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CIA Pension Seminar Colloque sur les régimes de retraite

CIA Pension Seminar Colloque sur les régimes de retraite. April 16, 2007 Ÿ Le 16 avril 2007 Toronto, Ontario. Corporate Pensions — An Accounting Perspective. Concerns with current defined benefit plan accounting model Income statement smoothed Long term perspective

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CIA Pension Seminar Colloque sur les régimes de retraite

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  1. CIA Pension SeminarColloque sur les régimes de retraite April 16, 2007 Ÿ Le 16 avril 2007 Toronto, Ontario

  2. Corporate Pensions — An Accounting Perspective Concerns with current defined benefit plan accounting model Income statement smoothed Long term perspective Does not represent what happened in year Can show positive income in a loss year Balance sheet does not show true asset/liability Often understates true liability Information is in notes

  3. Corporate Pensions — An Accounting Perspective Alternatives Full reconsideration of accounting model Include expense recognition, measurement etc Display in financial statements Major project – several years Quick fix to balance sheet Do not address other issues No change to income

  4. Corporate Pensions — An Accounting Perspective Agenda plans US Financial Accounting Standards Board (FASB) Phase 1 complete — FAS 158 effective 2006 Phase 2 underway Broad project Plan to be discussed Q1 or early Q2 2007 Evaluating alternative approaches

  5. Corporate Pensions — An Accounting Perspective US FASB – Alternative approaches Comprehensive reconsideration of model; or Targeted phase with focus on issues such as: Delayed recognition Combining service costs, asset returns & financing costs Insufficient info about cash flows Measurement of the liability Assumptions provide too much latitude Insufficient & overly complex disclosures

  6. Corporate Pensions — An Accounting Perspective International Accounting Standards Board (IASB) Working group formed with Canadian member Phase 1 - 4-year project - discussion paper Q4 Presentation & disclosure Definition of DB and DC arrangements & accounting for intermediate-risk plans Smoothing & deferral mechanisms Treatment of settlements & curtailments FASB & IASB committed to common approach

  7. Corporate Pensions — An Accounting Perspective Canadian Accounting Standards Board (AcSB) Harmonize with FAS 158 effective 2007 (measurement date effective 2008) Actively monitor IASB developments Support Canadian WG member Adopt International standards in 2011 as part of Strategic Plan

  8. Corporate Pensions — An Accounting Perspective AcSB released its Exposure Draft in March 2007 (available at www.acsbcanada.org) 90-day comment period ending June 30, 2007 Includes highlights, key substantive changes, and then less significant changes Basis document to follow shortly Issue final amendments to Section 3461 in last half of 2007

  9. Corporate Pensions — An Accounting Perspective Canadian ED Temporary hybrid solution Fix Balance Sheet – Income Statement later Balance Sheet Recognize plan assets less obligation as EFB asset/liability using PBO No change in measurement Valuation allowance for asset (US-CDN GAAP difference) Potentially significant impact on financial ratios, debt covenants

  10. Corporate Pensions — An Accounting Perspective Canadian ED Income Statement Benefit cost and net income unchanged from current Section 3461 Smoothing aspects remain unchanged (amortization of actuarial gains/losses, corridor etc) Not consistent with balance sheet asset/liability, which does not include smoothing

  11. Corporate Pensions — An Accounting Perspective Canadian ED Other Comprehensive Income (OCI) Holding tank to balance the debits and credits Current year actuarial gains/losses, past service costs included in OCI Amounts in accumulated OCI are amortized to net income (identical to current amortization of unrecognized amounts) Accumulated OCI includes actuarial gains/losses, past service costs, transition balance not yet amortized to net income

  12. Corporate Pensions — An Accounting Perspective Canadian ED Measurement date Currently can measure plan assets and obligation up to 3 months prior to year end New requirement – measure at year end Tightens timeline for annual reporting

  13. Corporate Pensions — An Accounting Perspective Canadian ED Presentation Asset (overfunded plans) and Liability (underfunded plans) separate Current liability – payments in next 12 months exceed assets (by plan) Disclosure Amounts in OCI and accumulated OCI Effects of recognition and measurement date provisions on the f/s in year of adoption

  14. Corporate Pensions — An Accounting Perspective Canadian ED Effective date Recognition 2007 (FASB 2006) Measurement date 2008 Private company deferral Transition Not retrospective Recognition: Adjust current year accumulated OCI Measurement date: stub period to retained earnings

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