On 13 March 2019, Amendments to IAS 19 Plan Amendment, Cur¬tail¬ment or Set¬tle¬ment were endorsed by the European Commission for use in the European Union. The EU effective date is the same as the IASB’s effective date (annual periods beginning on or after 1 January 2019). Earlier adoption of Amendments to IAS 19 is permitted.
Amendments to IAS 19 were issued in February 2018. We informed you in detail about the new standard in the Accounting in March 2018. In today’s article, we will summarise key changes arising from Amendments to IAS 19.
IAS 19 Employee Benefits specifies how a company accounts for a defined benefit plan. When a change to a plan – an amendment, curtailment or settlement – takes place, IAS 19 requires a company to remeasure its net defined benefit liability or asset.
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) specifies how companies determine pension expenses when changes to a defined benefit pension plan occur.
The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the plan amendment (or curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in a surplus position). IAS 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognised in the normal manner in other comprehensive income.
The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset) have also been amended. An entity will now be required to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of the net interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the net defined benefit liability (asset) as remeasured under IAS 19.99 with the discount rate used in the remeasurement (also taking into account the effect of contributions and benefit payments on the net defined benefit liability (asset)).
Effective date and transition requirements
An entity applies the amendments 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. Early application is permitted but must be disclosed.
Amendments to IAS 19
The article is part of dReport – March 2019, Accounting news.