Pensions and other employee benefits

Pensions and other employee benefits

Typical coverage of US GAAP
Defined contribution plans Defined benefit plans Accounting for defined benefit plan: Measurement of pension liability Recognition of net funded status Pension expense components: Service costs Interest costs Actual return on plan assets Prior service costs Actuarial gain or loss Other: Terminations Settlements Curtailments Other postemployment benefit obligations (OPEBs): Measurement of the liability Recognition of net funded status OPEB expense components Service costs Interest costs Actual return on plan assets Prior service costs Actuarial gain or loss Financial statement reporting and disclosure Other: Terminations Settlements Curtailments Postretirement benefit obligations (OPEBs): Measurement of the liability Recognition of net funded status OPEB expense components: Service costs Interest costs Actual return on plan assets Amortization of prior service costs Actuarial gain or loss: Corridor approach Amortization methods Financial statement reporting and disclosure

Executive summary The concept, characteristics and accounting for defined contribution plans are similar under IFRS and US GAAP. IFRS recognizes a liability equal to the present value of the defined benefit obligation, plus or minus any unrecognized actuarial gains and losses, minus unrecognized prior service costs, minus the fair value of any plan assets. Under US GAAP, the liability equals the present value of the defined benefit obligation minus the fair value of any plan assets. If actuarial gains and losses are recognized as they occur, US GAAP requires the effect to be presented in the income statement, while IFRS allows the option to present the effect in either the income statement or in other comprehensive income. The OPEB liability under US GAAP is based on the accumulated postretirement benefit obligation (APBO), whereas IFRS measures the liability based on the present value of the defined projected benefit obligation (PVDBO). The difference is that the PVDBO considers future compensation levels and the APBO does not.

Primary pronouncements
US GAAP ASC 712, Compensation – Nonretirement Postemployment Benefits ASC 715, Compensation – Retirement Benefits IFRS IAS 19, Employee Benefits IFRIC 14, IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction

Progress on convergence
The Boards have agreed to a long-term convergence project to comprehensively challenge the accounting for postretirement benefits. The IASB issued an ED in April 2010, Defined Benefit Plans, with comments due September 6, 2010. The ED suggests only targeted improvement to expense recognition (e.g., the corridor approach would not be allowed), presentation and disclosure. A more comprehensive review of employee benefit accounting might be conducted after mid-2011. The FASB is currently monitoring the work of the IASB to determine its next steps.

Defined contribution plans
US GAAP IFRS The concept and characteristics of a defined contribution plan are similar.

The concept and characteristics of a defined benefit plan are similar.
Defined benefit plans US GAAP IFRS The concept and characteristics of a defined benefit plan are similar.

Accounting for defined benefit plans Measurement of pension liability
US GAAP IFRS Liabilities and costs for employee benefits generally are recognized in the period when the service is rendered. Similar Measurement of a defined benefit obligation generally includes, when applicable, estimated salary increases. The defined benefit obligation is the present value of benefits that have accrued to employees through services rendered to date, based on actuarial methods of calculation. US GAAP refers to this as the accrued projected benefit obligation (APBO). Similar, although the defined benefit obligation is referred to as the PVDBO.

Accounting for defined benefit plans Measurement of pension liability
US GAAP IFRS For final-pay and career-average-pay plans, the projected-unit-credit method is used to calculate pension liabilities, which considers future compensation levels. Similar, although this method is used for all plans.

Accounting for defined benefit plans Recognition of net funded status
US GAAP IFRS The recognition of the overfunded (asset) or underfunded (liability) status on the balance sheet is required. Similar

Accounting for defined benefit plans Recognition of net funded status
US GAAP The over/underfunded status of the plan is calculated as the difference between the fair value of the plan assets and the APBO. Any unrecognized actuarial gains/losses and past service costs must be recognized in OCI. IFRS The over/underfunded status of the plan is calculated as follows: If underfunded, a liability must be recognized equal to the PVBO plus or minus any unrecognized actuarial gains and losses, minus unrecognized prior service costs, minus the fair value of any plan assets. If overfunded, the asset is subject to a ceiling test and IFRIC 14.

