and settlements. 

He also noted that paragraphs 80 and 83 of IAS 19 both referred to “at the end of the reporting period” for determining actuarial assumptions and discount rates respectively, and that there should also be amendments to these paragraphs as a result of the amendments being made.

Another Committee member noted that he also agreed with the staff analysis, but that he was unclear whether the amendment was to be restricted to circumstances where remeasurement occurred as a result of a plan amendment, curtailment, or settlement, or from any remeasurement including those resulting from significant market fluctuations.  He noted that he thought the intent was the former not the latter, but noted that the proposed wording in the second sentence of paragraph 67 “…if the present value of the defined benefit obligation is remeasured in a reporting period, for example, as a consequence of a curtailment” implied that for any remeasurement, the current service cost would need to be determined using the revised assumptions.

A Committee member questioned whether a remeasurement of one plan in a jurisdiction as a result of, for example, a plan amendment, would result in all other plans in that jurisdiction being remeasured with the new information so all plans in said jurisdiction were measured based on consistent assumptions.

The Director of Implementation Activities noted that what the staff had tried to convey was that when a remeasurement was triggered by the standards, whether as a result of a plan amendment, curtailment, settlement, or even significant market fluctuations, this was what was required.  He emphasised the fact that the amendment was not trying to say when to do the remeasurement (this is already set out in the standards), it was just providing guidance on what to do in such an event.  He further noted that the staff had not envisaged going on to say that if a plan in a jurisdiction has been remeasured, then all other plans in that jurisdiction should also be remeasured.

In bringing the discussion to a close, the Chairman observed that based on the preceding conversation, the Committee members appeared to all be in agreement with where the staff had got to, but had some reservations with respect to the wording.  The Chairman asked for three volunteers from the Committee to assist the staff with updating the wording of the amendment.  He also noted that the plan was still for this amendment to be included in the annual improvements cycle for 2013–2015.

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