The International Accounting Standards Board (IASB) voted unanimously at the beginning of the month to call a halt on plans to finalise its project to amend its guidance on the so-called asset-ceiling, International Financial Reporting Interpretations Committee 14, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction.

Summing up the mood around the meeting room, the board’s vice chair Sue Lloyd said staff should consider “how we might be able to proceed with a more principles-based approach to address the issue”.

Board members agreed instead with her proposal to “assess whether we think [the approach] is viable and is appropriate to pursue in the context of the other things that we’ve got on our plate”.

The IFRS Interpretations Commitee’s predecessor, IFRIC, published IFRIC 14 in 2007. Paragraph 58 of IAS 19 limits the measurement of a DB asset to the “present value of economic benefits available in the form” of refunds from the plan or reductions in future contributions to the plan.

IFRIC 14 deals with the interaction between a minimum funding requirement and the restriction in paragraph 58 on the measurement of the DB asset or liability.

Where a plan is in surplus, the sponsor recognises the lower of any surplus and the IAS 19 asset ceiling – that is, the economic benefits available to the sponsoring entity from the surplus.

The IFRS IC launched this project in 2014 after a constituent asked whether preparers should take account of events that might disrupt the plan unfolding in line with the IAS19 assumptions when they apply IFRIC 14.

An example would be the trustees of a DB scheme whose future actions could reduce the ability of a sponsor to recognise an asset – such as where the trustees can augment member benefits or wind up the plan and purchase annuities.

The committee issued an exposure draft detailing its proposals in June 2015. Constituents were broadly united in their criticism of the proposals. In July 2016, the IFRS IC said it planned to review its options for the project.

Subsequently, in 2018, the IASB decided to pause work on the effort until it had a clearer sense of how it wanted to progress its work on hybrid pension promises.

Meanwhile, the suggestion from staff to put the issue out for public comment as part of the board’s upcoming consultation on its future agenda attracted little support from board members.

IASB member Mary Tokar said she believed some preparers had applied a “very legalistic” approach to both the definition of an asset and to the IFRS notion of useful information for investors.

She added that she did not want to have to rely on the much wider-scope agenda consultation process as a precondition to dealing with the topic.

Lane Clark Peacock partner Tim Marklew told IPE: “The IASB have been struggling with this for some time, but there are no easy answers. In my view, this needs to be considered alongside a more comprehensive  review of IAS 19 rather than as a small incremental review of IFRIC 14.”

“The IASB have been struggling with this for some time, but there are no easy answers”

Tim Marklew, partner at LCP

He added: “The experience of the last five years of this project demonstrates that there is no easy solution to fixing the interpretation.”

Willis Towers Watson consultant actuary Andrew Mandley said: “Having waited so long to find out what the principles might be, all we discovered was that there was an example principle in the paper that hadn’t been explored with external stakeholders.”

He said “the principle seems to raise more questions than it answers. It will need some considered work to get this into a shape where it is fit for purpose and being applied consistently”.

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