The International Financial Reporting Standards Interpretations Committee (IFRS IC) has instructed its staff to look again at the drafting of a proposal to amend its guidance on the so-called asset ceiling requirement.

That guidance is set out in IFRIC 14, “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”.

It interprets the requirements of International Accounting Standard 19 (IAS 19), Employee Benefits.

The issue is believed to be of particular relevance to plans in the UK. 

Summing up their approach to the issue, IFRS IC staff argued at a 13 May meeting that the committee should amend IFRIC 14 to clarify that a trustee’s “power to augment benefits, to wind up the plan or to buy annuities is not directly relevant to recognition of an asset”.

Under discussion by the committee is whether a defined benefit (DB) plan sponsor can recognise a right to access a plan surplus as a balance-sheet asset in circumstances where trustees can restrict in some way the sponsor’s right to that asset.

Aon Hewitt pensions-accounting specialist Simon Robinson told IPE that it was “the right to a refund at some point that is paramount”.

He added that uncertain future events not wholly within the control of the entity “could affect the amount of the surplus but do not affect the right to a refund of that surplus”.

Robinson added that he expected the committee to struggle to finalise the drafting of the amendment within the confines of IAS 19.

“Personally, I think it would be hard within IFRIC 14 – which is, after all, just an interpretation of IAS 19 rather than a standard in its own right – to change this approach,” he said.

Paragraph 64 of IAS 19 limits the net defined benefit asset an entity can recognise in its accounts to the lower of the plan surplus or the asset ceiling.

The standard goes on to define the asset ceiling as “the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan”.

And paragraphs 11 and 12 of IFRIC 14 clarify that a refund is available if the sponsor has “an unconditional right” to a refund. 

Earlier this year, the IFRS IC received a request to clarify whether the right of pension plan trustees to increase member benefits or wind up a plan affected an employer’s unconditional right to a refund of plan contributions.

Experts familiar with the issue noted that the problem had arisen because the IFRIC 14 deals with recognition of a refund rather than the measurement of the amount of refund to which an entity might ultimately be entitled. 

Speaking during the 13 May meeting, committee member Tony de Bell said: “What you need to think about is whether or not the trustees have the ability to say you can’t have the surplus. Because, if the trustees don’t have that ability, then I think you have the right to that surplus as it exists today.”

PwC’s audit partner noted that IAS 19 was about accounting for the surplus as it exists today, not what it might be at some stage in future.

The IFRS Interpretations Committee published IFRIC 14 in 2007.

The committee is responsible for interpreting the requirements of IFRSs. It can also recommend the IASB make an amendment to a standard to clarify its requirements.

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