Adoption of IAS 19R by Europe s Premier Listed Companies: Corridor Approach Versus Full Recognition

Transcription

1 Adoption of IAS 9R by Europe s Premier Listed Companies: Corridor Approach Versus Full Recognition Jan Fasshauer University of Giessen, Germany Martin Glaum Professor, Justus-Liebig-Universität Giessen Donna L. Street Professor and Mahrt Chair in Accounting, University of Dayton Presentation structure I. Research Objectives II. Background III. Sample and Findings for IV. Updated findings for and Slide

2 Research objectives in the full report for. Prevalence of defined benefit plans at European blue chips. Distribution of pension accounting method selected () corridor approach () full recognition through P&L () full recognition through SORIE. Rationale and impact of applying IAS 9 option. As-if-recognition impact on balance sheet and P&L for corridor. Transparency of disclosed pension assumptions. Best practice disclosures Slide Presentation structure I. Research Objectives II. Background III. Sample and Findings for IV. Updated findings for and Slide

3 Corporate Pension Schemes Obligating Character - Defined Contribution Plans - - Defined Benefit Plans - Traditionally: USA, UK, Australia,... Decreasingly: USA, UK Increasingly: German MNCs Traditonally: Germany, other Continental European countries externally internally Funding Slide Accounting for defined benefit plans complex long-term liabilities based on several assumptions demographic assumptions - rates of employee turnover - disability and early retirement - mortality financial assumptions - future salary / benefit levels - discount rate - expected return on plan assets differences between parameter assumptions and realised values, and changes in assumptions, lead to actuarial gains and losses Slide

4 Sensitivity analysis of pension assumptions Bayer Bayer, Annual Report, p. Slide Views on corridor approach Supporters Immediate recognition not valid valuation basis for (long-term) net liabilities uncertainties raise reliability issue variations from period to period: not relevant, erratic, difficult to understand, misleading merits of corridor: only long-term trends are reflected in balance sheet (UNICE ) Opponents accounting fiction nasty little smoothing mechanism confusing, misleading fair value of assets and of pension obligation = economic reality = most relevant (CSFB ) Slide 8

5 IASB view Deferred recognition and corridor approaches complex, artificial and difficult to understand Immediate recognition approach represents faithfully entity s financial position - Generates income and expense items that are not arbitrary and that have information content IAS 9 (rev. ): Basis for Conclusion: Slide 9 Presentation structure I. Research Objectives II. Background III. Sample and Findings for IV. Updated findings for and Slide

6 Sample selection Companies included in indices: 9 Deleted: Crosslisted - US-GAAP - Annual Report not in English - Other reasons: - 9 Total: 8 Companies without defined-benefit plans: - Companies with defined-benefit plans: Companies with material definedbenefit plans defined as % of total assets: Slide. Prevalence and materiality of pension accounting issues across Europe in Funded status of Plan in millions of euro Country Index Mean Median Standard Deviation UK FTSE ,. Ireland ISEQ UK and Ireland subtotal.9.8,. Netherlands AEX... Greece Athex... Austria ATX Belgium BEL France CAC,8. 88.,. Germany DAX,.,.,8.9 Spain IBEX,.9 8.,. Luxembourg LuxX.. 8. Italy MIB-... Norway OBX Denmark OMXC Finland OMXH...8 Sweden OMXS.. 8. Portugal PSI Switzerland SMI All others subtotal 99.8.,. Total 9.9.8,. Slide

7 . Funding deficits of defined-benefit plans divided by equity in % % % % Mean % % % % % Germany Belgium Netherlands Austria Sweden Greece Switzerland Italy Finland UK Portugal France Spain Ireland Norway Luxembourg Denmark Ger UK Belg Port Neth Fr Aust Spain Swed Ire Gre Nor Switz Lux Italy Den Fin n Mean % % % % 8% 8% % % % % % % 9% 8% % % % Slide. IAS 9 accounting methods in corridor approach full recognition through P&L full recognition through SORIE - 9% of UK and % of Irish use full recognition compared to 9% in other countries - use of option widespread in Portugal (%), Denmark (%), Germany (%) Slide

8 . IAS 9 accounting method in Country Index Total number of Corridor through P&L through SORIE UK FTSE Ireland ISEQ UK and Ireland Subtotal 89 ***** Netherlands AEX **** Greece Athex Austria ATX 8**** Belgium BEL 9 **** France CAC 8 **** Germany DAX 8 8 **** Spain IBEX Luxembourg LuxX Italy MIB- **** Norway OBX 9 8**** Denmark OMXC **** Finland OMXH **** Sweden OMXS **** Portugal PSI- **** Switzerland SMI **** Other subtotal Total Slide IV. Movement toward full recognition during & All countries through SORIE: (.%) Corridor: (.%) through P&L: (.%) Slide

9 Movement toward full recognition Excluding UK/Ireland through SORIE: (.%) Corridor: (.9%) through P&L: (.%) Slide IAS 9 Method Across Country Index Country Corridor ATX Austria BEL Belgium FTSE UK* OMXC Denmark* OMXH Finland CAC France DAX Germany* Athex Greece ISEQ Ireland* MIB- Italy LuxX Luxembourg AEX Netherlands OBX Norway 8 PSI- Portugal* IBEX Spain OMXS Sweden SMI Switzerland through P&L through SORIE Total Slide 8

