According to a BNA news report, “Some IASB constituents have complained that using an AA-corporate bond discount rate in current markets has led to entities reporting lower pension fund surpluses merely as a consequence of widening credit spreads.”
In 2006, the rulemaker began a project to make a series of improvements to International Accounting Standard 19, Employee Benefits, which it said it will follow with a “comprehensive review of pension accounting.” The first phase of the project was to deal with the complexity of accounting for cash balance plans using the current framework, smoothing mechanisms in pension plans, and plan settlements and curtailments (see IASB Begins Project to Align Standards with US FASB ).
At that time staff members said they did 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.
In addition to agreeing to address the discount rate issue, at a May 19 meeting in London, the IASB cleared a staff disclosure proposal that will require entities to disclose information that will identify and explain the amounts in its financial statements related to defined benefit plans, and enable users of its financial statements to evaluate the nature and extent of risks arising from defined benefit plans, BNA said.
According to the news report, with respect to the risks associated with a pension plan, the board tentatively said it will require entities to publish:
- qualitative disclosures, including risk management policies and investment strategies;
- sensitivity analyses for both the defined benefit obligation and plan assets;
- expected maturity analysis for the defined benefit obligation; and
- comparison of actual versus estimated contributions.
The board so far decided not to require any disclosures on expected rates of return on assets.
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