Discussion at the March 2007 IASB Meeting - IAS Plus
The Board discussed how to address the financial statement presentation of gains and losses arising on defined benefit plans in the Discussion Paper (DP).
The Board unanimously decided without much discussion that the preliminary view for the DP is that all gains and losses on defined benefit post-employment plans should be recognised in comprehensive income. It appears unlikely that this view is going to be revised.
The Board then discussed three approaches regarding the presentation of these gains and losses in the statement of recognised income and expense including alternatives that would display some components outside net income but in other recognised income/expense.
Approach 1: All in profit or loss
This approach reflects the Board's preliminary view at the February 2007 meeting that all changes in post-employment benefit obligations and in the value of plan assets should be presented in profit or loss in the period in which they incur.
Approach 2: Financing approach
This approach presents the costs of service in profit or loss. All other costs are reported as consequences of deferring payment of employee remunerations and financing that deferred payment.
Accordingly:
- Service costs, and the gains and losses associated with them are recognised in profit or loss. Thus, service costs, and actuarial gains and losses on the defined benefit obligation except those arising from changes in the discount rate would be recognised in profit or loss.
- All other changes are recognised outside profit or loss. This includes interest cost, changes in the discount rate and all changes in plan assets.
Approach 3: Remeasurement approach
This approach presents only those changes arising from changes in financial assumptions outside profit or loss.
Accordingly, profit or loss would include service cost, interest cost, actuarial gains and losses on the defined benefit obligation except those arising from changes in the discount rate, dividends received on plan assets, and interest earned on plan assets (using the current rate inherent in the fair value).
The three approaches can be illustrated as follows:
| | Approach 1 | Approach 2 | Approach 3 |
|---|
| Current service cost | Profit or Loss | Profit or Loss | Profit or Loss |
| Interest cost | Profit or Loss | Other recognised income/expense | Profit or Loss |
| Actuarial gains and losses on obligation: |
| - arising from effect of change in discount rate | Profit or Loss | Other recognised income/expense | Other recognised income/expense |
| - other actuarial gains and losses on the obligation | Profit or Loss | Profit or Loss | Profit or Loss |
| Return on plan assets: |
| - dividends and interest income | Profit or Loss | Other recognised income/expense | Profit or Loss |
| - changes in fair value | Profit or Loss | Other recognised income/expense | Other recognised income/expense |
Approach 1 was reaffirmed as the preferred view by a majority of Board members. However, some Board members acknowledged that many constituents would not like the approach and 'that the world is not yet ready for it'.
No final decision was made but it was decided to include all three approaches in the DP. The approaches should then be discussed at a future meeting considering the responses received