Defined Benefit Plans: Employee Contributions - Proposed Amendments to IAS 19

Exposure Draft ED/2013/4, issued by the International Accounting Standards Board (IASB)

Comments from ACCA

25 July2013

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

We support our 162,000 members and 426,000 students in 173countries, helping them to develop successful careers in accounting and business, with the skills needed by employers. We work through a network of 89offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development.

Further information about ACCA’s comments on the matters discussed here may be obtained from the following:

Paul Cooper

Corporate Reporting Manager, ACCA

Email:

ACCA welcomes the opportunity to comment on the above Exposure Draft (ED). Our Global Forum for Corporate Reporting has considered the proposals, and its views are reflected in the following general and specific comments.

General Comments

ACCA supports the proposed amendments to IAS 19, as explained below in our responses to the specific questions raised by the IASB. We also believe that the proposal for retrospective application of the changes will not cause undue difficulty for preparers in practice.

Specific comments

We now give our comments on the specific questions raised in the ED, as follows:

Question 1- Reduction in service cost

The IASB proposes to amend IAS 19 to specify that contributions from employees orthird parties set out in the formal terms of a defined benefit plan may be recognised asa reduction in the service cost in the same period in which they are payable if, and onlyif, they are linked solely to the employee’s service rendered in that period. An examplewould be contributions that are a fixed percentage of an employee’s salary, so thepercentage of the employee’s salary does not depend on the employee’s number of yearsof service to the employer. Do you agree? Why or why not?

ACCA response

ACCA agrees with this proposed change, both for the practical reason of avoiding complexity, and due to the substance of these payments made by employees (or third parties).

The payments are a stated fixed percentage of pensionable remuneration, and are due as an employee gives service. They do not reflect other periods by, for example, varying according to an employee’s length of service. We agree that where the latter case applies, the proposed simplification would be inappropriate.

Question 2- Attribution of negative benefit

The IASB also proposes to address an inconsistency in the requirements that relate tohow contributions from employees or third parties should be attributed when they arenot recognised as a reduction in the service cost in the same period in which they arepayable. The IASB proposes to specify that the negative benefit from such contributionsis attributed to periods of service in the same way that the gross benefit is attributed inaccordance with paragraph 70. Do you agree? Why or why not?

ACCA response

ACCA supports the proposed clarification that the gross and negative benefits should be attributed in the same way to service periods, and that the reference to attributing a net amount should be removed. We agree that it is practical, and also more accurate, to assess the gross and negative benefits separately.

Question 3 – Other comments

Do you have any other comments on the proposals?

ACCA response

The changes will be applied retrospectively, from a date to be determined. We do not believe that retrospective application will add undue complexity to the existing process of determining the defined benefit obligation and service cost.

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