The International Accounting Standards Board recently published proposed amendments to International Accounting Standard (IAS) 19, Employee Benefits.  The Exposure Draft would amend the accounting for defined benefit plans through which some employers provide long-term employee benefits, such as pensions and post-employment medical care.  In defined benefit plans, employers bear the risk of increases in costs and of possible poor investment performance.  The amendments would require entities to:

• Account immediately for all estimated changes in the cost of providing these benefits and all changes in the value of plan assets.  This Exposure Draft proposes that entities should recognize all changes in defined benefit obligations and in the fair value of plan assets when those changes occur.  IAS 19 already permits entities to recognize all gains and losses when they occur, but also permits another option - to leave actuarial gains and losses unrecognized if they are within a “corridor” (the greater of 10 per cent of plan assets and 10 per cent of plan liabilities) and to defer recognition of actuarial gains and losses outside the corridor. This proposal would remove that option.
• Use a new presentation approach for changes in defined benefit obligations and the fair value of plan assets.  As proposed, entities would split changes in the defined benefit obligation and the fair value of plan assets into service cost, finance cost and remeasurement components and present:  (a) the service cost component in profit or loss; (b) the finance cost component, i.e. net interest on the net defined benefit liability or asset, as part of finance costs in profit or loss; and (c) the remeasurement component in other comprehensive income.  Consequently, the Exposure Draft removes from IAS 19 the option for entities to recognize in profit or loss all changes in defined benefit obligations and in the fair value of plan assets.
• Disclose clearer information, including disclosures about:  (a) the characteristics of an entity’s defined benefit plans and the amounts in the financial statements resulting from those plans; (b) risk arising from defined benefit plans, including sensitivity analyses of changes in demographic risk; and (c) participation in multi-employer plans.

The Exposure Draft, Defined Benefit Plans, is available for comment until September 6, 2010.

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