The proposals would amend the accounting for defined benefit plans through which some employers provide long-term employee benefits, such as pensions and post-employment medical care. In defined benefit plans, employers bear the risk of increases in costs and of possible poor investment performance.
The amendments would address deficiencies in IAS 19 by requiring entities to account immediately for all estimated changes in the cost of providing these benefits and all changes in the value of plan assets (often referred to as removal of the ‘corridor’ method). It also requires entities to use a new presentation approach that would clearly distinguish between different components of the cost of these benefits. The amendments also propose disclosure of clearer information about the risks arising from defined benefit plans.
David Tweedie, Chairman of the IASB, notes that the proposals, if adopted, will significantly improve the transparency and comparability of pension obligations.