Over/underfunded plan status calculation – pension plan example
The Kissel Trucking Company, Inc. (Kissel), based in Phoenix, has a defined benefit plan for its employees. At December 31, 2010, the following information is available regarding Kissel’s plan: Fair value of plan assets $12,000,000 Present value of defined benefit obligation 15,000,000 Interest costs ,000 Net unrecognized actuarial gains ,000 Recognized actuarial gains ,000 Unrecognized past service costs – nonvested ,000 Determine what Kissel will record on the balance sheet as of December 31, 2010 for this plan under both US GAAP and IFRS.

Over/underfunded plan status calculation – pension example
Example 1 solution: US GAAP IFRS Present value of defined benefit obligation $15,000,000 Fair value of plan assets 12,000,000 Underfunded status of plan 3,000,000 Net unrecognized actuarial gains (losses) – 240,000 Unrecognized past service costs – nonvested (175,000) Defined benefit liability $3,000,000 $3,065,000

Accounting for defined benefit plans Pension expense components – service costs
US GAAP IFRS Service cost is included in pension expense and is due to the services rendered during the current period. Similar

Accounting for defined benefit plans Pension expense components – interest costs
US GAAP IFRS Interest costs are included in pension expense and are based on an interest charge on the pension liability. Similar

Accounting for defined benefit plans Pension expense components – actual return on plant assets
US GAAP IFRS The expected return on plan assets in included as a reduction of the pension expense. Note that US GAAP refers to the actual return on plan assets as the amount that is used to adjust the pension expense. However, the expected return on plan assets is the amount actually used to compute pension expense as an adjustment is recorded for the difference between the actual return on expected return as an “unexpected loss or gain.” Similar

Accounting for defined benefit plans Pension expense components – prior service costs
US GAAP IFRS The amortization of prior service costs is included in pension expense. Similar

Accounting for defined benefit plans Pension expense components – prior service costs
US GAAP Prior service costs are initially deferred and recorded in OCI. The amortization is recorded under a years-of-service approach although the straight-line method is an alternative. The amortization period is dependent upon the employee group: IFRS Prior service costs for vested benefits may not be deferred and must be recognized in pension expense immediately. However, prior service costs for unvested benefits are deferred and amortized on a straight-line basis over the average remaining vesting period. For active employees, the amortization period is over average remaining service lives of these employees. For inactive or retired employees, the amortization period is over the average remaining life expectancy of these employees.

Amortization period for prior service costs example
On January 1, 2010, the Banks Company, Inc. (BCI), based in Seattle, made amendments to its defined benefit plan, resulting in $150,000 of prior service costs. The plan has 100 active employees of which 60 are vested and the remaining 40 will be vested in three years. The majority of the employees are active. BCI’s accounting policy is to amortize prior service costs over the average remaining service period using a straight-line basis for US GAAP. BCI has determined the following information regarding the prior service costs: Unrecognized prior service costs applicable to: Vested employees $ 90,000 Unvested employees ,000 Total unrecognized prior service costs $150,000 Future service years of employees expected to receive benefits: 650 years Determine the amortization of the prior service costs under US GAAP and IFRS.

Year Beginning of year balance Amortization (1) End of year balance One $150,000 $23,077 $126,923 Two $103,846 Three $ 80,769 Four $ 80,768 $ 57,692 Five $ 34,615 Six $ 11,538 Seven $11,538 $ – Example 2 solution: US GAAP: (1) Annual amortization — 650 years/100 employees = 6.5 years; $150,000/6.5 = $23,077 Prior service costs are recognized on a straight line basis over the average remaining service period.

IFRS: (2) Prior service costs for vested employees are recognized immediately and for unvested employees, amortization is recognized over the three years until vested. Amortization (2) Year Beginning of year balance Vested Unvested End of year balance One $150,000 $90,000 $20,000 $40,000 Two $ 40,000 $ – Three $ 20,000

Accounting for defined benefit plans Pension expense components – actuarial gain or loss
US GAAP IFRS For active employees, actuarial gains and losses may be recognized as they occur or deferred through OCI. Similar If deferred, using a corridor approach, the excess of the net accumulated unrecognized actuarial gains and losses over a corridor amount (calculated as 10% of the larger of the APBO (under US GAAP) or PVDBO (under IFRS) or the fair value of the plan assets determined at the beginning of the year) may be recognized immediately in income or amortized into income. Similar, except the term PVDBO is used instead of APBO.

