Under the proposal issued by the London-based International Accounting Standards Board (IASB) the existing International Accounting Standards – IAS 19 – would be amended to reflect a mark-to-market standard currently utilized in the United Kingdom’s FRS 17. Thus, the proposal would enable companies that already show the surplus or deficit in full under FRS17 and are adopting International Financial Reporting Standards to continue with their present policy.
“Pension costs are one of the most complex and obscure areas of accounting, and the IASB recognizes the need for improvement in existing accounting practices throughout the world,” said IASB Chairman Sir David Tweedie. “This specific proposal is meant to reduce implementation costs for companies adopting international standards and to enable companies to continue with what many consider to be a more transparent approach to pension accounting.”
Companies choosing the proposed option would recognize in the balance sheet the surplus or deficit in the plan at the balance sheet date and would show the best estimate for gains and costs of the plan in the income statement, the IASB said in announcing the Draft.
Additionally, the IASB is considering undertaking a comprehensive project on post-employment benefits, looking at fundamental aspects of measurement and recognition.Understanding that Rome was not built in a day, Tweedie adds, “a comprehensive review of current pension accounting will take time.”
Until the outcome of such a broader review of the accounting for post-employment benefits, the IASB said it would continue to allow companies to recognize the actuarial gains and losses in profit or loss, either in the period in which they occur or spread over the service lives of the employees – a procedure know as “smoothing.” The IASB said almost all entities currently using IAS 19 choose to spread actuarial gains and losses.
In addition to the mark-to-market revisions, the Exposure Draft proposes an extension of the provisions in IAS 19 relating to multi-employer plans. Currently, IAS 19 allows participants in defined benefit multi-employer plans to use defined contribution accounting and provide additional disclosures if the information necessary for defined benefit accounting is not available. However, if the participants in a plan are under common control, for example a parent and its subsidiaries, the plan cannot be considered a multi-employer plan and the exemption from defined benefit accounting is not available.
The text of the Exposure Draft will be available for free on the IASB’s Web site – www.iasb.co.uk – on May 10. Comments on the Exposure Draft are requested by July 31, 2004.
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