International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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statements on the same terms as the financial statements of the entity and at the
same time as, or earlier than, the financial statements of the entity. [IAS 19.150].
15.2.6
Disclosure requirements in other IFRSs
IFRIC 14 does not introduce any new disclosure requirements. However, it suggests that
any restrictions on the current realisability of the surplus or a description of the basis
used to determine the amount of the economic benefit available (see 8.2 above), may
require disclosure under the provisions in IAS 1 about key sources of estimation
uncertainty. [IFRIC 14.10]. These requirements are discussed in Chapter 3 at 5.2.1.
Where required by IAS 24 an entity discloses information about:
(a) related party transactions with post-employment benefit plans; and
(b) post-employment benefits for key management personnel. [IAS 19.151].
Where required by IAS 37 an entity discloses information about contingent liabilities
arising from post-employment benefit obligations. [IAS 19.152].
2838 Chapter 31
15.3 Other employee benefits
IAS 19 has no specific disclosure requirements in respect of other types of employee
benefits within its scope (i.e. short-term employee benefits, long-term employee
benefits other than post-employment benefits and termination benefits) but contains
reminders that:
• IAS 24 requires disclosure of employee benefits for key management personnel
(see Chapter 35); and
• IAS 1 requires disclosure of employee benefits expense. [IAS 19.25, 158, 171].
16 POSSIBLE
FUTURE
DEVELOPMENTS
16.1 IASB
activities
As noted at 1 above, the IASB published the current version of IAS 19 in June 2011
(with amendments in November 2013, September 2014 and February 2018). In
February 2018, the IASB reviewed its research pipeline and decided to start research
on pension benefits that depend on asset returns.17 Its objective is to assess whether it
is feasible to place a cap on asset returns used in estimates of asset-dependent benefits
to avoid what is perceived by some to be an anomaly (i.e. benefits being projected
based on expected returns that exceed the discount rate, resulting in a liability even
though employees will never be paid any amount above the fair value of the reference
assets). If the research establishes that this approach would not be feasible the staff
expect to recommend no further work on pensions. The Board is also completing a
research project into why different standards require different discount rates to be
used which may lead to some of these discount rate issues being investigated while
completing other projects.18
16.2 Interpretations Committee activities
16.2.1
The availability of a refund from a defined benefit plan
At 8.2.1 above we discuss how certain powers of pension fund trustees (to set investment
policy, for example) may influence the recognition of a net defined benefit asset by
reference to refunds.
The Interpretations Committee received a similar question and, in May 2014, published
a description of its initial discussion which is summarised below.
The Interpretations Committee discussed whether an employer has an unconditional
right to a refund of a surplus in the following circumstances:
• the trustee acts on behalf of the plan’s members and is independent from the
employer; and
• the trustee has discretion in the event of a surplus arising in the plan to make
alternative use of that surplus by augmenting the benefits payable to members or
by winding up the plan through purchase of annuities, or both.
Employee
benefits
2839
The question discussed related to a plan that is closed to accrual of future benefits,
such that there will be no future service costs, and so no economic benefit is available
through a reduction in future contributions. The Interpretations Committee also
noted that:
• the fact that an existing surplus at the balance sheet date could be decreased or
extinguished by uncertain future events that are beyond the control of the entity
is not relevant to the existence of the right to a refund;
• if the trustee can use a surplus by augmenting the benefits in the future, pursuant
to the formal terms of a plan (or a constructive obligation that goes beyond those
terms), this fact should be considered when the entity measures its defined benefit
obligation; and
• the amount of surplus to be recognised could be zero, as a consequence of the
measurement of the defined benefit obligation.19
The Interpretations Committee discussed the matter again at its meeting in July 2014
and considered the informal feedback received from the IASB members.
The Interpretations Committee noted the difficulty associated with assessing the
consequences of the trustee’s future actions and its effect on the entity’s ability to
estimate reliably the amount to be received. Consequently, a majority of Interpretations
Committee members observed that no asset should be recognised in this circumstance.
However, some Interpretations Committee members were concerned about the
consequences that this conclusion could have on the accounting for a minimum funding
requirement and the consistency of this conclusion with the recognition and
measurement requirements of IAS 19.