US GAAP Actuarial gains and losses for inactive or retired employees may be recognized as they occur or deferred through OCI under the corridor approach. If actuarial gains and losses are recognized as they occur, the effect must be presented in the statement of income. IFRS Actuarial gains and losses for inactive or retired employees must be recognized as they occur. If actuarial gains and losses are recognized as they occur, the effect may be presented in either the statement of income or in OCI.

US GAAP If the entity chooses to amortize amounts in excess of the corridor: Amortization is recorded under a years-of-service approach although the straight-line method is an alternative. The amortization period is dependent upon the employee group: IFRS If the entity chooses to amortize amounts in excess of the corridor: Amortization is recorded on a straight-line basis over the average remaining service lives of these employees. For active employees, the amortization period is over average remaining service lives of these employees. For inactive or retired employees, the amortization period is over the average remaining life expectancy of these employees.

Actuarial gains and losses recognized as occurred presentation example
Wiecek Company, Ltd (Wiecek) has a defined benefit plan and uses US GAAP to prepare its financial statements. Pension expense has historically been recognized in cost of sales and the net actuarial gain/loss component of expense is recognized as incurred. Wiecek’s chief financial officer has asked the controller if there are any options available in accounting for actuarial gains/losses when the company switches to preparing its financial statements using IFRS. Information about the benefit plan and Wiecek’s statement of comprehensive income are found on the next slide. Ignoring income tax effects, record the appropriate adjustments to revise Wiecek’s statement of comprehensive income to allow an alternative presentation under IFRS.

Example 3 (continued): Statement of comprehensive income Revenue $780,000 Cost of sales 690,000 Gross profit 90,000 Administrative expenses 45,000 Finance costs 13,000 Profit for the year $32,000 Other comprehensive income Foreign exchange differences (8,300) Actuarial gains (losses) on defined benefit plan Other comprehensive income for the year $ (8,300) Total comprehensive income for the year $ 23,700 Net benefit expense recognized in cost of sales (in thousands): 2010 Current service cost $2,700 Interest cost on benefit obligation 430 Expected return on plan assets (190) Net actuarial loss recognized in the year 2,000 Past service cost 60 Net benefit expense $5,000

Example 3 solution: IFRS allows the option to present the effect of actuarial gains and losses that are recognized as they occur in either the statement of income or OCI, while US GAAP does not allow this option. Statement of comprehensive income Adjustments Alternative for IFRS Revenue $780,000 Cost of sales 690,000 $(2,000) 688,000 Gross profit 90,000 92,000 Administrative expenses 45,000 Finance costs 13,000 Profit for the year 32,000 $ 34,000 Other comprehensive income Foreign exchange differences (8,300) Actuarial gains (losses) on defined benefit plan (2,000) Other comprehensive income for the year - (10,300) Total comprehensive income for the year $ 23,700 $ $ 23,700

Actuarial gain or loss calculation example
The Peter Company (Peter), based in Boston, has a defined benefit pension plan. Peter’s actuary has determined that a loss has occurred at the beginning of 2010 caused by demographic changes related to the composition of its workforce and revisions to life expectancy calculations. Peter uses the corridor approach to amortize unrecognized gains and losses. The following information relates to the actuarial loss: Actuarial loss related to active employees $315,000 Actuarial loss related to inactive/retired employees $85,000 Total actuarial loss $400,000 Average remaining services lives of active employees 20 years Average life expectancy of inactive/retired employees 15 years Calculate the pension expense related to the actuarial loss for 2010, using US GAAP and IFRS, and compare the differences. Assume that the total actuarial loss of $400,000 is outside the corridor range.

Actuarial gain or loss calculation example
Solution: US GAAP: IFRS: Employee group composition Amortization period Pension expense Active employees Over average remaining service lives $315,000/20 years = $15,750 Inactive or retired employees Over average remaining life expectancy $ 85,000/15 years = 5,667 $21,417 Employee group composition Amortization period Pension expense Active employees Over average remaining service lives $315,000/20 years = $ 15,750 Inactive or retired employees Recognize gain or loss immediately 85,000 $100,750

Other Terminations US GAAP IFRS
Termination benefits are typically lump-sum payments, but may also include periodic future payments through enhancement of existing or new pension plans or other post-employment benefits. Similar Recognition of termination benefits may require an employer to account for a curtailment of a pension plan. Similar

Other Terminations US GAAP
There is specific guidance for specific situations. For voluntary terminations, ASC applies and expense is generally recognized when the employee accepts the offer. For involuntary terminations, ASC applies and the timing of recognition is determined based on the specifics of the arrangement. IFRS General principles in IAS 19 are applied similarly for both voluntary and involuntary terminations. A liability is recognized when the company commits to the plan. The amount is recognized at its present value if it is payable more than 12 months after the balance sheet date. Note that an entity is demonstrably committed to a termination when a detailed format plan exists and there is no realistic possibility of withdrawal.

