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IASB Amends IAS 19 on Measuring Pension Expense on Plan Changes

26 February 2018

The International Accounting Standards Board (IASB) has issued Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). These amendments are narrow in scope and specify how companies must determine pension expenses upon changes to a defined benefit pension plan.

Companies account for defined benefit plans under International Accounting Standard (IAS) 19, Employee Benefits.When there is a change to a plan, whether an amendment, curtailment, or settlement, IAS 19 requires a company to remeasure the net defined benefit liability or asset.

Under the amendments, a company must use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the plan change. IAS 19, prior to these amendments, did not specify how to make this determination.

The IASB expects that the requirement to use updated assumptions will provide useful information to financial statements users.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019. Earlier application is permitted but must be disclosed.

A link to the amendments is available here.

FASB Provides Guidance on Stranded Income Tax Effects from Tax Act

The US Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides guidance for organisations to address certain stranded income tax effects in accumulated other comprehensive income (AOCI). These effects result from recently adopted US tax law changes, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Act).

Current US generally accepted accounting principles (GAAP) require deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates, with the effect included in income from continuing operations in the reporting period that includes the enactment date. This requirement applies even when the related income tax effects of items in accumulated other comprehensive income were originally recognised in other comprehensive income (rather than in income from continuing operations).

ASU 2018-02 provides entities with an option to reclassify from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act in each period in which the effect of the change in the US federal corporate income tax rate is recorded. Under these amendments, in the period of adoption, an entity must provide a description of the accounting policy for releasing income tax effects from AOCI and must disclose:

  • Whether the entity elects to reclassify the stranded income tax effects from the Tax Act
  • A description of the other income tax effects that are reclassified.

The amendments affect any organisation that is required to apply Topic 220 and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

The amendments apply to fiscal years beginning after 15 December 2018 and interim periods within those fiscal years. Early adoption is permitted. Organisations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the US federal corporate income tax rate in the Tax Act is recognised.

ASU 2018-02 is available here.

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