Disclosing Employee Benefi ts in 2013 Annual Financial Statements www.pwc.com/ca

www.pwc.com/ca
Disclosing Employee Benefits
in 2013 Annual Financial
Statements
October, 2013
This newsletter is one of a
series to illustrate and explain
significant new IFRS disclosure
requirements applicable
for 2013 annual financial
statements.
Other newsletters in the series
include:
Disclosing Fair Values in
Annual Financial Statements
— Applying IFRS 13
Disclosing Fair Values in
Annual Financial Statements—
Applying IFRS 13 to Investment
Properties (A supplement)
Offsetting of Financial
Instruments—Disclosure
in 2013 Annual Financial
Statements
Disclosing Interests in Other
Entities in 2013 Annual
Financial Statements
Canadian years starting in 2013, Canadian public companies have had to
adopt the revised IAS 19, Employee benefits (IAS 19R) in their 2013 interim
financial statements. One further challenge, however, remains – incorporating
the new disclosure requirements of this standard in 2013 annual financial
statements. Broadly speaking, under IAS 19R, companies will have to provide
more information about the nature and risks of their plans, reassess the details
and disaggregation that they’ve furnished in the past, and consider whether
information beyond minimum disclosure requirements is necessary to meet
new overarching disclosure objectives.
In this newsletter, we illustrate the key disclosure changes of IAS 19R for defined benefit
plans that a hypothetical company, Sample Co., might provide in its December 31, 2013
annual financial statements. The accompanying explanatory notes also highlight the
determinations and judgments that Sample Co. made in applying the new requirements.
We hope you will find this newsletter helpful. If you have any questions, please do not
hesitate to contact your local PwC representative or office.
Disclosing employee benefits in 2013 annual financial statements
Explanatory
Notes (EN)
/IFRS reference
Note X. Employee benefits
Commentary
This note illustrates the minimum disclosures required by IAS 19R in Sample Co.’s December 31, 2013
annual financial statements. Items highlighted in yellow represent the effect of new or amended
minimum requirements for annual periods, which are explained in the accompanying notes.
IAS 19R disclosure requirements are objective based and depend on an entity’s particular facts and
circumstances as well as judgment. As is clear in the explanatory notes, entities may find that providing
substantially more or less detail is necessary to comply with IAS 19R compared with their previous
disclosures. Accordingly, these illustrative disclosures should not be considered as providing a fixed
template or format for disclosures.
This example illustrates one possible format for the disclosures; there may be others.
Sample Co. operates various post-employment plans, including both defined benefit and defined
contribution pension plans and post-employment medical plans. The table below outlines where the Group’s
post-employment amounts and activity are included in the financial statements.
2013
IAS 1.113
IAS 1.113
$
3,684
1,410
$
1,900
701
Liability in the balance sheet
$
5,094
$
2,601
Analysed as follows:
Current
$
712
$
-
Non-current
Liability in the balance sheet
IAS 1.113
EN 2
EN 2
IAS 1.113
EN 2
EN 2
IAS 19R.138
EN 3
IAS 19R.136
.138 and
.139
PwC
2012
Balance sheet obligations for:
Defined pension benefits
Post-employment medical benefits
4,382
$
794
1,807
5,094
$
2,601
948
$
561
Income statement charge included in profit or loss for:
-
Defined pension benefits
-
Post-employment medical benefits
$
184
119
1,132
680
Remeasurements for:
-
Defined pension benefits
-
Post-employment medical benefits
$
(84)
$
717
(35)
193
(119)
910
(a) Defined benefit pension plans
The Group operates defined benefit pension plans in Canada and the US under broadly similar regulatory
frameworks. All of the plans are final salary pension plans, which provide benefits to members in the form of
a guaranteed level of pension payable for life. The level of benefits provided depends on members’ length of
service and their salary in the final years leading up to retirement. In the Canadian plans, pensions paid are
2
Disclosing employee benefits in 2013 annual financial statements
indexed with inflation, whereas in the US plans, pensions generally do not receive inflationary increases once
in payment. With the exception of this inflationary risk in Canada, the plans face broadly similar risks, as
described below. The majority of benefit payments are from trustee-administered funds; however, there are
also a number of unfunded plans where the Group meets the benefit payment obligation as it falls due. Plan
assets held in trusts are governed by local regulations and practice in each country. Responsibility for
governance of the plans – overseeing all aspects of the plans including investment decisions and contribution
schedules – lies with the Group. The Group has set up pension committees to assist in the management of the
plans and has also appointed experienced, independent professional experts such as investment managers,
actuaries, custodians and trustees.