Terminations – voluntary or involuntary example
The Raedy Company (Raedy), based in Raleigh, North Carolina, has committed to exit a part of its operations. Under the plan, Raedy will close four manufacturing facilities, which will result in 1,000 employees being terminated. The timing and termination benefits for each job classification have been identified. The plan was committed to and approved on December 15, On January 15, 2010, Raedy communicated the plan, which included a special one-time benefit arrangement in sufficient detail to enable employees to determine the type and amount of benefits they would receive, if terminated. All employees will be terminated within a three-month period. When will the one-time termination benefit be recognized under US GAAP and under IFRS?

Terminations – voluntary or involuntary example
Example 5 solution: US GAAP: The one-time termination benefit will be recognized on January 15, 2010. IFRS: The one-time termination benefit will be recognized on December 15, 2009. The difference between the recognition timing is a result of the criteria. The main difference is that under ASC the plan has to be communicated to the employees for the amount to be recognized. Under IAS 19, this requirement is not applicable. All the other requirements for recognition are basically the same.

Other Settlements US GAAP IFRS
Settlement gains and losses are not accounted for until the obligation is settled. Similar

Other Curtailments US GAAP IFRS
A curtailment results from an event that significantly reduces the expected years of future service of present employees or eliminates, for a significant number of employees, the accrual of defined benefits for some or all of their future services. Similar

Other Curtailments US GAAP
Curtailment losses are recognized when they are probable of occurring and to the extent they exceed any net gains in OCI. Curtailment gains are recognized at the curtailment date and only to the extent they exceed any net losses in OCI. IFRS Gains and losses from curtailments are recognized when they occur. The gain or loss includes a proportionate share of previously unrecognized past service cost and actuarial gains and losses where the proportionate share is determined on the basis of the present value of the obligations before and after the curtailment or settlement.

Recognition of curtailment gains and losses example
The Glazerman Automotive Company closed one of its dealership locations in New Jersey and terminated 150 employees. These employees had vested benefits of $760,000 and nonvested benefits of $180,000. Other pertinent information regarding the defined benefit plan at the curtailment date is as follows: Projected benefit obligation for vested employees $3,500,000 Projected benefit obligation for nonvested employees ,200,000 Plan assets at fair value ,200,000 Unrecognized prior service cost – nonvested ,000 Unrecognized actuarial loss ,000 Based on the information provided, determine the curtailment gain or loss and journal entry by completing the template on the next slide using the accounting standards under US GAAP and IFRS.

(In thousands) Before closing Effect of closing After closing Projected benefit obligation: Vested Nonvested $(3,500) (1,200) (4,700) Plan assets at fair value 3,200 Funded status (1,500) Deferred pension items: Unrecognized prior service cost – nonvested Unrecognized net actuarial loss 328 280 Accrued benefit cost $ (892)

Example 6 solution – US GAAP: (In thousands) Before closing Effect of closing After closing PBO: Vested Nonvested $(3,500) (1,200) $760 180 $(2,740) (1,020) (4,700) 940 (3,760) Plan assets at fair value 3,200 – Funded status (1,500) (560) Deferred pension items: Unrecognized prior service cost – unvested Unrecognized net actuarial loss 328 280 (66) 262 Accrued benefit cost $ (892) $594 $ (298)

Example 6 solution – US GAAP (continued): The terminated employees’ share of vested and unvested benefits represents 20% of the total projected benefit obligation ($940,000/$4.7 million). Therefore, 20% of the unrecognized prior service cost (nonvested) is eliminated ($66,000). The gain of $940,000 is offset by the unrecognized net actuarial loss of $280,000. Journal entry: Accrued benefit cost $594,000 Gain from curtailment $594,000

