According to a news report, the project aims to make a series of improvements to International Accounting Standard 19, Employee Benefits. IASB says it will follow this with a “comprehensive review of pension accounting.”
Issues to be addressed in the first phase of the project, according to the news release, include:
- Cash balance plans – Cash-balance plans do not fit readily within the current IAS 19 accounting framework. They present measurement issues because benefits due under such plans depend on future investment returns and the comparison of two amounts – possibly a quoted bond return against a fixed rate of return, IASB staff told the news source.
- Smoothing mechanisms – IASB’s approach toward the smoothing mechanisms used in current pensions accounting could increase divergence between US generally accepted accounting principles (GAAP) and International Financial Reporting Standards. Under current accounting rules, companies can smooth out fluctuations in the market value of pension plan assets by recording an average of those assets. The FASB addresses smoothing on the balance sheet, not in income. IASB member Tricia O’Malley told the news source that although the net pension fund liability would be the same across the two GAAPs, the income figures would differ.
- Plan settlements and curtailments – IASB research director Wayne Upton said the work on settlements and curtailments would be abandoned if the project becomes bogged down on the issue.
Staff members said they do not anticipate making changes to IAS 19 fundamentals, such as the measurement of plan assets at fair value, accounting based mainly on a plan’s terms and benefits formula, and the use of the projected unit credit method.
The IASB agenda fulfills a memorandum of understanding it reached with the FASB in February.
The agenda papers are here .