IAS 19R.140
(a) and .141
(a-h)
The movement in the defined benefit obligation and fair value of plan assets of pension plans over the year is
as follows:
At 1 January 2012
EN 5
EN 5
(2,264)
$ 1,215
$
Fair value
of plan
assets
$
$
3,479
120
Total
$ 1,335
Current service cost
498
–
498
–
498
Interest expense/(income)
214
(156)
58
5
63
Impact on profit or loss
712
(156)
556
5
561
–
(85)
(85)
–
(85)
20
–
20
–
20
61
641
–
–
61
641
–
–
61
641
–
–
–
80
80
Remeasurements:
Return on plan assets, excluding
amounts included in interest
expense/(income)
(Gain)/loss from change in
demographic assumptions
-
(Gain)/loss from change in financial
assumptions
-
Experience (gains)/losses
-
Change in asset ceiling, excluding
amounts included in interest expense
Impact of remeasurements on other
comprehensive income
Exchange differences
Contributions:
Employers
-
Plan participants
Payments from plans:
Benefit payments
722
(85)
637
80
717
(324)
22
(302)
–
(302)
–
(411)
(411)
–
(411)
30
(30)
–
–
–
127
–
–
–
At 31 December 2012
$
4,492
(127)
$
(2,797)
$ 1,695
$
205
$ 1,900
At 1 January 2013
$
4,492
$
$
205
$ 1,900
(2,797)
$ 1,695
Current service cost
751
–
751
–
751
Interest expense/(income)
431
(308)
123
9
132
Past service cost and gains and losses on
settlements(a)
Impact on profit or loss
PwC
Total
Impact of
minimum funding
requirement/asset
ceiling
Present
value of
obligation
65
$
1,247
–
$
(308)
65
$
939
$
–
65
9
$ 948
3
Disclosing employee benefits in 2013 annual financial statements
EN 5
EN 5
Remeasurements:
Return on plan assets, excluding
amounts included in interest
expense/(income)
(Gain)/loss from change in
demographic assumptions
(Gain)/loss from change in financial
assumptions
Experience (gains)/losses
-
Present
value of
obligation
Fair value
of plan
assets
$
$
–
$
–
$ (187)
–
32
121
(150)
–
–
121
(150)
–
–
121
(150)
–
–
–
3
$
100
(187)
$ (184)
100
$ (84)
(61)
(25)
(86)
–
(86)
–
(908)
(908)
–
(908)
55
(55)
–
–
–
Plan participants
$
100
Payments from plans:
Benefit payments
(566)
566
–
–
–
Settlements(a)
(280)
280
–
–
–
-
Acquired in business combination
(note x)
3,691
At 31 December 2013
IAS 19R.139
(c)
(187)
32
Contributions:
Employers
-
$
Total
–
$
Exchange differences
Total
32
Change in asset ceiling, excluding
amounts included in interest expense
Impact of remeasurements on other
comprehensive income
(187)
Impact of
minimum funding
requirement/asset
ceiling
$
8,581
$
(1,777)
1,914
(5,211)
$ 3,370
$
–
1,914
314
$3,684
(a) In connection with the closure of a factory, a curtailment loss was incurred and a settlement arrangement agreed
with the plan trustees, effective December 30, 2013, which settled all retirement benefit plan obligations relating
to the employees of that factory.
IAS 19R.141
(c) (iv)
One of the plans has a surplus that is not recognised on the basis that future economic benefits are not
available to the entity in the form of a reduction in future contributions or a cash refund.
