29 September 2008
Sir David Tweedie
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
Dear Sir David
The Group of 100 (G100) is an organization of chief financial officers from Australia's largest business enterprises with a purpose of advancing Australia's financial competitiveness. The G100 is pleased to provide comments on the amendments to IAS 19 Employee Benefits.
The G100 does not support the proposed changes. We believe that since the present 'corridor' approach is a well understood and established practice that little benefit will be served by implementing proposals in the discussion paper. Recognition of movements in the amounts of superannuation plan assets and liabilities in the profit and loss has the potential to distort reported information about operating performance of the business and the assessment of management performance. For example, fluctuations in the asset values of defined benefit schemes can create significant intra and inter-period swings in reported results which are unrelated to the operation of the business. Additionally, we consider that the present detailed disclosures required by IAS 19 in respect of superannuation plans are excessive and overload users with a range of information which is not relevant to their decision making.
Given the objective of the IASB project to address specific issues in a limited timeframe, are there additional issues which you think should be addressed by the Board as part of this project? If so, why do you regard these issues as a matter of priority?
The G100 believes that the range and detail of the disclosures required must be addressed and that disclosure principles should be established such that users are provided with key information about the performance of the superannuation plan and its impact on the financial position of the entity.
Are there factors that the Board has not considered in arriving at its preliminary views? If so, what are those factors? Do those factors provide sufficient reason for the Board to reconsider its preliminary views? If so, why?
The G100 considers that the need for changing the method of accounting has not been established. However, any changes to the current methods of accounting, if made, cannot occur in isolation from resolving the presentation issues.
Which approach to the presentation of changes in defined benefit
costs provides the most useful information to users of financial
If the IASB proceeds with this project we believe that Approach 3 is the best approach.
Approach 3 appears to be the best from a user perspective because the profit and loss should include income and expense items attributable to the ordinary activities of the business. These are the factors on which management's performance is based rather than the valuation and discounting factors arising in respect of accounting for superannuation commitments. The G100 considers that recognizing changes in pension liabilities or assets in the profit and loss statement will create significant noise caused by market volatility that is unrelated to the operations of the business.
The G100 considers that if the balance sheet items are recognized on
a fair value basis changes in the value of superannuation plan assets
etc would/should be recognized directly in equity or as a component of
other comprehensive income.
In assessing the usefulness of information to users, what importance
do you attach to each of the following factors, and why:
presentation of some components of defined benefit cost in other
comprehensive income; and
The G100 does not consider that this information is useful to
shareholders and does not inform their decision making. We consider that
sophisticated users of financial statements do not find the excessive
detailed information understandable and useful and, therefore, question
whether the benefits of making such disclosures seeking to provide
insights to the business performance does not justify the costs incurred
in its collection and presentation.
What would be the difficulties in applying each of the presentation
How could the Board improve the approaches discussed in this paper to
provide more useful information to users of financial statements?
The G100 believes that the present recognition and measurement
requirements should be retained and that the volume and detail of the
disclosures should be substantially reduced. This could be achieved by
specifying a disclosure principle such that the company would disclose
that information that the directors believe is needed by users to assess
the impact of the superannuation plan on the financial position of the
Please explain any alternative approach to presentation that provides
more useful information to users of financial statements. In what way
does your approach provide more useful information to users of financial
The specification of a disclosure principle and the subsequent disclosures by the company would be more specific to the information needs of the users of the company's financial statements. The G100 considers that the measurement principles in IAS 19 are suitable for this purpose.
Do you agree that the Board has identified the appropriate promises to be addressed in the scope of this project? If not, which promises should be included or excluded from the scope of the project, and why?
Yes. The proposals to identify and classify the promises to employees regarding types of superannuation schemes may be of some benefit.
Would many promises be reclassified from defined benefits to contribution-based under the Board's proposals? What are the practical difficulties, if any, facing entities affected by these proposals?
We do not believe that there would be any material reclassification of defined benefits into contribution-based arrangements in the Australian context.
Do the proposals achieve that goal? If not, why not?
Do you have any comments on those preliminary views? If so, what are they?
Are there alternative measurement approaches that better meet the
measurement objectives described in this paper? Please describe the
approaches and explain how they better meet the measurement objectives.
The G100 considers that except in respect of disclosures the
requirements of IAS 19 are appropriate.
To what extent should the effect of risk be included as a component
of the measurement approach at this stage of the Board's post-employment
benefit promises project? How should this be done?
The effect of risk relating to obligations in respect of superannuation payments to employees should be treated consistently with the treatment of risk in the measurement of other liabilities.
Do you agree that the liability for benefits in the payout and
deferment phases should be measured in the same way as they are in the
accumulation phase? If not, why?
Yes, the subject to the
provisions of the fund's trust deed.
What are the practical difficulties, if any, of measuring the
liability for a contribution-based promise during the payout phase at
fair value assuming the terms of the benefit promise do not change?
We do not anticipate practical difficulties arising in respect of these measurements.
What level of disaggregation of information about changes in the
liability for contribution-based promises is useful to users of
financial statements? Why?
It is not clear why the changes in the
liability need to be disaggregated. We believe that the primary focus of
users is in the quantum of the liability and not its components which
serves to add to the disclosure overload.
Do you agree that it is difficult to disaggregate changes in the
contribution-based promise liability into components similar to those
required for defined benefit promises? If not, why not?
We do not consider that the changes should be disaggregated.
Should changes in the liability for contribution-based promises:
be presented in profit or loss, along with all changes in the value
of any plan assets; or
mirror the presentation of changes in the liability for defined
benefit promises (see Chapter 3)?
We believe that presentation of changes in the liability should be consistent with those for defined benefit promises.
What are the practical difficulties, if any, in identifying and
measuring the 'higher of' option that an entity recognizes separately
from a host defined benefit promise?
Do you have any other comments on the proposals for benefit promises
with a 'higher of' option? If so, what are they?
What disclosures should the Board consider as part of that review?
The G100 believes that the main emphasis of the review should be a fundamental reconsideration of the volume and detail of the disclosures required. This could be achieved by establishing disclosure principles and requiring directors to provide the information they consider necessary to assess the effect of the superannuation plan on the financial position of the company.
Do you have any other comments on this paper? If so, what are they?
Yes. If the proposals are proceeded with, transitional provisions would be necessary and companies would need significant time to implement any amendments to existing requirements.