Example 6 solution – IFRS: (In thousands) Before closing Effect of closing After closing PVDBO: Vested Nonvested $(3,500) (1,200) $760 180 $(2,740) (1,020) (4,700) 940 (3,760) Plan assets at fair value 3,200 – Funded status (1,500) (560) Deferred pension items: Unrecognized prior service cost – unvested Unrecognized net actuarial loss 328 280 (66) (56) 262 224 Accrued benefit cost $ (892) $818 $ (74)

Example 6 solution – IFRS (continued): The terminated employees’ share of vested and unvested benefits represents 20% of the total projected benefit obligation ($940,000/$4.7 million). Therefore, 20% of the unrecognized prior service cost (nonvested)($66,000) and 20% of the unrecognized actuarial loss ($56,000) are eliminated. Journal entry: Accrued benefit cost $818,000 Gain from curtailment $818,000

Standard-setting update
Under the IASB ED, the corridor approach would be eliminated and all changes in the value of long-term employee benefits will be recognized as they occur. Service costs and interest costs will be recorded into income. Remeasurements (actuarial gains and losses) will be recorded in OCI.

OPEBs Measurement of the liability
US GAAP IFRS The liability for other long-term employee benefits is accrued during the service period. Similar

OPEBs Measurement of the liability
US GAAP Has specific guidance to account for OPEBs (ASC and ASC ). The OPEB liability is based on the accumulated postretirement benefit obligation (APBO). IFRS Applies a single set of principles (IAS 19) to pension plans and plans for OPEBs. Measures the liability based on the PVDBO. The difference is that the PVDBO considers future compensation levels and the APBO does not.

OPEBs Recognition of net funded status
US GAAP IFRS The recognition of the overfunded (asset) or underfunded (liability) status on the balance sheet is required. Similar

OPEBs Recognition of net funded status
US GAAP The over/underfunded status of the plan is calculated as the difference between the fair value of the plan assets and the APBO. Any unrecognized actuarial gains/losses and past service costs must be recognized in OCI. IFRS The over/underfunded status of the plan is calculated as follows: If underfunded, a liability must be recognized equal to the PVDBO, plus or minus any unrecognized actuarial gains and losses, minus unrecognized prior service costs, minus the fair value of any plan assets. If overfunded, the asset is subject to a ceiling test and IFRIC 14.

Over/underfunded plan status calculation – employee benefit plan example
The Campbell Company (Campbell), based in New York, has a postretirement healthcare benefit plan for its employees. Campbell adopted ASC and ASC in prior years. At the beginning of the year, Campbell amended the plan to provide additional benefit accruals, which are included in the January 1, 2010 obligation. The facts on the next slide apply to the plan for the year ended December 31, 2010. Determine the postretirement benefit expense and journal entries for the year ended December 31, 2010, using accounting for US GAAP and for IFRS.

Plan assets at fair value on January 1, $284,000 Plan assets at fair value on December 31, $314,000 APBO at January 1, $360,000 Projected benefit obligation at January 1, $398,000 Actual return on plan assets $ 18,000 Expected return on plan assets % Service cost $ 35,000 Employer contributions $ 45,000 Benefit payments $ 33,000 Unamortized prior service costs (active, nonvested) $ 42,000 Average remaining service to expected retirement years Average remaining vesting period of nonvested prior service costs 5 years Discount rate % Other assumptions: There are no unamortized gains or losses at the beginning of the year. All benefits paid and employer contributions were made at December 31, There were no gains or losses related to the pension obligation in Campbell has elected, for US GAAP purposes, to use straight-line amortization over the average remaining service life of the employees for computing the amortization of PSC versus a years-of-service method.

Company general ledger Benefit asset (liability)
Over/underfunded plan status calculation – employee benefit plan example Example 7 solution – US GAAP: Company general ledger Benefit plan ledger Benefit expense Cash OCI (gain) loss PSC/other Benefit asset (liability) APBO Plan assets Balance at January 1, 2010 $42,000 $(76,000) $(360,000) $284,000 Service costs $35,000 (35,000) Interest costs 21,600 (21,600) Actual return (18,000) 18,000 Excess of expected over actual (10,400) 10,400 Contributions (45,000) 45,000 Benefits paid 33,000 (33,000) PSC amortization 4,200 (4,200) $32,400 $(45,000) $ 6,400 Balance at December 31, 2010 $10,400 $37,800 $(69,600) $ (383,600) $314,000

