IAS 19 - Pensions and other employee benefits

1
IAS 19 - Pensions and other employee benefits
2
Executive summary

• The concept, characteristics and accounting for
  defined contribution plans are similar under IFRS
  and US GAAP.
• IFRS recognizes a liability equal to the present
  value of the defined benefit obligation, plus or
  minus any unrecognized actuarial gains and
  losses, minus unrecognized prior service costs,
  minus the fair value of any plan assets.
• Under US GAAP, the liability equals the present
  value of the defined benefit obligation minus the
  fair value of any plan assets.
• If actuarial gains and losses are recognized as
  they occur, US GAAP requires the effect to be
  presented in the income statement, while IFRS
  allows the option to present the effect in either
  the income statement or in other comprehensive
  income.
• The OPEB liability under US GAAP is based on the
  accumulated postretirement benefit obligation
  (APBO), whereas IFRS measures the liability based
  on the present value of the defined projected
  benefit obligation (PVDBO). The difference is
  that the PVDBO considers future compensation
  levels and the APBO does not.

3
Progress on convergence

• The Boards have agreed to a long-term convergence
  project to comprehensively challenge the
  accounting for postretirement benefits.
• The IASB issued an ED in April 2010, Defined
  Benefit Plans, with comments due September 6,
  2010.
• The ED suggests only targeted improvement to
  expense recognition (e.g., the corridor approach
  would not be allowed), presentation and
  disclosure.
• A more comprehensive review of employee benefit
  accounting might be conducted after mid-2011.
• The FASB is currently monitoring the work of the
  IASB to determine its next steps.

4
Defined contribution plans
IFRS
US GAAP
The concept and characteristics of a defined
contribution plan are similar.
5
Defined benefit plans
IFRS
US GAAP
The concept and characteristics of a defined
benefit plan are similar.
6
Accounting for defined benefit plansMeasurement
of pension liability
IFRS
US GAAP
Liabilities and costs for employee benefits
generally are recognized in the period when the
service is rendered.
Similar
Measurement of a defined benefit obligation
generally includes, when applicable, estimated
salary increases. The defined benefit obligation
is the present value of benefits that have
accrued to employees through services rendered to
date, based on actuarial methods of calculation.
US GAAP refers to this as the accrued projected
benefit obligation (APBO).
Similar, although the defined benefit obligation
is referred to as the PVDBO.
7
Accounting for defined benefit plansMeasurement
of pension liability
IFRS
US GAAP
For final-pay and career-average-pay plans, the
projected-unit-credit method is used to calculate
pension liabilities, which considers future
compensation levels.
Similar, although this method is used for all
plans.
8
Accounting for defined benefit plansRecognition
of net funded status
IFRS
US GAAP
The recognition of the overfunded (asset) or
underfunded (liability) status on the balance
sheet is required.
Similar
9
Accounting for defined benefit plansRecognition
of net funded status

• IFRS
• The over/underfunded status of the plan is
  calculated as follows
• If underfunded, a liability must be recognized
  equal to the PVBO plus or minus any unrecognized
  actuarial gains and losses, minus unrecognized
  prior service costs, minus the fair value of any
  plan assets.
• If overfunded, the asset is subject to a ceiling
  test and IFRIC 14.

• US GAAP
• The over/underfunded status of the plan is
  calculated as the difference between the fair
  value of the plan assets and the APBO.
• Any unrecognized actuarial gains/losses and past
  service costs must be recognized in OCI.

10
Over/underfunded plan status calculation
pension plan example

• Example 1
• The Kissel Trucking Company, Inc. (Kissel), based
  in Phoenix, has a defined benefit plan for its
  employees. At December 31, 2010, the following
  information is available regarding Kissels plan
• Fair value of plan assets 12,000,000
• Present value of defined benefit obligation
  15,000,000
• Interest costs 575,000
• Net unrecognized actuarial gains 240,000
• Recognized actuarial gains 180,000
• Unrecognized past service costs nonvested
  175,000

• Determine what Kissel will record on the balance
  sheet as of December 31, 2010 for this plan under
  both US GAAP and IFRS.