Consequently, the Interpretations Committee requested the staff to perform further
analysis on the interaction of this tentative decision with the requirement to recognise
an additional liability when a minimum funding requirement applies and the relationship
with the general requirements of IAS 19.
In its meeting in September 2014, as a result of its detailed analysis, the Interpretations
Committee noted that it believed that there would be no conflicts between its
conclusion at the July 2014 meeting and the recognition and measurement
requirements of IAS 19, as the application of the asset ceiling requirements is separate
from the determination of a surplus (deficit) under IAS 19. It also noted that the
conclusion should lead to consistent results when a minimum funding requirement
exists.20 The Interpretations Committee thought that the trustees’ powers to buy
annuities or make other investment decisions are different from their ability to use a
surplus to enhance benefits (a pension promise). It also thought that an entity’s ability
to realise an economic benefit through a ‘gradual settlement’ is restricted if a trustee
can decide at any time to make a full settlement (i.e. a plan wind-up), even though
IFRIC 14 allows the assumption of a gradual settlement over time until all members
have left the plan. [IFRIC 14.14]. The Committee proposed amendments to IFRIC 14
which are detailed below.
2840 Chapter 31
As a result of the discussions in the September 2014 meeting, the IASB published an
exposure draft setting out proposed amendments to IFRIC 14 to require that, when an
entity determines the availability of a refund from a defined benefit plan:
• The amount of the surplus that an entity recognises as an asset on the basis of a
future refun
d should not include amounts that other parties (for example, the plan
trustees) can use for other purposes without the entity’s consent.
• An entity should not assume gradual settlement of the plan as the justification for
the recognition of an asset, if other parties can wind up the plan without the
entity’s consent.
• Other parties’ power to buy annuities as plan assets or make other investment
decisions without changing the benefits for plan members does not affect the
availability of a refund.
The exposure draft also proposed amending IFRIC 14 to confirm that when an entity
determines the availability of a refund and a reduction in future contributions, the entity
should take into account the statutory requirements that are substantively enacted, as well
as the terms and conditions that are contractually agreed and any constructive obligations.
In addition, the exposure draft addressed the interaction between the asset ceiling and a
past service cost or a gain or loss on settlement. It proposed amending IAS 19 to clarify that:
• the past service cost or gain or loss on settlement is measured and recognised in
profit and loss in accordance with IAS 19; and
• changes in the effect of the asset ceiling are recognised in other comprehensive
income, and are determined after the recognition of the past service cost or the
gain or loss on settlement.
A summary of the feedback on the exposure draft was discussed by the Interpretations
Committee in their July 2016 meeting, but no decisions were made.21 The
Interpretations Committee deliberated the proposed amendments at their September
2016 meeting, taking into account the feedback received. Further, at its April 2017
meeting the Board tentatively decided to finalise the proposed amendments to
IFRIC 14, subject to drafting changes.22 However, some stakeholders subsequently
communicated that they believed that the proposed amendments could have a
significant effect on some defined benefit plans, particularly those in the United
Kingdom. The original proposed amendments to IFRIC
14 included a new
paragraph 12A which stated that ‘An entity does not have an unconditional right to a
refund of a surplus on the basis of assuming the gradual settlement described in
paragraph 11(b) if other parties (for example, the plan trustees) can wind up the plan
without the entity’s consent. Other parties do not have the power to wind up the plan
without the entity’s consent, if the power is dependent on the occurrence or non-
occurrence of one or more uncertain future events not wholly within the other parties’
control.’ In response to respondents’ concerns over the inconsistencies between this
new paragraph and paragraphs 11(c) and 14 of IFRIC 14, the Board tentatively decided
to replace the reference to other parties’ powers to ‘wind up the plan’ in this new
paragraph with other parties powers to ‘settle in full the plan liabilities in a single event
(i.e. as a plan wind-up)’. In the United Kingdom although trustees do not generally have
the right to legally wind up a defined benefit plan without the entity’s consent, they do
Employee
benefits
2841
generally have the right to settle plan liabilities for individual plan members without an
entity’s consent if they are ‘reasonable’. Although ‘reasonable’ is not defined in the
applicable legislation it is generally understood that this type of partial settlement can
be initiated by trustees if plan members would not be worse off as a result of the
settlement. It is also understood that trustees do not generally need to obtain consent
from plan members to initiate a settlement. Accordingly, trustees could exercise the
right to settle liabilities for all plan members in a single event. Entities with defined
benefit plans have generally measured the economic benefit available as a refund on a
gradual settlement basis applying paragraph 13 of IFRIC 14. Applying the proposed
paragraph 12A of IFRIC 14 to United Kingdom defined benefit plans could result in a
significantly lower net defined benefit asset in some situations (due to measuring the
asset on a wind-up basis in a single event) and may also require the recognition of an
additional liability for any portion of any minimum funding requirement that would not
be recoverable due to the lower asset ceiling.23 At its meeting in July 2017 the Board
agreed that during drafting further clarification would be sought on the possible impact
the amendments would have on schemes with certain characteristics (such as those in
the United Kingdom). The staff’s next step was to explore if schemes with characteristics
similar to those found in United Kingdom schemes exist in other jurisdictions. There
were no plans to change the scope of the project.
