The body responsible for advising the EU on accounting issues has given the green light to proposed changes to defined benefit (DB) plans’ accounting rules.
The changes to IAS 19 mean that, with effect from 1 January 2019, companies will have to account for the effect of changes to a defined benefit plan in the current year by using updated assumptions to remeasure current service cost and net interest to the year-end.
Earlier this year, experts warned the changes could make income statements more volatile by increasing interest cost to the year end by as much as 10% on some estimates.
In a letter addressed to the European Commission, the European Financial Reporting Advisory Group (EFRAG) said the changes met “the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship”.
The endorsement letter added that the changes also satisfied the requirement for prudence under EU law, provided a true and fair view of an entity’s financial position, and were “conducive to the European public good”.
The changes have proven to be controversial and represent a potentially major departure from current practice.
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EFRAG letter
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