Day 2 of the September 2005 IFRIC meeting
04 Sep 2005
The International Financial Reporting Interpretations Committee (IFRIC) met at the IASB's offices in London on Thursday, and Friday 1-2 September 2005. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the second and final day of the meeting.Notes from the IFRIC Meeting2 September 2005 IAS 19 - Minimum Funding Requirements and the Asset Ceiling The IFRIC continued its deliberations on two issues: When refunds and reductions in contributions are 'available'. How a statutory minimum funding requirement affects that 'availability'? At the previous meeting the IFRIC consensus was that a refund of surplus should be treated as 'available' to the extent that either of the following is true: the IAS 19 surplus exceeds the MFR surplus or is expected to exceed the MFR surplus in future because the assumptions underlying the MFR measurement are based on historical values that have changed; or in the jurisdiction of the plan in question, the surplus existing on the wind up of the plan, after taking into account all costs associated with the wind-up, will revert to the entity.
At this meeting, the IFRIC discussed the remaining questions as well as some related issues identified at the previous meeting including:
1. The definition of availability;
The IFRIC discussed a proposed definition of the term 'available' in the context of IAS 19. The staff proposed the following definition:
A refund of plan assets or reduction in future contributions is available to the extent that there is no restriction on the entity, by virtue of any legal or constructive obligation, to use the surplus assets in this way.
The IFRIC indicated that the definition does not seem to encompass situations where a potential future merger of funds will result in the utilisation of the surplus in one of those funds, as a method of utilising the surplus.
2. The treatment of the refund that may be available assuming the gradual run-down of the plan;
The point was made that in the case where a surplus exists in a fund, and is not distributable to the sponsor at the discretion of the fund itself, an asset exists. This is despite any MFR requirements which would only be taken into account in assessing the extent to which that asset is recognised (that is, the ceiling). A concern was raised about allowing recognition issues to affect measurement considerations when discussing the MFR issues.
3. The methodology and assumptions to be used for determining the reduction in employer contributions that may be possible;
The IFRIC discussed at some length, the differences that would arise in the methodology and assumptions when determining the reduction in employer contributions depending on whether the fund is a closed or an open fund and compared this to the situation where a fund is being run-down and one that is fully functional. The point was made that the MFR issues under discussion, highlight the difficulties in applying IAS 19 in its present state.
IFRIC members expressed concerns about allowing for future changes in the size and demographics of the workforce consistent with the management's forecasts. Instead, there was general support for the view that only the circumstances at the balance sheet date should be taken into account without a futuristic forecast of changes. The counter argument to this view is based on the fact that although the asset is measured based on conditions existing at the balance sheet date, It will be available to employees or former employees in the future.
4. The treatment of any additional obligation on the entity that arises as a result of the MFR
If the MFR contribution requirement exceeds the entity's future contribution requirement in any given year, the staff recommended that an additional liability be recognised in respect of the difference in that year. In other words, the difference between the MFR contribution requirement and the entity's future contribution requirement is not limited to zero in any given year. The IFRIC considered whether any additional obligation arising from the MFR requirement would be accounted for in terms of IAS 19 or IAS 37 but no decision was made.
The staff was asked to prepare a summary of the points raised during the discussion for purposes of including them in the IFRIC Update publication so as to indicate to constituents the current thinking of IFRIC. After considering other issues to be tabled at a subsequent meeting, the IFRIC will be asked to consider whether to proceed with the drafting of an interpretation.
Scroll down for notes from the first day of the IFRIC meeting.
This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.