In its June 2018 meeting the IASB received an update on the Interpretations
Committee’s work on how an entity might assess the availability of a refund of a surplus.
The Interpretations Committee believe it would be possible to develop a principles-
based approach focusing on the distinction between when an entity assumes a gradual
settlement of plan liabilities over time and when it assumes full settlement of plan
liabilities. The Committee believe that such an approach would however be broader in
scope than that of the existing proposed amendments to IFRIC 14 and it is possible that
any amendments may need to be exposed for further comments. It was proposed that
all possible changes to accounting for employee benefits be considered at the same time
and that the IASB would be better placed to consider the direction of the IFRIC 14
project when the outcome of the IAS 19 research project (see 16 above) is known. No
decisions were reached at the June 2018 Board meeting and the IASB will continue its
discussions at a future meeting.
References
1
IFRIC Update, IFRS Interpretations Committee,
6
IASB Update, November 2007.
September 2012.
7
IFRIC Update, May 2011.
2
IFRIC Update, May 2014.
8
IFRIC Update, March 2015.
3
E54
Employee Benefits, IASC, October 1996,
9 Staff paper for the February 2013 IASB
paras. 17-21.
meeting, Agenda ref 9B, Appendix C-Staff
4
IFRIC Update, January 2008.
paper for the November 2012 IFRS IC meeting,
5
IASB Update, September 2007.
Appendix A, Examples 3-5.
2842 Chapter 31
10 IFRIC Update, July 2013.
17 IASB Update, February 2018.
11 IFRIC Update, November 2013.
18 IASB Update, March 2017.
12 IASB Update, December 2013.
19 IFRIC Update, May 2014.
13 IFRIC Update, June 2005.
20 IFRIC Update, September 2014.
14 IFRIC Update, March 2015.
21 IFRIC Update, July 2016.
15 IFRIC Update, July 2015.
22 IASB Update, April 2017.
16 IFRIC Update, November 2010.
23 IASB Agenda Paper 12C, July 2017.
2843
Chapter 32
Operating segments
1 INTRODUCTION .......................................................................................... 2847
1.1
Background ......................................................................................................... 2847
1.2
The main features of IFRS 8 ............................................................................ 2847
1.3 Terms
used
in IFRS 8 ........................................................................................ 2849
1.4 Transitional
provisions ..................................................................................... 2850
2 OBJECTIVE AND SCOPE OF IFRS 8 ........................................................... 2850
2.1
Objective ............................................................................................................. 2850
2.2
Scope of IFRS 8 ................................................................................................... 2851
2.2.1
The meaning of ‘traded in a public market’ .................................. 2851
2.2.2
Consolidated financial statements presented with those of
the parent ............................................................................................ 2852
2.2.3
Entities providing segment information on a voluntary
basis ...................................................................................................... 2852
3 IDENTIFYING A SINGLE SET OF OPERATING SEGMENTS ......................... 2852
3.1
Definition of an operating segment ................................................................ 2852
3.1.1
Revenue earning business activities .............................................. 2853
3.1.2
‘Chief operating decision maker’ and ‘segment manager’ ......... 2853
3.1.3 Availability
of
discrete financial information............................... 2856
3.1.4
When a single set of components is not immediately
apparent ................................................................................................2857
3.1.5
An equity accounted investment can be an operating