Companies would have to recognize gains and losses in their defined benefit plans immediately instead of amortizing, or smoothing, them over an extended period of years, according to an IASB proposal released Thursday.
The International Accounting Standards Board proposal, issued in an exposure draft of amendments to IAS 19, would eliminate the option of a company to defer gains and losses in the value of defined benefit assets, or in its estimate of defined benefit obligations. “Instead, the (exposure draft) proposes that companies should recognize these (gains and loses) immediately,” according to an IASB statement about the proposal.
“The proposals may encourage companies to de-risk their defined benefit plans, or will at least remove perceived barriers to de-risking.” Warren Singer, U.K. head of pension accounting of Mercer, said in a statement. “Under the proposals, the profit or loss amounts will be independent of the investing risks taken by the pension plan. This is a big change from the current standard, which rewards holding risky assets to take advantage of a higher expected rate of return — and thus lower expense.”
IASB said in another statement Thursday, “IAS 19 was inherited from our predecessor body and an overhaul of pensions accounting is long overdue. The proposals, if adopted, will significantly improve the transparency and comparability of pension obligations.”
In January 2009, the Financial Accounting Standards Board “deactivated” its project to change FASB pension accounting rules in order to monitor the work IASB has been doing, said Christine L. Klimek, FASB communications manager.
“FASB will determine its next step after reviewing IASB's exposure draft,” Ms. Klimek added.
IASB opened the exposure draft to public comment, accessible at http://www.iasb.org, until Sept. 6.
The SEC has projects under way to encourage convergence of U.S. accounting standards and International Financial Reporting Standards, developed by IASB. By next year, the SEC could decide whether to incorporate IFRS into the U.S. financial reporting system, according to an SEC statement Feb. 24.