IASB clarifies IFRIC application

22 August 2007




In July 2007 the IFRIC issued an Interpretation, IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Since the release of the Interpretation the IFRIC has observed several press articles and statements by market commentators providing an inaccurate assessment of the effect of IFRIC 14. This document addresses the key issues that have been raised.

Whether and how IFRIC 14 applies to a particular entity will depend on the exact terms of the pension plan and the regulatory requirements in the relevant jurisdiction, and should be determined by reference to IFRIC 14 itself.

The Interpretation does not change the rules on funding. It also does not affect an entity's ability to get a refund.

An additional liability is recognised only if two conditions exist at the same time:

  • If the entity has a statutory or contractual obligation to pay additional amounts to the plan and
  • If the entity’s ability to recover those amounts in the future by refund or otherwise is restricted. In that case, the recognition of an additional liability reflects the economic reality.

    The Interpretation clarifies when a surplus in a pension plan can be recognised IFRIC 14 provides a clearer interpretation of the availability of a surplus than the original standard, IAS 19 Employee Benefits.

    The Interpretation ensures that the accounting for surpluses is consistent and transparent The Interpretation will ensure that any economic consequences of making contributions required by legislation or the terms of the plan will be treated in a transparent and consistent manner by all entities.

    IASB document

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