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By Paul Pacter, PhD, CPA, International Accounting Fellow, International Accounting Standards Committee

The International Accounting Standards Committee has recently published a new standard on employee benefits and its first-ever standard on interim financial reporting.

The employee benefits standard, in part, updates IASC's existing standard on pensions. It also ploughs new ground in the areas of other post-employment benefits and vacation accruals.

The rules on defined contribution pension and other post-employment plans have not changed: Contributions of a period should be recognized as expenses.

For defined benefit plans, the new standard requires the following:

  • Current service cost should be recognized as an expense.

  • All companies must use the projected unit credit method (an accrued benefit method) to measure their pension expense and pension obligation. Projected benefit methods may not be used.

  • The discount rate is the interest rate on high quality corporate bonds of maturity comparable to plan obligations.

  • Plan assets must be measured at fair value.

  • A net pension asset on the balance sheet may not exceed the present value of available refunds plus the available reduction in future contribution due to a plan surplus.

  • If the net cumulative unrecognized actuarial gains and losses exceed the greater of a) 10% of the present value of the plan obligation and b) 10% of the fair value of plan assets, that excess must be amortized over a period not longer than the estimated average remaining working lives of employees participating in the plan. Faster amortization, including immediate income recognition for all actuarial gains and losses, is permitted if an enterprise follows a consistent and systematic policy.

  • Past service cost should be recognized over the average period until the amended benefits become vested.

  • The effect of termination, curtailment, or settlement should be recognized when the event occurs.

The costs of other employee benefits, including vacations, holidays, accumulating sick pay, retiree medical and life insurance, etc. should be recognized on an accrual basis during the period of employee service. The revised IAS 19 is effective for periods beginning January 1, 1999.

IAS 34, the standard pertaining to interim financial reports, does not prescribe who should publish these reports or how frequently, leaving these decisions to regulatory authorities. The standard defines the minimum content for an interim financial report and establishes recognition and measurement principles.

The minimum content is four condensed, comparative financial statements--balance sheet, income statement, cash flow statement, and equity statement--plus selected explanatory notes updating the latest annual report. Under IAS 34, interim financial statements should follow the same accounting policies, including recognition and measurement principles, as the enterprise used in its latest annual financial statements. Measurements in interim financial statements should be made on a financial year-to-date basis. IAS 34 is effective January 1, 1999.

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