11
Over/underfunded plan status calculation
pension example

• Example 1 solution

US GAAP IFRS
Present value of defined benefit obligation 15,000,000 15,000,000
Fair value of plan assets 12,000,000 12,000,000
Underfunded status of plan 3,000,000 3,000,000
Net unrecognized actuarial gains (losses) 240,000
Unrecognized past service costs nonvested (175,000)
Defined benefit liability 3,000,000 3,065,000
12
Accounting for defined benefit plansPension
expense components service costs
IFRS
US GAAP
Service cost is included in pension expense and
is due to the services rendered during the
current period.
Similar
13
Accounting for defined benefit plansPension
expense components interest costs
IFRS
US GAAP
Interest costs are included in pension expense
and are based on an interest charge on the
pension liability.
Similar
14
Accounting for defined benefit plansPension
expense components actual return on plant assets
IFRS
US GAAP
The expected return on plan assets in included as
a reduction of the pension expense. Note that US
GAAP refers to the actual return on plan assets
as the amount that is used to adjust the pension
expense. However, the expected return on plan
assets is the amount actually used to compute
pension expense as an adjustment is recorded for
the difference between the actual return on
expected return as an unexpected loss or gain.
Similar
15
Accounting for defined benefit plansPension
expense components prior service costs
IFRS
US GAAP
Similar
The amortization of prior service costs is
included in pension expense.
16
Accounting for defined benefit plansPension
expense components prior service costs

• IFRS
• Prior service costs for vested benefits may not
  be deferred and must be recognized in pension
  expense immediately. However, prior service
  costs for unvested benefits are deferred and
  amortized on a straight-line basis over the
  average remaining vesting period.

• US GAAP
• Prior service costs are initially deferred and
  recorded in OCI.
• The amortization is recorded under a
  years-of-service approach although the
  straight-line method is an alternative. The
  amortization period is dependent upon the
  employee group

• For active employees, the amortization
  
• period is over average remaining service
• lives of these employees.
• For inactive or retired employees, the
• amortization period is over the average
• remaining life expectancy of these
• employees.

17
Amortization period for prior service costs
example

• Example 2
• On January 1, 2010, the Banks Company, Inc.
  (BCI), based in Seattle, made amendments to its
  defined benefit plan, resulting in 150,000 of
  prior service costs. The plan has 100 active
  employees of which 60 are vested and the
  remaining 40 will be vested in three years. The
  majority of the employees are active. BCIs
  accounting policy is to amortize prior service
  costs over the average remaining service period
  using a straight-line basis for US GAAP. BCI has
  determined the following information regarding
  the prior service costs

Unrecognized prior service costs applicable
to Vested employees 90,000 Unvested
employees 60,000 Total unrecognized prior
service costs 150,000 Future service years of
employees expected to receive benefits 650
years

• Determine the amortization of the prior service
  costs under US GAAP and IFRS.

18
Amortization period for prior service costs
example
Year Beginning of year balance Amortization (1) End of year balance
One 150,000 23,077 126,923
Two 126,923 23,077 103,846
Three 103,846 23,077 80,769
Four 80,768 23,077 57,692
Five 57,692 23,077 34,615
Six 34,615 23,077 11,538
Seven 11,538 11,538

• Example 2
• solution
• US GAAP
• (1) Annual amortization 650 years/100
  employees 6.5 years 150,000/6.5 23,077
• Prior service costs are recognized on a straight
  line basis over the average remaining service
  period.

19
Amortization period for prior service costs
example

• IFRS
• (2) Prior service costs for vested employees are
  recognized immediately and for unvested
  employees, amortization is recognized over the
  three years until vested.