Example 7 solution – US GAAP (continued): Interest cost on APBO – $360,000 x 6% = $21,600 Loss on actual versus expected return Rollforward of liability Plan assets $284,000 Liability (beginning of year) $(76,000) Expected rate of return % Postretirement expense (32,400) Expected return $ 28,400 Contributions ,000 Actual return (18,000) Change in gain (loss) – OCI (10,400) Excess of expected over actual $ 10,400 Change in PSC/other – OCI ,200 Liability (end of year) $(69,600) Journal entries Postretirement expense $32,400 Other comprehensive income ,200 Postretirement liability ,400 Cash $45,000

Example 7 solution – US GAAP (continued): Liability, beginning of year PSC amortization in 2010 Plan assets (beginning of year) $284, Accumulated PSC at January 1, $42,000 APBO (beginning of year) (360,000) Average remaining service to retirement years Liability (beginning of year) $ (76,000) amortization ($42,000/10 years) $ 4,200 Liability, end of year Plan assets (end of year) $314,000 APBO (end of year) (383,600) Liability (end of year) $ (69,600)

Company general ledger Benefit asset (liability)
Over/underfunded plan status calculation – employee benefit plan example Example 7 solution – IFRS: IFRS: Company general ledger Benefit plan ledger Off balance sheet Benefit expense Cash Benefit asset (liability) APBO Plan assets PSC/Other Actuarial (gain) loss Balance at January 1, 2010 $(72,000) $(398,000) $284,000 $42,000 Service costs $35,000 (35,000) Interest costs 23,880 (23,880) Actual return (28,400) 28,400 Excess of expected over actual (10,400) 10,400 Contributions (45,000) 45,000 Benefits paid 33,000 (33,000) PSC amortization 8,400 (8,400) $38,880 $(45,000) $ 6,120 Balance at December 31, 2010 $(65,880) $(423,880) $314,000 $33,600 $10,400

Example 7 solution – IFRS (continued): Interest cost on PVDBO – $398,000 x 6% = $23,880 Expected return Rollforward of liability Plan assets $ 284,000 Liability (beginning of year) $(72,000) Expected rate of return % Postretirement expense (38,880) Expected return $ 28,400 Contributions , Liability (end of year) $(65,880) Journal entries Postretirement expense $38,880 Postretirement liability ,120 Cash $45,000

Example 7 solution – IFRS (continued): PSC amortization in 2008 Accumulated PSC at January 1, $42,000 Average remaining vesting period 5 years Amount subject to amortization $ 8,400 Composition of balance sheet liability Beginning of year End of year Fair value of plan assets $284, $314,000 PVDBO (398,000) (423,880) Unrecognized PCS and gains/losses , ,000 Balance $ (72,000) $ (65,880)

Example 7 solution – IFRS (continued): Unexpected gain (loss) Plan assets at FV at December 31 $314,000 Less: Plan assets at FV at January 1 (284,000) Contributions received (45,000) Add: Benefits paid ,000 Actual return on plan assets $ 18,000 Less: Expected return on plan assets (28,400) Actuarial loss on plan assets $ (10,400)

OPEBs OPEB expense components – service costs
US GAAP IFRS Service cost is included in OPEB expense. Similar

OPEBs OPEB expense components – interest costs
US GAAP IFRS Interest costs are included in OPEB expense. Similar

OPEBs OPEB expense components – actual return on plan assets
US GAAP IFRS The expected return on plan assets is included as a reduction of the OPEB expense. Note that US GAAP refers to the actual return on plan assets as the amount that is used to adjust the OPEB expense. However, the expected return on plan assets is the amount actually used to compute OPEB expense as an adjustment is recorded for the difference between the actual return and expected return as an “unexpected loss or gain.” Similar

OPEBs OPEB expense components – prior service costs
US GAAP IFRS The amortization of prior service costs/benefits is included in the OPEB. Similar

US GAAP Prior service costs are initially deferred and recorded in OCI. The amortization is recorded under a years-of-service approach although the straight-line method is an alternative. The amortization period is dependent upon the employee group: IFRS Prior service costs for vested benefits may not be deferred and must be recognized in pension expense immediately. However, prior service costs for unvested benefits are deferred and amortized on a straight-line basis over the average remaining vesting period. For active employees at the date of the amendment but not fully eligible for benefits at that date, the amortization period is over the average remaining service lives of these employees to the fully eligible date. See the next slide for fully eligible participants.