EN 2
IAS 19R.138
The defined benefit obligation and plan assets are composed by country as follows:
2013
Canada
Present value of funded
obligations
Fair value of plan assets
Deficit/(surplus) of funded
plans
Impact of minimum
funding requirement/asset
ceiling
Present value of unfunded
obligations
Total
PwC
US
$ 3,843
$ 2,191
$(2,674) $(2,102)
2012
Others
Total
Canada
US
Others
Total
$ 121
$(435)
$ 6,155
$(5,211)
$ 2,962
$(2,018)
$475
$(394)
$ 180
$(385)
$ 3,617
$(2,797)
$1,169
$89
$ (314)
$944
$944
$81
$(205)
$820
–
–
$314
$314
–
–
$205
$205
–
$2,024
$402
$2,426
–
$575
$300
$875
$ 1,169
$ 2,113
$402
$ 3,684
$ 944
$656
$ 300
$ 1,900
4
Disclosing employee benefits in 2013 annual financial statements
EN 2
IAS 19R.144
The significant actuarial assumptions are as follows:
2013
Discount rate
Salary growth rate
Pension growth rate
EN 5
2012
Canada
US
Canada
US
4.7%
4.0%
2.5%
4.5%
4.5%
0.0%
4.3%
4.5%
2.5%
4.1%
4.0%
0.0%
Assumptions regarding future mortality are set based on actuarial advice in accordance with published
statistics and experience in each territory. These assumptions translate into an average life expectancy in
years for a pensioner retiring at age 65:
2013
EN 6
IAS 19R.145
(a)
2012
Canada
US
Canada
US
Retiring at the end of the reporting period:
Male
Female
22
25
20
24
22
25
20
24
Retiring 20 years after the end
of the reporting period:
Male
Female
24
27
23
26
24
27
23
26
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on
each plan of a change in an assumption are weighted proportionately to the total plan obligations to
determine the total impact for each assumption presented.
Impact on defined benefit obligation
Discount rate
Salary growth rate
Pension growth rate
Life expectancy
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.50%
0.50%
0.50%
Decrease by 8.2%
Increase by 1.8%
Increase by 4.7%
Increase by 9.0%
Decrease by 1.7%
Decrease by 4.4%
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
Increase by 2.8%
Decrease by 2.9%
IAS 19R.138
(b) Post-employment medical benefit plans
EN 2
IAS 19R.136
.138 and
.139
The Group operates a number of post-employment medical benefit plans, principally in the US, which
provides coverage for hospitalisation and drugs to eligible retirees. The majority of these plans are unfunded.
The amounts recognized in the balance sheet are determined as follows:
2013
Present value of funded obligations
Fair value of plan assets
$
Deficit of funded plans
Present value of unfunded obligations
Liability in the balance sheet
PwC
705
(605)
2012
$
100
1,310
$
1,410
340
(294)
46
655
$
701
5
Disclosing employee benefits in 2013 annual financial statements
IAS 19R.140
(a) and .141
(a-h)
The movement in the net defined benefit obligation for post-employment medical benefits over the year is as
follows:
Present value of
obligation
At 1 January 2012
$
Current service cost
Interest expense/(income)
Impact on profit or loss
EN 5
EN 5
$
$
Exchange differences
Contributions/premiums paid:
Employers
$
(13)
107
12
$
119
–
(11)
(11)
3
–
3
7
194
–
–
7
194
204
$
(11)
$
193
(31)
2
(29)
(10)
(73)
(83)
(8)
8
–
(294)
701
$
$
$
Exchange differences
Contributions/premiums paid:
Employers
Payments from plans:
Benefit payments
Acquired in a business combination (note x)
At 31 December 2013
995
$
(294)
153
49
Remeasurements:
Return on plan assets, excluding amounts
included in interest expense/(income)
(Gain)/loss from change in demographic
assumptions
(Gain)/loss from change in financial
assumptions
Experience (gains)/losses
Impact of remeasurements on other
comprehensive income
PwC
501
–
(13)
995
Impact on profit or loss
IAS 19R.144
132
Total
$
At 31 December 2012
Current service cost
Interest expense/(income)
EN 5
(207)
Payments from plans:
Benefit payments
At 1 January 2013
EN 5
$
107
25
Remeasurements:
Return on plan assets, excluding amounts
included in interest expense/(income)
(Gain)/loss from change in demographic
assumptions
(Gain)/loss from change in financial
assumptions
Experience (gains)/losses
Impact of remeasurements on other
comprehensive income
708
Fair value of
plan assets
$
202
$
701
–
(18)
$
(18)
153
31
$
184
–
(33)
(33)
4
–
4
10
(16)
–
–
10
(16)
(2)
$
(33)
$
(35)
37
(5)
32
(12)
(185)
(197)
(7)
802
7
(77)
–
725
2,015
$
(605)
$
1,410
The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of
valuations for post-employment medical benefits are similar to those used for defined benefit pension plans,
with the addition of actuarial assumptions relating to the long-term increase in healthcare costs 8.0% a year
(2012: 7.6%) and claim rates of 6% (2012: 5.2%).
