The amended IAS 19 (Employees Benefits) will be effective for accounting periods beginning on or after January 1, 2013. Comparative figures need to be disclosed, thus, the prior period figures will also be affected. Actually, for those with accounting period coinciding with the calendar year, the December 31, 2011 figures will already be affected retroactively as these figures also represent the beginning of 2012.


It is best to be prepared for its possible impact or implications while there is still time to do something to mitigate the impact.


The elimination of deferred costs / incomes (transitional liability, past service cost and actuarial gains and losses) gives the most potentially significant impact. This means all unrecognized transitional liability, past service costs for those who just recently established or amended their retirement programs, and any unrecognized actuarial losses would have to be recognized.


Actuarial losses have grown to significant amounts given the continued decline in benchmark interest rates. Under the Corridor Approach which is the most commonly-used approach in recognizing actuarial gains and losses, only a small portion of the actuarial losses are recognized, thus a big part remains unrecognized.


What can be done then if there is a significant negative impact? Here are some recommendations: 

  • Do not make it worse by introducing benefit improvements or setting up a program without assessing the additional impact.
  • Revalidate actuarial assumptions. Some assumptions may be overly conservative.  Update employee turnover studies. Policy on salary increases may have to be changed too to allow for lower salary increase rate assumption.
  • Consider the timing of adoption (early adoption is permitted). If the projected increase in retained earnings is high in 2011, consider adopting it in 2011. Note that the impact would practically be on the equity portion of the balance sheet.


Another important implication is the one-time recognition of past service cost which will make it so much harder to establish a good retirement program or to improve the benefits of an existing program. Thus, it is recommended that plans be established early to avoid a huge past service cost. Each year that establishment of a program is delayed, the bigger the past service cost becomes and the chance of being able to establish a good one becomes lesser.


The year 2012 provides a slim window of opportunity for a good retirement program or improved retirement program to be implemented especially for those that see the difference between a retained earnings adjustment and an expense. We mean that if the program is established this year, the expense to be recognized will still be lower but will be adjusted retroactively in 2013 through retained earnings.


All won't be lost though. Program designs that produce minimal past service costs can be created. Such programs may not be as good however with those that were established without past service cost constraints.


To prepare clients for the possible impact of the Amended IAS 19, ActuarialExponents has included in its standard IAS 19 actuarial report the adjustment to be made to the liability recognized. Its consultants are also prepared to provide expert advice on retirement programs in light of the impending implementation of the amended standard.