Welcome to Financial Reporting Matters
In this edition we focus on the IASB's changes to employee benefit accounting. We look at the ASB's latest comments on the future of UK GAAP and the IASB's revenue recognition standard.
The headline changes to IAS 19 are not a surprise - for example the removal of the corridor option. The major change for most UK companies affects profit and loss. The current expected return on plan assets is replaced by a credit calculated at the liability discount rate. Expected returns for a typical pension plan portfolio can be around 1% higher than AA discount rates in current market conditions. This is expected to dent UK reported profits by around £10 billion (based on UK plc pension assets of around £1,000 billion). Extensive additional disclosures are introduced. Assessing the level of detail to be given and collating the information will require advance planning.
The ASB is reconsidering its proposals for the future of UK GAAP. Mandatory application of EU-adopted IFRSs will not be extended beyond current requirements (primarily the issue of listed debt or equity). The ASB also suggests it will permit or require certain accounting options that exist in current UK accounting standards. This may resolve some of the issues raised by some sectors, such as housing associations, in their responses to the initial proposals.
The IASB has reconsidered many of the proposals within the revenue recognition exposure draft (issued in June 2010) during recent meetings. The amended proposals will be re-exposed later in 2011. This will give interested parties an opportunity to comment on the changes.
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Andrew Vials, Senior Technical Partner