Amortization (2) Amortization (2)
Year Beginning of year balance Vested Unvested End of year balance
One 150,000 90,000 20,000 40,000
Two 40,000 20,000 20,000
Three 20,000 20,000
20
Accounting for defined benefit plansPension
expense components actuarial gain or loss
IFRS
US GAAP
For active employees, actuarial gains and losses
may be recognized as they occur or deferred
through OCI.
Similar
If deferred, using a corridor approach, the
excess of the net accumulated unrecognized
actuarial gains and losses over a corridor amount
(calculated as 10 of the larger of the APBO
(under US GAAP) or PVDBO (under IFRS) or the fair
value of the plan assets determined at the
beginning of the year) may be recognized
immediately in income or amortized into income.
Similar, except the term PVDBO is used instead of
APBO.
21
Accounting for defined benefit plansPension
expense components actuarial gain or loss

• IFRS
• Actuarial gains and losses for inactive or
  retired employees must be recognized as they
  occur.
• If actuarial gains and losses are recognized as
  they occur, the effect may be presented in either
  the statement of income or in OCI.

• US GAAP
• Actuarial gains and losses for inactive or
  retired employees may be recognized as they occur
  or deferred through OCI under the corridor
  approach.
• If actuarial gains and losses are recognized as
  they occur, the effect must be presented in the
  statement of income.

22
Accounting for defined benefit plansPension
expense components actuarial gain or loss

• IFRS
• If the entity chooses to amortize amounts in
  excess of the corridor
• Amortization is recorded on a straight-line basis
  over the average remaining service lives of these
  employees.

• US GAAP
• If the entity chooses to amortize amounts in
  excess of the corridor
• Amortization is recorded under a years-of-service
  approach although the straight-line method is an
  alternative. The amortization period is
  dependent upon the employee group

• For active employees, the amortization
  
• period is over average remaining service
• lives of these employees.
• For inactive or retired employees, the
• amortization period is over the average
• remaining life expectancy of these
• employees.

23
Actuarial gains and losses recognized as occurred
presentation example

• Example 3
• Wiecek Company, Ltd (Wiecek) has a defined
  benefit plan and uses US GAAP to prepare its
  financial statements. Pension expense has
  historically been recognized in cost of sales and
  the net actuarial gain/loss component of expense
  is recognized as incurred. Wieceks chief
  financial officer has asked the controller if
  there are any options available in accounting for
  actuarial gains/losses when the company switches
  to preparing its financial statements using IFRS.
  
• Information about the benefit plan and Wieceks
  statement of comprehensive income are found on
  the next slide.

• Ignoring income tax effects, record the
  appropriate adjustments to revise Wieceks
  statement of comprehensive income to allow an
  alternative presentation under IFRS.

24
Actuarial gains and losses recognized as occurred
presentation example
Example 3 (continued)
Statement of comprehensive income Statement of comprehensive income
Revenue 780,000
Cost of sales 690,000
Gross profit 90,000
Administrative expenses 45,000
Finance costs 13,000
Profit for the year 32,000
Other comprehensive income
Foreign exchange differences (8,300)
Actuarial gains (losses) on defined benefit plan
Other comprehensive income for the year (8,300)
Total comprehensive income for the year 23,700
Net benefit expense recognized in cost of sales (in thousands) 2010
Current service cost 2,700
Interest cost on benefit obligation 430
Expected return on plan assets (190)
Net actuarial loss recognized in the year 2,000
Past service cost 60
Net benefit expense 5,000
25
Actuarial gains and losses recognized as occurred
presentation example
Example 3 solution IFRS allows the option to
present the effect of actuarial gains and losses
that are recognized as they occur in either the
statement of income or OCI, while US GAAP does
not allow this option.
Statement of comprehensive income Statement of comprehensive income Adjustments Alternative for IFRS
Revenue 780,000 780,000
Cost of sales 690,000 (2,000) 688,000
Gross profit 90,000 92,000
Administrative expenses 45,000 45,000
Finance costs 13,000 13,000
Profit for the year 32,000 34,000
Other comprehensive income
Foreign exchange differences (8,300) (8,300)
Actuarial gains (losses) on defined benefit plan (2,000) (2,000)
Other comprehensive income for the year (8,300) - (10,300)
Total comprehensive income for the year 23,700 - 23,700
26
Actuarial gain or loss calculation example