US GAAP Prior service costs: The amortization period is dependent upon the employee group (continued): IFRS Prior service costs for vested benefits may not be deferred and must be recognized in pension expense immediately. However, prior service costs for unvested benefits are deferred and amortized on a straight-line basis over the average remaining vesting period. For fully eligible plan participants, defined as collectively, that group of former employees (including retirees) and active employees who have rendered service to or beyond their full eligibility date and who are expected to receive benefits under the plan, including benefits to their beneficiaries and covered dependents, the amortization period is over the average remaining life expectancy of the participants.

OEPBs OPEB expense components – actuarial gain or loss
US GAAP IFRS For active employees, actuarial gains and losses may be recognized as they occur or deferred through OCI. Similar If deferred, using a corridor approach, the excess of the net accumulated unrecognized actuarial gains and losses over a corridor amount (calculated as 10% of the larger of the APBO (under US GAAP) or PVDBO (under IFRS) or the fair value of the plan assets determined at the beginning of the year) may be recognized immediately in income or amortized into income. Similar, except the term PVDBO is used instead of APBO.

OPEBs OPEB expense components – actuarial gain or loss
US GAAP Actuarial gains and losses for inactive or retired employees may be recognized as they occur or deferred through OCI under the corridor approach. If actuarial gains and losses are recognized as they occur, the effect must be presented in the statement of income. IFRS Actuarial gains and losses for inactive or retired employees must be recognized in income as they occur. If actuarial gains and losses are recognized as they occur, the effect may be presented in either the statement of income or in OCI.

OPEBs Expense components – actuarial gain or loss
US GAAP If an entity chooses to amortize amounts in excess of the corridor: Amortization is recorded under a years-of-service approach although the straight-line method is an alternative. The amortization period is dependent upon the employee group: IFRS If an entity chooses to amortize amounts in excess of the corridor : Amortization is recorded on a straight-line basis over the average remaining service lives of these employees. For active employees at the date of the amendment but not fully eligible for benefits at that date, the amortization period is over the average remaining service lives of these employees to the fully eligible date. See the next slide for fully eligible participants.

OPEBs Expense components – actuarial gain or loss
US GAAP If an entity chooses to amortize amounts in excess of the corridor (continued): The amortization period is dependent upon the employee group (continued): IFRS If an entity chooses to amortize amounts in excess of the corridor : Amortization is recorded on a straight-line basis over the average remaining service lives of these employees. For fully eligible plan participants, defined as collectively, that group of former employees (including retirees) and active employees who have rendered service to or beyond their full eligibility date and who are expected to receive benefits under the plan, including benefits to their beneficiaries and covered dependents, the amortization period is over the average remaining life expectancy of the participants.

Under the IASB ED, the corridor approach would be eliminated and all changes in the value of long-term employee benefits will be recognized as they occur. Service costs and interest costs will be recorded into income. Remeasurements (actuarial gains and losses) will be recorded in OCI.

Financial statement presentation and disclosures
US GAAP IFRS The majority of pension and OPEB reporting and disclosure requirements are similar, voluminous and may be made on the face of the financial statements or in the related footnotes. Similar

US GAAP IFRS A partial list of reporting and disclosure requirements include: Description of the plan and related accounting policies. Net funded status of the plan (asset or liability) recorded on the balance sheet. Expense recorded in the statement of income and/or OCI. Schedule showing the expense components. Reconciliation of the APBO and plan assets from the beginning of the year to the end of the year. Principal actuarial assumptions used. Similar

US GAAP Disclosures required by US GAAP and not by IFRS as of the date of the latest balance sheet presented: The APBO The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter. IFRS Disclosures required by IFRS and not by US GAAP: For the current and previous four annual periods PVDBO Fair value of the plan assets Surplus or deficit in the plan Experience adjustments on: Plan liabilities Plan assets

Some further disclosure requirements are proposed by the IASB ED including more information about the characteristics of employee benefit plans, the risks arising from employee benefits plans including sensitivity analyses and multi-employer plans.

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Ernst & Young LLP Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit Ernst & Young LLP is a client-serving member firm of Ernst & Young Global and of Ernst & Young Americas operating in the US. © 2010 Ernst & Young Foundation (US). All Rights Reserved. SCORE No. MM4071C.

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