ED/2015/5 Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan - Proposed amendments to IAS 19 and IFRIC 14
Our letter is in reponse to the IASB's Exposure Draft 2015/5 'Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan - Proposed amendments to IAS 19 and IFRIC 14.'
The Exposure Draft contains proposals relating to IAS 19 ‘Employee Benefits’ and IFRIC 14 ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’.
Proposed amendment to IAS 19
The first proposed amendment addresses the accounting when a defined benefit plan is amended, curtailed or settled during a period. The Exposure Draft proposes that when the net defined benefit liability (or asset where appropriate) is remeasured as a result of one of these transactions:
- the current service costs and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement
- an entity determines the net interest for the remaining period based on the remeasured net defined benefit liability (asset).
The Exposure Draft also proposes that the current service cost and the net interest in the current reporting period before a plan amendment, curtailment or settlement are not affected by, or included in, the past service cost or a gain or loss on settlement.
In our letter we agree with the proposals subject to some observations that we make.
Proposed amendment to IFRIC 14
The proposed amendment to IFRIC 14 addresses whether other parties’ power to enhance benefits for plan members or wind up a plan affects the availability of a refund to the reporting entity.
The Exposure Draft proposes here that the amount of the surplus an entity recognises as an asset on the basis of a future refund should not include amounts that other parties (eg the plan trustees) can use for other purposes (eg to enhance benefits for plan members) without the entity’s consent. It also proposes that an entity should not assume a gradual settlement of the plan as the justification for the recognition of an asset, if other parties can wind up the plan without the entity’s consent.
The IASB also proposes to address the interaction between the asset ceiling and the past service cost or a gain or loss on settlement. The proposals here would clarify that if a plan amendment, curtailment or settlement occurs, the past service cost or gain or loss on settlement, would be measured and recognised in profit or loss excluding the effect of the asset ceiling. Changes in the effect of the asset ceiling would be recognised in other comprehensive income, as a result of the effect of the ceiling on the updated surplus.
If accepted, the amendments would be applied retrospectively. There would however be an exemption for adjustments of the carrying amount of assets outside the scope of IAS 19 (eg where employee benefit expenses have been included in inventories).
In our letter we agree with the substance of each of the amendments, subject to some detailed comments set out as part of our responses to the IASB's specific questions.