Pensions Conference 2011: Review of Workshop D5: Accounting standards development

Last bastion of DB: under siege and assault?  Food for thought

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Martin Lowes started the presentation by covering the changes expected to be implemented in 2011 with Manuel Kapsis covering the future ongoing process of ‘Agenda consultation’ at the IASB.

Martin Lowes’ presentation considered the proposals that are shortly to be announced. There will be changes from the earlier exposure draft but the main proposals are:

• Immediate recognition of gains/loss – ie no corridor approach
• Interest on net balance sheet asset/liability instead of interest on liability and expected return on assets
• Not much change in service cost calculation but more in disclosure

The changes will move the accounting standard to be more in line with US GAAP, but there will still be some differences. Will is result in closer similarity with FRS17? The disclosures will introduce yet more pensions jargon (e.g. OCI).

From the first part of the presentation I felt I obtained a reasonable overview of the small changes to be made. I now feel that I need some greater clarity of these changes and how they will work/affect future disclosures. I was interested in the comment that IFRIC 14 will not be incorporated within the IAS19 disclosures.

Manuel Kapsis gave an overview of how the IASB carried out its owrk/studies and the process that it intends to use going forward. It would seem that any changes wouled come through IASB’s ‘agenda setting process’ where as part of each 3 yearly cycle in consultation with a large number of bodies they would adopt revised standards. That is, the approach will be to effectively drip feed through changes rather than any fundamental review.

It is not clear id this approach is due to some of the issues (e.g. what discount rate criteria to use) being too difficult or the lack of resource at IASB. Of interest is that more countries are joining/adopting IAS.

Those considerations that are likely to be part of future reviews are:

• Contribution based premiums
• Discount rate
• Classification
• Measurement
• Presentation in balance sheet

I suppose my concern is the constant changes, every 2 to 3 years, that may result from these ongoing reviews, make it difficult to readily advise and for companies to appreciate the required disclosures.

There were two shows of hands:

• What is more important, P&L impact or balance sheet volatility – most considered the latter.
• Frequent limited scope adjustments or fundamental review – most voted for the former which surprised me having voted for the latter.