6
Disclosing employee benefits in 2013 annual financial statements
EN 6
IAS 19R.145
(a)
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on
each plan of a change in an assumption are weighted proportionately to the total plan obligations to
determine the total impact for each assumption presented.
Impact on post-employment medical benefit obligation
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.50%
0.80%
0.60%
Decrease by 9.0%
Increase by 10.5%
Increase by 8.3%
Increase by 10.1%
Decrease by 9.8%
Decrease by 8.1%
Discount rate
Healthcare cost increase
Claim rate
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
Increase by 3.0%
Decrease by 3.1%
Life expectancy
(c) Post-employment benefit plans (pension and medical)
IAS 19R.142
and .139(b)
EN 2 – 4
Plan assets, majority of which are funding the Group’s defined pension plans, are comprised as follows:
2012
2013
Quoted
Equity instruments
Information
technology
Energy
Manufacturing
Other
Debt instruments
Government
Corporate bonds
(Investment grade)
Corporate bonds
(Non-investment
grade)
Property
In US
In Canada
Qualifying insurance
policies
Cash and cash equivalents
Investment funds
Total
IAS 19R.143
PwC
Unquoted
Total
$1,824
$ 502
557
746
–
$
–
–
–
19
916
–
502
557
746
19
$2,161
916
900
–
68
in %
Quoted
Unquoted
31%
Total
$1,216
$ 994
–
194
–
$
–
–
–
28
in %
39%
321
–
994
–
194
28
$ 571
321
900
99
–
99
277
345
41
110
151
–
–
697
246
$ 943
697
246
31%
800
247
$1,047
800
247
18%
–
–
–
177
111
496
–
–
$496
$ 177
$ 111
9%
3%
2%
–
94
77
190
–
–
$ 190
$ 94
$ 77
6%
3%
3%
$3,977
$1,839
$5,816
100%
$1,820
$1,271
$3,091
100%
37%
18%
Pension and medical plan assets include the Sample Co.’s ordinary shares with a fair value of $136
(2012: $126) and US real estate occupied by the Group with a fair value of $612 (2012: $609).
7
Disclosing employee benefits in 2013 annual financial statements
EN 3
IAS 19R.139
(b)
Through its defined benefit plans, the Group is exposed to a number of risks, the most significant of which
are detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with
reference to corporate bond yields; if plan assets underperform
this yield, this will create a deficit. Both the Canada and US plans
hold a significant proportion of equities, which are expected to
outperform corporate bonds in the long-term while contributing
volatility and risk in the short-term.
As the plans mature, the Group intends to reduce the level of
investment risk by investing more in assets that better match the
liabilities. The first stage of this process was completed in 2013
with the sale of a number of equity holdings and purchase of a
mixture of government and corporate bonds. The government
bonds represent investments in Canada and US government
securities only. The corporate bonds are global securities with an
emphasis on Canada and US.
However, the Group believes that due to the long-term nature of
the plan liabilities and the strength of the supporting group, a
level of continuing equity investment is an appropriate element of
the Group’s long-term strategy to manage the plans efficiently.
See below for more details on the Group’s asset-liability matching
strategy.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities,
although this will be partially offset by an increase in the value of
the plans’ bond holdings.
Inflation risk
The majority of the plans’ benefit obligations are linked to
inflation, and higher inflation will lead to higher liabilities
(although, in most cases, caps on the level of inflationary increases
are in place to protect the plan against extreme inflation). The
majority of the plan’s assets are either unaffected by (fixed
interest bonds) or loosely correlated with (equities) inflation,
meaning that an increase in inflation will also increase the deficit.