• Example 4
• The Peter Company (Peter), based in Boston, has a
  defined benefit pension plan. Peters actuary
  has determined that a loss has occurred at the
  beginning of 2010 caused by demographic changes
  related to the composition of its workforce and
  revisions to life expectancy calculations. Peter
  uses the corridor approach to amortize
  unrecognized gains and losses. The following
  information relates to the actuarial loss
• Actuarial loss related to active
  employees 315,000
• Actuarial loss related to inactive/retired
  employees 85,000
• Total actuarial loss 400,000
• Average remaining services lives of active
  employees 20 years
• Average life expectancy of inactive/retired
  employees 15 years

• Calculate the pension expense related to the
  actuarial loss for 2010, using US GAAP and IFRS,
  and compare the differences. Assume that the
  total actuarial loss of 400,000 is outside the
  corridor range.

27
Actuarial gain or loss calculation example
Solution US GAAP IFRS
Employee group composition Amortization period Pension expense
Active employees Over average remaining service lives 315,000/20 years 15,750
Inactive or retired employees Over average remaining life expectancy 85,000/15 years 5,667 21,417
Employee group composition Amortization period Pension expense
Active employees Over average remaining service lives 315,000/20 years 15,750
Inactive or retired employees Recognize gain or loss immediately 85,000 100,750
28
OtherCurtailments
IFRS
US GAAP
A curtailment results from an event that
significantly reduces the expected years of
future service of present employees or
eliminates, for a significant number of
employees, the accrual of defined benefits for
some or all of their future services.
Similar
29
OtherCurtailments

• IFRS
• Gains and losses from curtailments are recognized
  when they occur.
• The gain or loss includes a proportionate share
  of previously unrecognized past service cost and
  actuarial gains and losses where the
  proportionate share is determined on the basis of
  the present value of the obligations before and
  after the curtailment or settlement.

• US GAAP
• Curtailment losses are recognized when they are
  probable of occurring and to the extent they
  exceed any net gains in OCI. Curtailment gains
  are recognized at the curtailment date and only
  to the extent they exceed any net losses in OCI.

30
Recognition of curtailment gains and losses
example

• Example 6
• The Glazerman Automotive Company closed one of
  its dealership locations in New Jersey and
  terminated 150 employees. These employees had
  vested benefits of 760,000 and nonvested
  benefits of 180,000. Other pertinent
  information regarding the defined benefit plan at
  the curtailment date is as follows
• Projected benefit obligation for vested
  employees 3,500,000
• Projected benefit obligation for nonvested
  employees 1,200,000
• Plan assets at fair value 3,200,000
• Unrecognized prior service cost nonvested
  328,000
• Unrecognized actuarial loss
  280,000

• Based on the information provided, determine the
  curtailment gain or loss and journal entry by
  completing the template on the next slide using
  the accounting standards under US GAAP and IFRS.

