Employee Benefits
Stephenie Fox
The Technical Director,
International Public Sector Accounting Standards Board
International Federation of Accountants
545 Fifth Avenue , 14 th Floor
New York 10017
USA
28 February 2007
Dear Stephenie,
ED31 Employee Benefits
The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on Exposure Draft 31: Employee Benefits . These comments have been prepared in consultation with members of ACCA's Public Sector Network Panel, a group of experienced accountants working in the public sector.
ACCA broadly agrees with the approach adopted in this exposure draft that employee benefits in the public sector should be accounted for in a comparable manner to that adopted by the private sector. We note however, the challenges that remain in identifying a suitable long-term solution to accounting for post-employment benefits including pensions and other long-term employee benefits.
In the UK , relatively minor changes to assumptions and estimates have had a major effect on the valuation of long-term assets and liabilities associated with employee pension funds. This has had a destabilising effect on the provision of these benefits. Thus in the 1990s relatively optimistic assumptions led to the widespread adoption by many employers of pension holidays with reduced or no contributions being made to pension schemes for several years. More recently with the relatively short-term correction in stock market values and the introduction of FRS 17 Retirement Benefits a far more pessimistic view has been taken leading to the closure of many final salary schemes, especially in the private sector.
The ED itself notes that “ the IASB has recently added a project on post-retirement benefits to its agenda. The project is to be conducted in two phases, which involve a fundamental review of all aspects of post-employment benefit accounting. Phase One is part of the short-term convergence project of the IASB and the Financial Accounting Standards Board” (paragraph BC.2, page 84). Thus this area is currently subject to significant international debate.
We would like to make the following point in terms of the specific matters for comment outlined in the exposure draft:
8. This Standard becomes effective for reporting periods commencing on a date five years after its issuance, although it can be applied earlier (paragraph 175). If you do not agree with this approach do you think that there should be different dates for the introduction of requirements for different types of employee benefit?
We broadly support this proposal. However, we note that the ED states that:
“Accounting for short-term employee benefits is generally straightforward because no actuarial assumptions are required to measure the obligation or the cost and there is no possibility of any actuarial gain or loss. Moreover, short-term employee benefit obligations are measured on an undiscounted basis” (paragraph 12, page 17).
As a result, we consider that consideration should be given to reducing the lead-time for the adoption of proposals relating to accounting for short-term employee benefits.
Please do not hesitate to contact me if you have any queries about this response.
Yours sincerely
Andy Wynne
Head of Public Sector Technical Issue