In the US plans, the pensions paid are not linked to inflation, so
this is a less material risk.
Life expectancy
PwC
The majority of the plans’ obligations are to provide benefits for
the life of the member, so increases in life expectancy will result in
an increase in the plans’ liabilities. This is particularly significant
in the Canadian plan, where inflationary increases result in higher
sensitivity to changes in life expectancy.
8
Disclosing employee benefits in 2013 annual financial statements
EN 6
IAS 19R.145
(b)
Each sensitivity analysis disclosed in this note is based on changing one assumption while holding all other
assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be
correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant
actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the
projected unit credit method at the end of the reporting period) has been applied as for calculating the
liability recognised in the statement of financial position.
EN 7
IAS 19R.146
In case of the funded plans, the Group ensures that the investment positions are managed within an assetliability matching (ALM) framework that has been developed to achieve long-term investments that are in
line with the obligations under the pension plans. Within this framework, the Group’s ALM objective is to
match assets to the pension obligations by investing in long-term fixed interest securities with maturities that
match the benefit payments as they fall due and in the appropriate currency. The Group actively monitors
how the duration and the expected yield of the investments are matching the expected cash outflows arising
from the pension obligations. The Group has not changed the processes used to manage its risks from
previous periods. The Group does not use derivatives to manage its risk. Investments are well diversified,
such that the failure of any single investment would not have a material impact on the overall level of assets.
A large portion of assets in 2013 consists of equities and bonds, although the Group also invests in property,
bonds, cash and investment (hedge) funds. The Group believes that equities offer the best returns over the
long-term with an acceptable level of risk. The majority of equities are in a globally diversified portfolio of
international blue chip entities. The plans are not exposed to significant foreign currency risk.
EN 8
IAS 19R.147
(a-b)
As at January 1, 2012, the aggregate solvency deficit in the Group’s funded pension plans (mostly in Canada)
amounted to $500. The Group will make special payments for past service of $125 to fund the Canadian
pension plan deficit over five years. Current agreed service contributions is 14% of pensionable salaries in
Canada and 12% in the US, and continue to be made in the normal course. Total expected contributions to
post-employment benefit plans for the year ending December 31, 2014 (including the past service
contributions) are $1,150.
The next triennial valuation for Canadian plans is due to be completed as at January 1, 2015. The US plans
are valued on an annual basis.
EN 8
IAS 19R.147
(c)
The weighted average duration of the defined benefit obligation is 20.2 years (2012: 19.7 years).
EN 8
IAS 19R.147
(c)
Expected maturity analysis of undiscounted pension and post-employment medical benefits:
Less than a
year
Between 25 years
Over 5
years
Total
Pension benefits
Post-employment medical benefits
$
628
127
$
927
174
$
2,004
714
$
21,947
4,975
$
25,506
5,990
At 31 December 2013
$
755
$
1,101
$
2,718
$
26,922
$
31,496
Pension benefits
Post-employment medical benefits
At 31 December 2012
PwC
Between 12 years
685
153
$
838
777
198
$
975
899
201
$
1,100
9,652
1,498
$
11,150
12,013
2,050
$
14,063
9
Disclosing employee benefits in 2013 annual financial statements
Change
Discussion
1.
The previous version of IAS 19 gave rise to the following concerns about their efficacy:
Overview of key
changes to IAS 19R
disclosure
requirements
(a) the disclosures did not highlight risks associated with liabilities and assets arising from
defined benefit plans;
(b) the volume of disclosures about defined benefit plans in many financial statements risked
reducing understandability and usefulness by obscuring important information,
particularly for multinational entities with varied plans in different jurisdictions.
IAS 19R therefore introduces more explicit objectives for disclosures about defined benefit
plans that entities must consider in applying the disclosure requirements. These are discussed
in EN2 below.
2.
