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Proposed changes to IAS 19 disclosures

Pensions Corporate Consulting|Retirement
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March 29, 2021

The IASB is proposing major changes to the pensions disclosure requirements that are contained in employers’ financial statements.

On 25 March 2021 the International Accounting Standards Board (IASB) published an exposure draft proposing revisions to the disclosure requirements of IAS 19 Employee Benefits. The changes to the wording of the standard are substantial – involving a complete rewrite of the disclosure sections. If these changes are adopted, then scheme employers will need to undertake a total overhaul of the pensions note in their financial reports.

Following outreach with investors and other users of accounts, IASB is trying to address what it calls the ‘disclosure problem’: financial reports that do not contain enough relevant information, include too much irrelevant information and that fail to effectively communicate the information that is provided. IASB has therefore drafted guidance for itself on how to develop and draft the disclosure requirements in relation to a number of standards including this exposure draft.

For IAS 19 these changes are a further version of the changes that were introduced in 2011. Those earlier changes attempted to tailor pensions disclosure to each company by including some overarching disclosure objectives. However, those objectives were accompanied by a long list of mandatory disclosure items that helped preserve a checklist approach with ‘boilerplate’ disclosure wording often being used. The changes being proposed now alter the focus. The disclosure objectives are expanded while the list of mandatory disclosures is significantly pared back. Those preparing financial statements will benefit from lists of suggested non-mandatory items that can be used to help meet those disclosure objectives, along with some sample disclosure wording.

One benefit of removing most of the mandatory disclosures is the prospect of more concise reporting which may help to reduce compliance costs in the longer-term. However, IASB recognises that moving away from checklists will mean more judgement is needed. That will increase the level of input required from senior management and, at least initially, the costs of producing financial statements. Reporting entities are warned against simply repeating prior disclosures and to ensure they effectively meet the evolving needs of the users of financial statements.

The greater focus on information that users of accounts find helpful will, for example, lead to the disclosure of:

  • A quantitative ‘executive summary’ of the reporting entity’s pension plans that can be easily linked back to corresponding entries in the income statement and balance sheet.
  • The contributions a company expects to pay into schemes in future years (expanding on the existing requirements to disclose expected contributions for the following year and to disclose all agreed deficit contributions).
  • More information to help users of accounts understand the actuarial assumptions used to calculate the Defined Benefit Obligation (DBO). Suggestions include describing the approach to setting assumptions, explaining why they have changed, and whether other actuarial assumptions could have reasonably been used which would significantly change the disclosed DBO. These are put forward as being more useful to users of financial statements than the existing requirement to show the sensitivity of the DBO to changes in the key assumptions.

Disclosure requirements for defined contribution schemes are not significantly impacted but more disclosures will be required for other types of employee benefits and termination benefits.

Auditors and regulators will have to use their judgement in deciding whether the proposed disclosure requirements have been met. How these parties respond to the change will be key in determining whether a shift from mandatory checklist disclosures to primarily objectives-based disclosures can successfully address the ‘disclosure problem’ or just leads to more boilerplate wording.

The consultation on these proposed changes closes on 21 October 2021. If they are adopted by IASB, they would still need the approval of accounting standards endorsing bodies before they become effective. Since the start of 2021, the UK has its own endorsement body, leaving open the possibility of divergence between each of UK-approved IFRS, EU-approved IFRS and IFRS as published by the IASB.

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