10 Movement toward full recognition during & All countries through SORIE: (.8%) Corridor: (.%) through P&L: (.8%) Slide 9 Movement toward full recognition during & Excluding UK/Ireland through SORIE: (.%) Corridor: (.%) through P&L: (.%) Slide

11 IAS 9 Method across country Excluding UK/Ireland Index Country Corridor through P&L through SORIE ATX Austria 8 BEL Belgium OMXC Denmark OMXH Finland CAC France 9 DAX Germany Athex Greece MIB- Italy LuxX Luxembourg AEX Netherlands OBX Norway PSI- Portugal IBEX Spain OMXS Sweden SMI Switzerland Total Slide Movement toward full recognition during & All countries through SORIE: (.%) Corridor: (.9%) through P&L: (.8%) Slide

12 Movement toward full recognition during & All countries Excluding UK/Ireland through SORIE: 8 (8.%) Corridor: (8.%) through P&L: (.%) Slide IAS 9 Method Across Country Excluding UK/Ireland Index Country Corridor through P&L through SORIE ATX Austria 8 BEL Belgium OMXC Denmark OMXH Finland CAC France DAX Germany Athex Greece MIB- Italy LuxX Luxembourg AEX Netherlands 8 OBX Norway PSI- Portugal IBEX Spain OMXS Sweden SMI Switzerland Total 8 Slide

13 Why the change? Austria RHI - In order to improve transparency, RHI Group elected to use the new option provided by IASB and change the method used to record the provisions for pension and termination benefits. Change was made //. Zumtobel Group AG - Initial application of the amended IAS 9 Employee Benefits - An option was added to IAS 9 in December, In order to improve transparency, this option was applied to the provisions for pensions and severance compensation for the first time as of April Slide Why the change? Germany Deutsche Telekom AG From its consolidated financial statements as of December,, Deutsche Telekom recognizes actuarial gains and losses in the period in which they occur outside profit or loss in retained earnings including carryforwards. Deutsche Telekom adjusted comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. Deutsche Telekom believes that fully recognizing actuarial gains and losses when they occur results in a better presentation of the financial position in the balance sheet, since hidden reserves and liabilities are realized and the financial statements thus provide more relevant information. This change in accounting policy results in an increase of the liability for the pension liability in the amount of the unrecognized actuarial gains and losses in the balance sheet. Slide

14 Why the change? Ireland Independent News & Media PLC the election to recognise all actuarial gains and losses immediately more fully reflects the net asset position of the Group Slide Why the change? Netherlands Vedior NV Due to the fact that the defined benefit plan is closed and has no more active participants, actuarial gains and losses that arise in calculating the Group s obligation are recognised immediately in the income statement. Slide 8

15 Why the change? Switzerland Roche Holding AG The Roche Group has been using International Financial Reporting Standards (IFRS) to report its consolidated results since 99. The International Accounting Standards Board (IASB) has published a number of new and revised standards and interpretations that first became effective in, which the Group implemented from January. The only significant changes that relate to the Roche Group financial statements arise from IAS 9(revised) Employee benefits, in particular with respect to defined benefit pension and other post-employment benefits. These changes have been implemented effective January and the comparative results have been restated for these changes from those previously published. Defined benefit plans Actuarial gains and losses: All actuarial gains and losses are now recognised immediately and recorded directly to equity. Previously actuarial gains and losses below a certain threshold were not recognised and those above this threshold were only recognised progressively. As a result of this change the Group s consolidated balance sheet more accurately represents the funding status of the various plans. Slide 9 Why the change? France Alcatel SA On January,, Alcatel-Lucent adopted (with retrospective effect as of January, ) the option offered by Amendment to IAS 9 Management believes that the change will more fairly present the fair value of assets and liabilities related to retiree benefits in the company s balance sheet and eliminate significant volatility in its results of operations for certain plans, the participants of which are all, or almost all, fully eligible to receive benefits. Slide

16 Why the change? A few did not mention a change in method occurred Several described the change in method and the impact but provided no rationale Slide Interest/discount rate trends - For reporting a specific rate, an upward trend for each country Netherlands. /. /. Austria. /. /.9 Belgium. /.8 /. France. /. /. Germany. /. /.9 Italy.9 /. /.8 Slide

17 Interest/discount rate trends - UK.89 /. /. Ireland. /.89 /. Norway. /. /.8 Denmark. /.9 /. Finland.8 /. /. Sweden. /. /.9 Portugal. /. /. Switzerland. /. /. Slide Interest/discount rate trends Mean.; Standard deviation.; Min., Median.8, Max.98 CAC (France n = ):... Slide

18 Interest/discount rate trends Mean.; Standard deviation.8; Min.9, Median.8, Max. FTSE (UK n = ): Slide Interest/discount rate trends Some continue to report ranges OMXH (Finland n = 8) 8 Slide

19 Interest/discount rate trends Some continue to report ranges OMXH (Finland n = ) Slide Interest/discount rate trends Some continue to report ranges OMXH (Finland n = 8) Slide 8