In February 2018, the International Accounting Standards Board (IASB) issued amendments to IAS 19 Employee Benefits. These amendments are applicable only to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019. Therefore, entities need not revisit any plan amendments, curtailments, or settlements that occurred in prior periods. Earlier application is permitted, but must be disclosed.
IAS 19 Employee Benefits requires companies to remeasure their net-defined benefit liability (asset) when a plan amendment, curtailment, or settlement takes place. Read on for descriptions of the new amendments to this standard.
Two amendments regard service cost and net interest:
- When an entity remeasures the net defined liability (asset), it must determine the current service cost and net interest for the remainder of the annual reporting period after a plan amendment, curtailment, or settlement occurs, using the same updated actuarial assumptions used for remeasurement.
- Net interest for the remainder of the annual reporting period must be determined on the basis of the remeasured net-defined benefit liability (asset).
In other words, the IASB has concluded that it would be inappropriate to ignore the updated assumptions when determining current service cost and net interest for the remainder of the annual reporting period. In its view, these updated assumptions make the financial statements more understandable and are thus essential to users.
There is also a clarification about asset ceilings:
- When recognising past service cost or a gain or loss on settlement, entities should disregard the effect of the asset ceiling unless a plan amendment, curtailment, or settlement is made. Any effect following such a change should be recognised in other comprehensive income.
Impact of the changes
Some examples of transactions affected by these amendments would be:
- introduction or withdrawal of a defined benefit plan
- changes in the benefits payable under an existing defined benefit plan (e.g. changing the retirement age from 60 to 65, which would increase the benefits payable in early retirement)
- significant reduction in the number of employees covered by the plan
- the termination of a plan
As a reminder: entities should account separately for each materially defined benefit plan (as is stated in paragraph 57 of IAS 19).
Also, notably, IAS 8.8 states that an entity need not apply the accounting policies specified by IFRSs when the effect of applying them is immaterial. In other words, if an entity finds that remeasuring its net-defined benefit liability (asset), in accordance with the new IAS 19 requirements above, has an immaterial effect, then these IAS 19 requirements do not have to be applied.
These amendments to IAS 19 have not yet been adopted by the European Union. Keep yourself up to date with the latest adopted IFRSs via our IFRS Calendar!
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