The IFRIC redeliberated its draft Interpretation D19 in the light of the comment letters received. The IFRIC decided to retain the fundamental approach in D19 subject to the changes and clarifications outlined below.
- The title and scope of the Interpretation will clarify that two often independent issues are being addressed: recognition and measurement of an asset subject to the asset ceiling test and the effect of minimum funding requirements (MFR).
- The Basis for Conclusions will include a fuller explanation of the rationale for recognising a liability in respect of contributions due under a minimum funding requirement which, once paid, will not be available to the entity. The IFRIC concluded that an obligation to make such contributions is analogous to an onerous contract, since the payments will give rise to no future economic benefits. Recognition of that obligation is therefore consistent with IAS 37 Provisions, Contingent Liabilities and Contingent Assets as well as with the Framework.
- The Interpretation will address all MFR obligations but no further guidance will be given in respect of whether an agreement with the Trustees or a similar non-statutory agreement would create such an obligation. It will be made clear, however, that MFR obligations do not include promises such as an undertaking in an employment contract to contribute a specified percentage of the employee’s remuneration for each year of service.
- No allowance should be made for expected changes in the terms and conditions of the MFR that are not substantively enacted at the balance sheet date or not yet contractually agreed.
- The Interpretation will state that an entity should recognise an asset as available as a refund only if it has a right to that refund.
- When the refund is a fixed nominal (or absolute) amount to be paid in the future, the entity should make an allowance for the time value of money using IAS 19 assumptions.
- Future minimum funding contributions payable should be determined using the MFR assumptions and incorporate the expected MFR funding level. All other amounts used in applying the Interpretation should be derived using the assumptions required in IAS 19. In this connection, the IFRIC concluded that, in the calculation of the asset available as a future contribution reduction, projections of demographic changes should be based on a stable membership, with retirements, deaths and leavers replaced by new entrants and with other assumptions consistent with those underlying the calculation of the defined benefit obligation under IAS 19.
- Application of the Interpretation will be required from the beginning of the first period presented rather than full retrospective application, since full retrospective application would be unduly onerous for entities to which paragraph 58A of IAS 19 applied and which opted for the corridor approach for the recognition of actuarial gains and losses.
A draft Interpretation with these and other editorial suggestions will be presented to the IFRIC at its next meeting.