The International Accounting Standards Board
(IASB) has released proposed amendments to IAS 19 Employee
Benefits.
KPMG has warned that although the accounting
changes to will add clarity they could also cost UK businesses
about £10bn a year in lost profits.
The changes include forcing companies to
recognise more of their pension costs up front and no longer being
able to defer the recognition of gains and losses arising from
pension schemes.
The IASB said entities will be required:
- 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); - To use a new presentation approach that would clearly
distinguish between different components of the cost of these
benefits; and, - To disclose clearer information about the risks arising from
defined benefit plans.
KPMG warned the elimination of the corridor
method as well as a single fixed interest rate to calculate the net
interest component of pension expenses will erode
profitability.
Lynn Pearcy, KPMG’s global IFRS employee
benefits standards leader, said striping off the higher rate of
return from the income statement would also have a negative effect
on profits.
The IASB said the standards will add clarity
and transparency to pensions accounting.
Pearcy agreed, adding: “It can be really difficult because with the
corridor method you could, for example, have a deficit in your
pension scheme and could still be reporting a pension asset on your
balance sheet or visa versa.”
Although the proposal is likely to bring more
clarity and improve a user’s view into accounts there are concerns
if it will be worth the cost.
The IASB proposal is open for comment until
September. The final standard is due to be published in 2011.