31
Recognition of curtailment gains and losses
example
(In thousands) Before closing Effect of closing After closing
Projected benefit obligation Vested Nonvested (3,500) (1,200)
(4,700)
Plan assets at fair value 3,200
Funded status (1,500)
Deferred pension items Unrecognized prior service cost nonvested Unrecognized net actuarial loss 328 280
Accrued benefit cost (892)
32
Recognition of curtailment gains and losses
example
Example 6 solution US GAAP
(In thousands) Before closing Effect of closing After closing
PBO Vested Nonvested (3,500) (1,200) 760 180 (2,740) (1,020)
(4,700) 940 (3,760)
Plan assets at fair value 3,200 3,200
Funded status (1,500) 940 (560)
Deferred pension items Unrecognized prior service cost unvested Unrecognized net actuarial loss 328 280 (66) 280 262
Accrued benefit cost (892) 594 (298)
33
Recognition of curtailment gains and losses
example
Example 6 solution US GAAP (continued)
The terminated employees share of vested and
unvested benefits represents 20 of the total
projected benefit obligation (940,000/4.7
million). Therefore, 20 of the unrecognized
prior service cost (nonvested) is eliminated
(66,000). The gain of 940,000 is offset by the
unrecognized net actuarial loss of
280,000. Journal entry Accrued benefit
cost 594,000 Gain from curtailment 594,000
34
Recognition of curtailment gains and losses
example
Example 6 solution IFRS
(In thousands) Before closing Effect of closing After closing
PVDBO Vested Nonvested (3,500) (1,200) 760 180 (2,740) (1,020)
(4,700) 940 (3,760)
Plan assets at fair value 3,200 3,200
Funded status (1,500) 940 (560)
Deferred pension items Unrecognized prior service cost unvested Unrecognized net actuarial loss 328 280 (66) (56) 262 224
Accrued benefit cost (892) 818 (74)
35
Recognition of curtailment gains and losses
example
Example 6 solution IFRS (continued)
The terminated employees share of vested and
unvested benefits represents 20 of the total
projected benefit obligation (940,000/4.7
million). Therefore, 20 of the unrecognized
prior service cost (nonvested)(66,000) and 20
of the unrecognized actuarial loss (56,000) are
eliminated. Journal entry Accrued benefit
cost 818,000 Gain from curtailment 818,000
36
Standard-setting update

• Under the IASB ED, the corridor approach would be
  eliminated and all changes in the value of
  long-term employee benefits will be recognized as
  they occur. Service costs and interest costs
  will be recorded into income. Remeasurements
  (actuarial gains and losses) will be recorded in
  OCI.

37
OPEBsMeasurement of the liability
IFRS
US GAAP
The liability for other long-term employee
benefits is accrued during the service period.
Similar
38
OPEBsMeasurement of the liability

• IFRS
• Applies a single set of principles (IAS 19) to
  pension plans and plans for OPEBs.
• Measures the liability based on the PVDBO.
• The difference is that the PVDBO considers future
  compensation levels and the APBO does not.

• US GAAP
• Has specific guidance to account for OPEBs
  (ASC715-10 and ASC 715-20).
• The OPEB liability is based on the accumulated
  postretirement benefit obligation (APBO).

39
OPEBsRecognition of net funded status
IFRS
US GAAP
The recognition of the overfunded (asset) or
underfunded (liability) status on the balance
sheet is required.
Similar
40
OPEBsRecognition of net funded status

• IFRS
• The over/underfunded status of the plan is
  calculated as follows
• If underfunded, a liability must be recognized
  equal to the PVDBO, plus or minus any
  unrecognized actuarial gains and losses, minus
  unrecognized prior service costs, minus the fair
  value of any plan assets.
• If overfunded, the asset is subject to a ceiling
  test and IFRIC 14.

• US GAAP
• The over/underfunded status of the plan is
  calculated as the difference between the fair
  value of the plan assets and the APBO.
• Any unrecognized actuarial gains/losses and past
  service costs must be recognized in OCI.

41
Over/underfunded plan status calculation
employee benefit plan example

• Example 7
• The Campbell Company (Campbell), based in New
  York, has a postretirement healthcare benefit
  plan for its employees. Campbell adopted ASC
  715-10 and ASC 715-20 in prior years. At the
  beginning of the year, Campbell amended the plan
  to provide additional benefit accruals, which are
  included in the January 1, 2010 obligation. The
  facts on the next slide apply to the plan for the
  year ended December 31, 2010.

• Determine the postretirement benefit expense and
  journal entries for the year ended December 31,
  2010, using accounting for US GAAP and for IFRS.

