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Post-Employment Benefits Convergence IASB Project Summary
Anne McGeachin on 6/24/2003 9:25:30 AM
This paper summarizes progress of the on-going "project" of the IASB on the revision of IAS 19.


The International Accounting Standards Board (IASB), based in London, is committed to developing, in the public interest, a single set of high quality, global accounting standards. In pursuit of this objective, the IASB cooperates with national accounting standard-setters to achieve convergence in accounting standards around the world. The IASB comprises 14 members appointed by the Trustees of the IASC Foundation. The IASC Foundation is funded from the major accounting firms, private financial institutions and industrial companies throughout the world, central and development banks, and other international and professional organizations. IASB has sole responsibility for setting accountings standards: the International Financial Reporting Standards (IFRS) incorporating the International Accounting Standards (IAS). The IASB web site is accessible at:

IAS 19, which covers Employer Benefits, is effective since May 1999 and has been amended in 2000 and 2002. IAS 19 prescribes the accounting and disclosure rules with respect to employers? benefits, in particular "post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-employment medical care". Post employment benefits plans are classified as either defined contribution plans or defined benefit plans.

For defined benefit plans, IAS 19 requires an enterprise to, notably:

* account not only for its legal obligation, but also for any constructive obligation that arises from the enterprise's practices;

* determine the present value of defined benefit obligations and the fair value of any plan assets;

* determine the discount rate by reference to market yields.

Most interestingly, IAS 19 allows for enterprises to delay the recognition of net plan assets on their balance sheet and therefore the impact on their operating statements, by way of imputing an expected return on plan assets (Para 105 - 107) and defining a cumulated unrecognized actuarial gains/loss to be amortized gradually over time (outside of a corridor of +/-10%). In this context, under normal circumstances, the cost of employment is decomposed in a current service cost which comprises the actuarial value of new entitlement rights accrued by staff employed during the period, a past service cost, the interest cost (interest on pension obligations), the expected return on net assets minus/plus the amortization of the cumulated unrecognized actuarial gains/losses.

IAS 19, among many other rules, puts a ceiling on the plan's net assets that an employer can recognize on its balance sheet.

Separately, among the IASB other on-going "projects", the project on Performance Reporting (see below) explores the promising possibility to present the usual income statement under a three column presentations: income before "remeasurements", "remeasurements" and total. The progress report dated December 18, 2002 is accessible on the IASB web site at:{164F2981-B4A7-48E0-B850-489074C0AEE7}

The project on IAS 19

In June 2002, the IASB agreed to add a "limited convergence project" on post-employment benefits to its active agenda. The objective of the project is not to consider all aspects of accounting for post-employment benefits. Rather it is to build on the principles that are common to most existing national standards on this topic and to seek improvements to IAS 19 in certain specific areas.

The IASB tentatively agreed that actuarial gains and losses should be recognized immediately, i.e. that the corridor and spreading options within IAS 19 should be removed. However, it was accepted that such a proposal could not be taken forward until the proposals for Performance Reporting were finalized (see above). IAS 19 requires the total change in value of plan assets to be split into an expected return and the difference between the expected return and the actual return. The expected return is currently reported in income and the difference between the expected return and actual return is treated as an actuarial gain and loss, the recognition of which is currently allowed to be deferred.

The IASB considered whether there should be a limit on the amount that can be recognized as an asset in respect of a surplus in a defined benefit plan. The IASB considered the definitions of defined contribution plans and defined benefit plans.

Anne McGeachin is Project Manager of the IASB Project on Post-Employment Benefits Convergence.

The author of this contribution to the discussion group on this site bears the sole responsibility for both the substance and the style of the contents. The purpose of the discussion group is to elicit comments and to promote debate on specific topics. As such, the views expressed on any of the issues raised are not to be attributed to the IMF.
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