Stand back
assessment of the
adequacy of
disclosures
(IAS 19R.135-.138)
From 2013, entities must disclose information that:
(a) explains the characteristics of its defined benefit plans and risks associated with them;
(b) identifies and explains the amounts in its financial statements arising from its defined
benefit plans; and
(c) describes how its defined benefit plans may affect the amount, timing and uncertainty of
the entity's future cash flows.
To meet these disclosure objectives, an entity must assess the following:
(a) the level of detail necessary to satisfy the disclosure requirements;
(b) how much emphasis to place on each of the various requirements;
(c) how much aggregation or disaggregation to undertake; and
(d) whether users of financial statements need additional information to evaluate the
quantitative information disclosed.
If the disclosures provided in accordance with the minimum requirements in this Standard and
other IFRSs are insufficient to meet these objectives, an entity must disclose additional
information. IAS 19R gives, as an example of such additional information, an analysis of the
present value of the defined benefit obligation that distinguishes between amounts owing to
active members, deferred members, and pensioners; between amounts for vested benefits and
accrued but not vested benefits; and, between conditional benefits, amounts attributable to
future salary increases and other benefits.
IAS 19R also provides examples of plans that may have materially different risks requiring
disaggregated disclosures: different geographical locations; different characteristics (e.g., flat
salary pension plans, final salary pension plans or post-employment medical plans); different
regulatory environments; different reporting segments; different funding arrangements (e.g.,
wholly unfunded, wholly or partly funded).
Sample Co. applied its judgment in determining the extent of disclosures to
provide in complying with the minimum disclosure requirements of IAS 19R,
including the level of disaggregation and additional information required for
groups of plans with materially different characteristics and risks. Some of the
PwC
10
Disclosing employee benefits in 2013 annual financial statements
Change
Discussion
decisions Sample Co. made in applying the IAS 19R disclosure objectives are as
follows:
(a) Information on defined benefit obligations and plan assets for pension plans
(section (a) of the illustration) is presented separately from similar
information for post-employment medical benefits (section (b)).
(b) Defined pension and post-employment medical obligations are analysed
between funded and unfunded obligations by territory, but the
reconciliation for funded and unfunded obligations is provided for both
types of plans in aggregate.
(c) The defined pension obligation, its significant actuarial assumptions and
plan assets are analysed by major territory. Geographical analysis is not
presented for post-employment medical benefits as the plans are principally
in one territory.
(d) Details of the nature of benefits provided by the post-employment medical
plan are not further explained.
(e) Plan assets disclosure in section (c) is not analysed into those relating to
pension and post-employment medical benefits because in Sample Co.’s
view, majority of the plan assets are to fund the defined pension plans, and
this fact is disclosed.
(f) Sample Co. has also determined that explaining the amounts in the financial
statements requires the presentation of certain additional information not
specifically required by IAS 19R; e.g., an analysis of where amounts and
activities are presented on the balance sheet.
Sample Co.’s disclosure decisions highlight that it is no longer appropriate to
take a “cookie cutter” or “checklist” approach to assessing the adequacy of the
IAS 19R disclosures. We would expect that entities applying IAS 19R often will
come to significantly different decisions than Sample Co. because of differences
in circumstances and judgments.
The new minimum disclosure requirements of IAS 19R are discussed further
below.
PwC
11
Disclosing employee benefits in 2013 annual financial statements
Change
Discussion
3.
In 2012, an entity was required to provide only a general description of the types of its defined
benefit plans. In 2013, disclosures are expanded to require:
Characteristics of
defined benefit plans
and risks associated
with them
(IAS 19R.139(a) and
(b))
(a) the nature of the benefits provided by the plan (e.g., final salary defined benefit plan or
contribution-based plan with guarantee);
(b) a description of the regulatory framework in which the plan operates, for example the level
of any minimum funding requirements, and any effect of the regulatory framework on the
plan, such as the asset ceiling; and
(c) a description of any other entity's responsibilities for the governance of the plan, for
example, responsibilities of trustees or of board members of the plan.
In addition, in 2013, an entity must include a description of the risks to which a plan exposes
the entity, focusing on any unusual, entity-specific or plan-specific risks, and of any significant
concentrations of risk. For example, if plan assets are invested primarily in one class of
investments, e.g., property, the plan may expose the entity to a concentration of property
market risk.
