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2013 PAS 19 Changes is Flying Under the Radar


The financial reporting of private companies’ retirement plan under PAS 19(full PFRS) shall undergo a major overhaul, effective annual periods starting 1-Jan-2013. These changes are significant and yet are flying under the radar. Understanding the impact of the changes will help companies prepare and position itself.

Key changes along with corresponding implications are shown below:

1) Immediate recognition of actuarial gain/loss

One of the major changes is the immediate recognition of actuarial gain loss in other comprehensive income. The ubiquitous and popular corridor method, which defers gain loss recognition, shall no longer be allowed. Consequently, unrecognized items shall be recognized as a prior period adjustment under PAS 8.

Consider a hypothetical company’s financial statement as of 31-Dec-2012 under two scenarios:



The result is a decrease in equity of 850 for the first scenario and an increase in equity of 650 in the second scenario for the fiscal year 2013. Thus, the adjusted opening net liability balance for 2013 is 900 for both scenarios.

KEY: Management should understand the 2013 impact, which could already be deduced from the 2012 actuarial valuation.

2) Paradigm shift regarding the expected rate of return on assets

Both the expected interest cost (liability-side) and expected return on assets (asset-side) shall be based on the discount rate, which in turn is pegged to liability cash flows and government bond yields.

Meaning the expected return on assets shall be based on government bonds even if the plan assets do not invest entirely in government bonds.

This adds more importance in the derivation of the discount rate, which is discussed in a subsequent newsletter..

KEY: Ascertain that the discount rate calculations are based on zero-coupon bond yields. We recommend the single weighted present value approach.

3) Immediate recognition of increase in liability due to plan improvements

Increasing the plan benefits implies a corresponding increase in the obligation (DBO). The amount of increase will immediately be recognized as expense in Profit or Loss without the possibility of deferral.

Illustrative example below will show how improving the plan benefits in 2012 could help the companies manage the cost impact.

Assume that the plan benefits resulted in 1M increase in obligation.

• If done in 2012, only a portion of the 1M will be allocated to expense while the remaining part, say 0.9M, shall be unrecognized.

   When 2013 kicks in, the unrecognized amount (0.9M) will reduce equity without passing through expense in Profit or Loss.

• If done in 2013, the entire 1M will be expensed in Profit or Loss.

KEY: If plan improvement is targeted, better to do it in 2012.

4) Disclosures, disclosures, disclosures

The amendments require even more disclosures such as

• Expected cash flows for a number of years
• Asset-Liability duration metrics
• Sensitivity analysis (what if scenarios

We anticipated these disclosures; that is why we provided our clients with these calculations as early as 2011 at no additional cost.

KEY: Suggest complying with additional disclosures even before 2013.