Transcription of Implementing the 2011 revisions to employee …
1 Implementing the 2011 revisions to employee benefitsNovember 2011 Applying IFRSIAS 19 employee benefits revised June 2011 Insert colour image1 Insert colour imageImplementing the 2011 revisions to employee benefits1In this issue:Introduction 2 Defined benefit plans 3 Significant changes 3 Interim reporting considerations 8 Modified disclosures 9 Clarifications on termination benefits 12 New definition of short-term employee benefits 14 Transition 16 Appendix: Main differences or clarifications at a glance 17 What you need to know revisions to IAS 19 employee benefits published by the IASB on 16 June 2011 result in significant changes in accounting for defined benefit pension plans.
2 There are also a number of other changes, including modification to the timing of recognition for termination benefits , the classification of short-term employee benefits and disclosures of defined benefit plans. The accounting options available under current IAS 19 have been eliminated, resulting in increased comparability between the financial statements of IFRS reporters. Highlights from the changes for defined benefit plan accounting include: Actuarial gains and losses are now required to be recognised in other comprehensive income (OCI) and excluded permanently from profit and loss.
3 Expected returns on plan assets will no longer be recognised in profit or loss. Expected returns are replaced by recording interest income in profit or loss, which is calculated using the discount rate used to measure the pension obligation. Unvested past service costs can no longer be deferred and recognised over the future vesting period. Instead, all past service costs will be recognised at the earlier of when the amendment/curtailment occurs or when the entity recognises related restructuring or termination costs. These revisions are effective for annual periods beginning on or after 1 January 2013, retrospectively, with very few exceptions.
4 Early application is permitted. Implementing the 2011 revisions to employee benefits2 IntroductionIn June 2011 , the International Accounting Standards Board (IASB or the Board) issued revisions to IAS 19 employee benefits (the revisions , IAS 19R or revised standard ) that provide significant changes in the recognition, presentation and disclosure of post-employment benefits . IAS 19R also changes the accounting for termination benefits and short-term employment benefits , along with a number of more minor clarifications and re-wording of the impact of these revisions could range from significant to immaterial.
5 This will depend on the type of employee benefits an entity provides, as well as the accounting options available under current IAS 19 that the entity has selected. Regardless of the magnitude, employee compensation is a fundamental area of accounting and all entities need to be aware of these changes and carefully consider the potential implications. The focus of this publication is to discuss the key accounting impact from EYs perspective as a result of the revised key purpose of these revisions was to create greater consistency in accounting for employee benefits by eliminating the recognition and presentation options that exist under current IAS 19.
6 Furthermore, the IASB sought to provide more targeted disclosure requirements that would highlight the relevant risks of defined benefit IASB has also taken the opportunity to finalise proposals for termination benefits at the same time as those for other employee benefits . These proposals were originally included in the exposure draft, Proposed Amendments to IAS 37 and IAS 19, published in 2005. The revisions to accounting for termination benefits focus on assisting preparers in determining when a benefit is in exchange for future service as opposed to in exchange for termination of employment.
7 The revisions also modify the recognition criteria for termination stepsWhilst these revisions mark the conclusion of the IASB s limited scope improvements to IAS 19, the Board continues to acknowledge the need for a comprehensive review of the accounting for employee benefits . In July 2011 , the Board issued a Request for Views on the strategic direction and overall balance of their future agenda. A comprehensive review of the accounting for employee benefits is one potential topic being considered for the IASB agenda over the next three years.
8 We strongly encourage preparers and users of IFRS financial statements to provide their views about the strategic direction and priority of projects for the future agenda of the IASB. The consultation period ends on 30 November 2011 and the Board intends to publish a feedback statement in Q2 2012. Whether or not the IASB will add a comprehensive project on employment benefits will depend on the outcome of this public consultation benefits project added to the agendaJuly 2006 Discussion paper publishedMay 2008 Exposure draft publishedApril 2010 Amendments to IAS 19 issuedJune 2011 Implementing the 2011 revisions to employee benefits3 Defined benefit plans.
9 Significant changesThe accounting for post-employment benefits and, in particular, defined benefits plans was the area most significantly impacted by IAS recognition of changes in pension related assets and liabilitiesUnder IAS 19, the following reporting options for the recognition of actuarial gains and losses were available: Immediate recognition through OCI Immediate recognition through profit or loss Deferred recognition through profit or loss ( , corridor approach)IAS 19R eliminates these reporting options by requiring immediate recognition through is a significant change for those entities applying the corridor approach.
10 Under this approach, entities could defer recognition of actuarial gains and losses if the net cumulative unrecognised value of actuarial gains and losses did not exceed the corridor ( , changes exceeding the greater of 10% of the defined benefit obligation and 10% of the fair value of plan assets).The corridor approach is often used amongst IFRS reporters as it allows for deferred recognition of actuarial gains and losses, thus leading to less volatility in the balance sheet. The revised standard eliminates this accounting option resulting in all changes in the valuation of post- employee benefits being recognised as they occur.