Overview of Accounting for Defined Benefit Plans Under IFRS

1. Pensions and Post-Retirement BenefitsIAS 19 vs. APB 12, FAS 43, 87, 88, 106, 112, 146 and related guidance

2. Overview of Accounting for Defined Benefit PlansUnder IFRS Funded Status Reconciliation Components of Net Periodic Pension Costs Defined Benefit Obligation <FV of Plan Assets> Funded Status +/- Unamortized actuarial gains/losses +/- Unamortized unvested past service costs +/- Unamortized transition amount Initial amount of liability on BS +Asset Ceiling Test (if needed) Final amount of liability on BS + Service cost + Interest cost - Expected return on plan assets +/- Amortization of actuarial gains/losses (the amounts outside the corridor over the remaining service lives) +/- Amortization of past service costs (usually straight-line over remaining vesting period, or recognize immediately if vested) +/- Recognition of unamortized actuarial gains/losses and past service costs upon curtailment or settlement - Amortization of transition amount Net periodic pension costs Case Study 9

3. Defined Benefit PlansFrequency of Actuarial Valuations and Measurement Date U.S. GAAP • Actuarial valuations are required annually • Measurement date of plan assets and obligations to be at balance sheet date • IFRS (IAS 19.77) • IAS 19 does not mandate the frequency of actuarial valuations • It does however require the results of valuations to be updated (as of the balance sheet date) for material changes since the last valuation

4. Defined Benefit PlansDiscount Rates • IFRS (IAS 19.78) • Discount rates are determined by reference to market yields at the balance sheet date on high quality corporate bonds • In countries where there is no deep market in such bonds use the yields of governmental bonds • In either case use bond rate with a currency and term consistent with the currency and term of the post employment benefit obligation U.S. GAAP • Discount rates should reflect the rates at which pension benefits could be effectively settled (settlement rates) • It is appropriate to look to available information about rates implicit in current prices of annuity contracts in which an insurance company unconditionally guarantees to provide specific pension benefits to specific individuals for a fixed consideration or to high-credit-quality bonds

5. Defined Benefit PlansPost retirement liability and Asset Ceilings IFRS • Post Retirement Liability • No requirement to record funded status on balance sheet • Asset Ceiling (IAS 19.58) • Amount of prepaid pension cost is limited (i.e., asset ceiling) U.S. GAAP • Post Retirement Liability • Recognition of funded status as a net asset or net liability • Recognition of actuarial gains and losses, prior service costs, transition amount in AOCI • Asset Ceiling • Amount of net asset is not restricted

6. Defined Benefit PlansPrior (Past) Service Costs U.S. GAAP • Based on the expected future years of service of participants active at the date of the amendment who are expected to receive benefits under the plan (closed employee group) • Suggested approach is front-end loaded amortization in proportion to the future benefits. However, straight-line is also allowable IFRS (IAS 19.96) • Recognize past year service cost on a straight-line basis over the average remaining service period until the amended benefits become vested • To the extent that the benefits are already vested at the time of the plan amendment, an enterprise should recognize past year service costs immediately

7. Defined Benefit PlansActuarial Gains and Losses U.S. GAAP • Choice of recognition • Corridor approach • Immediately in current period cost • Unamortized amount included in AOCI subject to recycling IFRS (IAS 19.92-95) • Choice of recognition • Corridor approach • Immediately in current period cost • Directly to retained earnings (not subject to recycling) • Policy must be consistent for all DB plans of the entity

8. Defined Benefit PlansMulti-employer Plans U.S. GAAP • Participants in a multi-employer defined benefit plan account similarly to a defined contribution plan • Multiple employer plans accounted for as defined benefit plans IFRS • Account for participation in a multi-employer plan as a defined contribution plan if specific identification of plan assets/liabilities not possible • Recognize asset/liability if contractual agreement for allocation of surplus/deficit • Net periodic pension cost for group plans = that under agreement, or contributions if no agreement

9. Other Postemployment Benefits U.S. GAAP • FAS 112 requires postemployment benefits to be accrued over the employee's service period if all of criteria for postemployment liabilities are met (see FAS 112); if these are not met—accounting is based on FAS 5 • Regarding measurement methodologies practice often analogizes to FAS 87 and 106 • Voluntary employee severance is provided only when the employee accepts the terms of the offer (FAS 88 and FAS 146) IFRS • Under IAS 19 the principles that apply to pension and other postretirement benefits apply equally to benefits payable after employment but before retirement • Announced voluntary redundancy is provided to the extent of expected take-up (IAS 19.140)