42
Over/underfunded plan status calculation
employee benefit plan example

• Plan assets at fair value on January 1, 2010
  284,000
• Plan assets at fair value on December 31,
  2010 314,000
• APBO at January 1, 2010 360,000
• Projected benefit obligation at January 1,
  2010 398,000
• Actual return on plan assets 18,000
• Expected return on plan assets
  10
• Service cost 35,000
• Employer contributions 45,000
• Benefit payments 33,000
• Unamortized prior service costs (active,
  nonvested) 42,000
• Average remaining service to expected
  retirement 10 years
• Average remaining vesting period of nonvested
  prior service costs 5 years
• Discount rate 6
• Other assumptions There are no unamortized
  gains or losses at the beginning of the year.
  All benefits paid and employer contributions were
  made at December 31, 2010 There were no gains or
  losses related to the pension obligation in 2010.
  Campbell has elected, for US GAAP purposes, to
  use straight-line amortization over the average
  remaining service life of the employees for
  computing the amortization of PSC versus a
  years-of-service method.

43
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution US GAAP

Company general ledger Company general ledger Company general ledger Company general ledger Company general ledger Benefit plan ledger Benefit plan ledger
Benefit expense Cash OCI (gain) loss PSC/other OCI (gain) loss PSC/other Benefit asset (liability) APBO Plan assets
Balance at January 1, 2010 42,000 (76,000) (360,000) 284,000
Service costs 35,000 (35,000)
Interest costs 21,600 (21,600)
Actual return (18,000) 18,000
Excess of expected over actual (10,400) 10,400
Contributions (45,000) 45,000
Benefits paid 33,000 (33,000)
PSC amortization 4,200 (4,200)
32,400 (45,000) 10,400 (4,200) 6,400
Balance at December 31, 2010 10,400 37,800 (69,600) (383,600) 314,000
44
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution US GAAP (continued)
• Interest cost on APBO 360,000 x 6 21,600
• Loss on actual versus expected return
  Rollforward of liability
• Plan assets 284,000 Liability (beginning of
  year) (76,000)
• Expected rate of return
  10 Postretirement expense (32,400)
• Expected return 28,400 Contributions
  45,000
• Actual return (18,000) Change in gain
  (loss) OCI (10,400) Excess
  of expected over actual 10,400 Change in
  PSC/other OCI 4,200
• Liability (end of year) (69,600)
• Journal entries
• Postretirement expense 32,400
• Other comprehensive income 6,200
• Postretirement liability 6,400
• Cash 45,000

45
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution US GAAP (continued)
• Liability, beginning of year PSC
  amortization in 2010
• Plan assets (beginning of year) 284,000
  Accumulated PSC at January 1, 2010
  42,000
• APBO (beginning of year) (360,000) Average
  remaining service to retirement 10 years
• Liability (beginning of year) (76,000) 2010
  amortization (42,000/10 years) 4,200
• Liability, end of year
• Plan assets (end of year) 314,000
• APBO (end of year) (383,600)
• Liability (end of year) (69,600)

46
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution IFRS
• IFRS

Company general ledger Company general ledger Company general ledger Benefit plan ledger Benefit plan ledger Off balance sheet Off balance sheet
Benefit expense Cash Benefit asset (liability) APBO Plan assets PSC/Other Actuarial (gain) loss
Balance at January 1, 2010 (72,000) (398,000) 284,000 42,000
Service costs 35,000 (35,000)
Interest costs 23,880 (23,880)
Actual return (28,400) 28,400
Excess of expected over actual (10,400) 10,400
Contributions (45,000) 45,000
Benefits paid 33,000 (33,000)
PSC amortization 8,400 (8,400)
38,880 (45,000) 6,120
Balance at December 31, 2010 (65,880) (423,880) 314,000 33,600 10,400
47
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution IFRS (continued)
• Interest cost on PVDBO 398,000 x 6 23,880
• Expected return Rollforward of liability
  