4.
Explanation of
amounts in the
financial statements
– plan assets
(IAS 19R.142 and
.139(b))
In 2012, an entity disclosed each major category of assets. In 2013, IAS 19R establishes a
principle for disaggregating plan assets into classes rather than listing the categories required.
Classes must distinguish assets with different natures and risks. Further, assets that have a
quoted market price in an active market are distinguished from those that do not, providing an
indication of liquidity of the assets.
IAS 19R gives, as examples, the following as possible classes:
(a) cash and cash equivalents;
(b) equity instruments (segregated by industry type, company size, geography, etc.);
(c) debt instruments (segregated by type of issuer, credit quality, geography, etc.);
(d) real estate (segregated by geography, etc.);
(e) derivatives (segregated by type of underlying risk in the contract, for example, interest rate
contracts, foreign exchange contracts, equity contracts, credit contracts, longevity swaps,
etc.);
(f) investment funds (segregated by type of fund);
(g) asset-backed securities; and
(h) structured debt.
5.
PwC
Explanation of
amounts in the
financial statements
– significant actuarial
assumptions
(IAS 19R.144 and
.141(c))
IAS 19R replaces the previous mandatory list of actuarial assumptions with a requirement to
disclose the significant actuarial assumptions used to determine the present value of the
defined benefit obligation. Entities must apply judgment in making this determination.
In addition, IAS 19R requires entities to disclose the effect of changes in demographic
assumptions separately from the effect of changes in financial assumptions in each of the
reconciliations of opening balance to closing balance for plan assets, present value of defined
benefit obligation, and the effect of the asset ceiling.
12
Disclosing employee benefits in 2013 annual financial statements
Change
Discussion
6.
In 2012, an entity disclosed the effect of an increase of one percentage point and the effect of a
decrease in one percentage point in the assumed medical cost trend rates. In 2013, an entity
shall disclose:
Amount, timing and
uncertainty of future
cash flows – methods
and assumptions
(IAS 19R.145)
(a) a sensitivity analysis for each significant actuarial assumption (as disclosed under IAS
19R.144) as of the end of the reporting period, showing how the defined benefit obligation
would have been affected by changes in the relevant actuarial assumption that were
reasonably possible at that date.
(b) the methods and assumptions used in preparing the sensitivity analyses required by (a)
and the limitations of those methods.
(c) changes from the previous period in the methods and assumptions used in preparing the
sensitivity analyses, and the reasons for such changes.
7.
Amount, timing and
uncertainty of future
cash flows –
strategies
(IAS 19R.146)
8. Amount, timing and
uncertainty of future
cash flows –
strategies
(IAS 19R.147)
New under IAS 19R, an entity shall disclose a description of any asset-liability matching
strategies used by the plan or the entity, including the use of annuities and other techniques,
such as longevity swaps, to manage risk.
Expected contribution to the plan for the next annual reporting period continues to be a
required disclosure under IAS 19R. In addition, to provide an indication of the effect of the
defined benefit plan on the entity's future cash flows, an entity discloses:
(a) a description of any funding arrangements and funding policy that affect future
contributions.
(b) information about the maturity profile of the defined benefit obligation. This will include
the weighted average duration of the defined benefit obligation and may include other
information about the distribution of the timing of benefit payments, such as a maturity
analysis of the benefit payments.
9.
Comparative
information
(IAS 19R.173)
The transition guidance to IAS 19R requires retrospective application of the amended standard.
This means that the new disclosure requirements in IAS 19R must be made for the comparative
period as well as the current period, with one exception. As noted in EN 6, comparative
disclosures over the sensitivity of the defined benefit obligation need not be made in 2013
annual financial statements.
10. Other disclosure
changes not
illustrated in this
newsletter
The following disclosures are not illustrated as they are not applicable to Sample Co.:
11. Disclosures no longer
required under IAS
19R
Entities no longer have to disclose a 5-year table of information (current annual period and
previous four annual periods) for defined benefit plan assets and liabilities.
PwC
(a) Multi-employer defined benefit plan. (IAS 19R.148)
(b) Defined benefit plan that share risks between entities under common control. (IAS
19R.149-.150)
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