The DP represents the first step in a comprehensive Project
on accounting for post-employment benefit promises. This step is limited in scope to the following issues:
- The deferred recognition of some gains and losses arising from defined benefit plans (currently IAS 19 allows multiple options for deferring recognition)
- Presentation of defined benefit liabilities
- Accounting for benefits that are based on contributions and a promised return
- Accounting for benefit promises with a 'higher of' option
Therefore, the DP focuses on improvements to IAS 19. In the longer term, the IASB intends to work with the US FASB towards a common standard on post-employment benefit promises. Because that project will take many years to complete, the Board concluded that short-term improvements are needed to provide users with better information about post-employment obligations. The Board intends to review the responses to this paper, modify or confirm its preliminary views, and then develop an exposure draft of amendments to IAS 19 for public comment.
Among the Board's preliminary views are the following:
- Recognise all changes in the value of plan assets and in the post-employment benefit obligation in the financial statements in the period in which they occur. This means, among other things, removing the options for deferred recognition of gains and losses in defined benefit plans.
- Classify benefit promises into defined benefit promises and contribution-based promises.
- Measure contribution-based promises (which include cash-balance plans), as follows:
The measurement of the entity's liability for a contribution-based promise should be based on current best estimates, unbiased, probability-weighted amounts, and observable market values where they exist. Also, the entity should assume that the benefit promise does not change. The IASB believes that the measurement attribute fair value assuming that the benefit promise does not change best expresses this approach.
- Recognise unvested past service cost in the period of a plan amendment.
- Recognise both vested and unvested contribution-based promises as a liability.
- Allocate the benefits earned under a contribution-based promise to periods of service in accordance with the benefit formula.
The Board does not express a preliminary view on the presentation of the components of post-employment benefit cost in comprehensive income (within or outside of profit and loss). Instead, several alternatives are discussed and comments invited.
The DP is organised as follows:
- Summary of Preliminary Views
- Invitation to Comment
- Chapter 1: Introduction
- Chapter 2: Deferred recognition of changes in the liability for defined benefit promises
- Chapter 3: Presentation approaches for defined benefit promises
- Chapter 4: Introduction to contribution-based promises
- Chapter 5: Definitions
- Chapter 6: Recognition issues relating to contribution-based promises
- Chapter 7: Measurement of contribution-based promises – core issues
- Chapter 8: Measurement of benefits after the accumulation phase
- Chapter 9: Disaggregation, presentation and disclosure of contribution-based promises
- Chapter 10: Benefit promises with a 'higher of' option
- Appendix A Classification of benefit promises
- Appendix B Comparison of a promise with a fixed return of 0 per cent and a career average salary promise
- Appendix C Comparison of Board's preliminary views for contribution-based promises with the existing IAS 19 requirements
The DP is being published by the IASB. However, it will also be considered for publication by the US Financial Accounting Standards Board for comment by its constituents. The Comment Deadline is 26 September 2008. Click for Press Release (PDF 55k). The IASB's goal is to issue a revised IAS 19 by 2011.