• Plan assets 284,000 Liability (beginning of
  year) (72,000)
• Expected rate of return
  10 Postretirement expense (38,880)
• Expected return 28,400 Contributions
  45,000 Liability (end of
  year) (65,880)
• Journal entries
• Postretirement expense 38,880
• Postretirement liability 6,120
• Cash 45,000

48
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution IFRS (continued)
• PSC amortization in 2008
• Accumulated PSC at January 1, 2010 42,000
• Average remaining vesting period 5 years
• Amount subject to amortization 8,400
• Composition of balance sheet liability
  Beginning of year End of year
• Fair value of plan assets 284,000
  314,000
• PVDBO (398,000) (423,880)
• Unrecognized PCS and gains/losses 42,000
  44,000
• Balance (72,000) (65,880)

49
Over/underfunded plan status calculation
employee benefit plan example

• Example 7 solution IFRS (continued)
• Unexpected gain (loss)
• Plan assets at FV at December 31 314,000
• Less Plan assets at FV at January 1
  (284,000)
• Contributions received
  (45,000)
• Add Benefits paid 33,000
• Actual return on plan assets 18,000
• Less Expected return on plan assets
  (28,400)
• Actuarial loss on plan assets (10,400)

50
OPEBsOPEB expense components service costs
IFRS
US GAAP
Service cost is included in OPEB expense.
Similar
51
OPEBsOPEB expense components interest costs
IFRS
US GAAP
Interest costs are included in OPEB expense.
Similar
52
OPEBsOPEB expense components actual return on
plan assets
IFRS
US GAAP
The expected return on plan assets is included as
a reduction of the OPEB expense. Note that US
GAAP refers to the actual return on plan assets
as the amount that is used to adjust the OPEB
expense. However, the expected return on plan
assets is the amount actually used to compute
OPEB expense as an adjustment is recorded for the
difference between the actual return and expected
return as an unexpected loss or gain.
Similar
53
OPEBsOPEB expense components prior service
costs
IFRS
US GAAP
The amortization of prior service costs/benefits
is included in the OPEB.
Similar
54
OPEBsOPEB expense components prior service
costs

• IFRS
• Prior service costs for vested benefits may not
  be deferred and must be recognized in pension
  expense immediately. However, prior service
  costs for unvested benefits are deferred and
  amortized on a straight-line basis over the
  average remaining vesting period.

• US GAAP
• Prior service costs are initially deferred and
  recorded in OCI.
• The amortization is recorded under a
  years-of-service approach although the
  straight-line method is an alternative. The
  amortization period is dependent upon the
  employee group

• For active employees at the date of the
• amendment but not fully eligible for
  benefits
• at that date, the amortization period is
  over
• the average remaining service lives of these
  
• employees to the fully eligible date.
• See the next slide for fully eligible
  participants.

55
OPEBsOPEB expense components prior service
costs

• US GAAP
• Prior service costs
• The amortization period is dependent upon the
  employee group (continued)

• IFRS
• Prior service costs for vested benefits may not
  be deferred and must be recognized in pension
  expense immediately. However, prior service
  costs for unvested benefits are deferred and
  amortized on a straight-line basis over the
  average remaining vesting period.

• For fully eligible plan participants, defined
  as
• collectively, that group of former employees
• (including retirees) and active employees
  who
• have rendered service to or beyond their
  full
• eligibility date and who are expected to
• receive benefits under the plan, including
• benefits to their beneficiaries and covered
• dependents, the amortization period is over
• the average remaining life expectancy of the
  
• participants.

