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Normandin Beaudry

Amendments to accounting standards applicable to employee future benefits

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There, in black and white

NB Bulletin Vol. 16 N. 7, June 2013

The Accounting Standards Board (AcSB) recently approved the final standards on employee future benefits that apply to private enterprises (Part II of the Canadian Institute of Chartered Accountants (CICA) Handbook). Section 3461 will be replaced by Section 3462 for fiscal years beginning on or after January 1, 2014.

Private sector not-for-profit organizations applying Part III of the CICA Handbook will adopt the new Section 3462, with some adjustments to take into account their specific situation.

Understandability, comparability and transparency

The purpose of the amendments is to improve the understandability and transparency of financial information on defined benefit plans for financial statement users, thereby facilitating comparability with other enterprises.

The new standard is consistent with the amendments announced in the exposure draft issued in January 2012. These amendments were discussed in detail in our information bulletin published in February 2012 entitled Proposed amendments to accounting standards applicable to employee future benefits.

  • Elimination of the deferral and amortization approach that allowed for the deferred recognition of actuarial gains and losses and past service costs. With the immediate recognition approach that will now have to be used, the actual surplus/deficit position of the plan will be presented on the balance sheet.
  • Maintaining the choice between two types of valuations for the defined benefit obligation (“obligation”): the valuation for funding purposes or the valuation for accounting purposes. The chosen method must be applied consistently to the different plans and any change will be considered to be an amendment to the accounting policy.  
  • Elimination of the early measurement of plan assets and the obligation: going forward, enterprises will be required to measure plan assets and the obligation as of the balance sheet date.  
  • Changes to the cost components presented in the financial statements with three components to be included: current service cost for the period, finance cost and remeasurements and other items.
  • Using the discount rate to calculate the present value of the expected future benefit for the purpose of the limit on the carrying amount of an asset on the balance sheet.
  • Changes to financial statement disclosures: enterprises will be required to disclose the amount of remeasurements and other items, the date and type of the most recent valuation used to determine the obligation and any changes in the actuarial method used to determine this obligation.
     

Transition

New section 3462 will take effect on January 1, 2014; however, early adoption is permitted. The transition to new Section 3462 will be completed through the retrospective application of standards, in accordance with the rules set out in Section 1506, Accounting Changes. Enterprises will adjust results retroactively to plan inception and will immediately and directly recognize the adjustment in retained earnings for the year preceding the first application (without impacting net income). However, an exception is offered to simplify the transition in relation to the elimination of the early measurement provision.  

Comparison with international standards applicable to publicly accountable enterprises

New section 3462 will be more closely tied to the revised international accounting standards that took effect on January 1, 2013 (IAS 19 – Part I of the CICA Handbook). However, one significant difference will remain because, under Section 3462, actuarial gains and losses will be recognized in income, whereas, under IAS 19, gains and losses are recognized in other comprehensive income, without affecting the profit or loss. 

Comparison with standards applicable to not-for-profit organizations

Private sector not-for-profit organizations applying Part III will adopt new Section 3462 with the following adjustments to take into account their specific situation and the needs of users of their financial statements:

  • Recognition of variations associated with “remeasurements and other items” (including actuarial gains and losses) in a component of changes in net assets (on the balance sheet), without affecting the profit or loss.
  • Required disclosures similar to those under Section 3461 that applied before January 1, 2012 (Part V of the CICA Handbook).

The AcSB plans to issue in mid-2013 an exposure draft on accounting for employee future benefits by private sector not-for-profit organizations that will integrate the two adjustments listed above. This new version of Section 3462 of Part III should be published in time to allow for its adoption as of January 1, 2014.

 

Please feel free to contact us for additional information.

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