56
OEPBsOPEB expense components actuarial gain or
loss
IFRS
US GAAP
For active employees, actuarial gains and losses
may be recognized as they occur or deferred
through OCI.
Similar
If deferred, using a corridor approach, the
excess of the net accumulated unrecognized
actuarial gains and losses over a corridor amount
(calculated as 10 of the larger of the APBO
(under US GAAP) or PVDBO (under IFRS) or the fair
value of the plan assets determined at the
beginning of the year) may be recognized
immediately in income or amortized into income.
Similar, except the term PVDBO is used instead of
APBO.
57
OPEBsOPEB expense components actuarial gain or
loss

• IFRS
• Actuarial gains and losses for inactive or
  retired employees must be recognized in income as
  they occur.
• If actuarial gains and losses are recognized as
  they occur, the effect may be presented in either
  the statement of income or in OCI.

• US GAAP
• Actuarial gains and losses for inactive or
  retired employees may be recognized as they occur
  or deferred through OCI under the corridor
  approach.
• If actuarial gains and losses are recognized as
  they occur, the effect must be presented in the
  statement of income.

58
OPEBsExpense components actuarial gain or loss

• IFRS
• If an entity chooses to amortize amounts in
  excess of the corridor
• Amortization is recorded on a straight-line basis
  over the average remaining service lives of these
  employees.

• US GAAP
• If an entity chooses to amortize amounts in
  excess of the corridor
• Amortization is recorded under a years-of-service
  approach although the straight-line method is an
  alternative. The amortization period is
  dependent upon the employee group

• For active employees at the date of the
• amendment but not fully eligible for
  benefits
• at that date, the amortization period is
  over
• the average remaining service lives of these
  
• employees to the fully eligible date.
• See the next slide for fully eligible
  participants.

59
OPEBsExpense components actuarial gain or loss

• US GAAP
• If an entity chooses to amortize amounts in
  excess of the corridor (continued)
• The amortization period is dependent upon the
  employee group (continued)

• IFRS
• If an entity chooses to amortize amounts in
  excess of the corridor
• Amortization is recorded on a straight-line basis
  over the average remaining service lives of these
  employees.

• For fully eligible plan participants, defined
  as
• collectively, that group of former employees
• (including retirees) and active employees
  who
• have rendered service to or beyond their
  full
• eligibility date and who are expected to
• receive benefits under the plan, including
• benefits to their beneficiaries and covered
• dependents, the amortization period is over
• the average remaining life expectancy of the
  
• participants.

60
Standard-setting update

• Under the IASB ED, the corridor approach would be
  eliminated and all changes in the value of
  long-term employee benefits will be recognized as
  they occur. Service costs and interest costs
  will be recorded into income. Remeasurements
  (actuarial gains and losses) will be recorded in
  OCI.

61
Financial statement presentation and disclosures
IFRS
US GAAP
The majority of pension and OPEB reporting and
disclosure requirements are similar, voluminous
and may be made on the face of the financial
statements or in the related footnotes.
Similar
62
Financial statement presentation and disclosures
IFRS
US GAAP

• A partial list of reporting and disclosure
  requirements include
• Description of the plan and related accounting
  policies.
• Net funded status of the plan (asset or
  liability) recorded on the balance sheet.
• Expense recorded in the statement of income
  and/or OCI.
• Schedule showing the expense components.
• Reconciliation of the APBO and plan assets
• from the beginning of the year to the end of
  the
• year.
• Principal actuarial assumptions used.

Similar
63
Financial statement presentation and disclosures

• IFRS
• Disclosures required by IFRS and not by US GAAP
• For the current and previous four annual periods
• PVDBO
• Fair value of the plan assets
• Surplus or deficit in the plan
• Experience adjustments on
• Plan liabilities
• Plan assets

• US GAAP
• Disclosures required by US GAAP and not by IFRS
  as of the date of the latest balance sheet
  presented
• The APBO
• The benefits expected to be paid in each of the
  next five years and in the aggregate for the five
  years thereafter.

64
Standard-setting update

• Some further disclosure requirements are proposed
  by the IASB ED including more information about
  the characteristics of employee benefit plans,
  the risks arising from employee benefits plans
  including sensitivity analyses and multi-employer
  plans.