The IASB’s Exposure Draft 'Defined Benefit Plans: Employee Contributions' (ED) addresses the accounting for contributions from employees or third parties when the requirement for such contributions is set out in the formal terms of a defined benefit plan. It proposes that such contributions may be recognised as a reduction in the service cost in the same period in which they are payable if, and only if, they are linked solely to the employee’s service rendered in that period. In addition, the ED addresses an existing inconsistency in IAS 19 'Employee Benefits' (2011) in relation to the attribution of these contributions to periods of service unless the proposed practical expedient applies.
EFRAG agrees with the IASB’s proposals on the basis that they provide relief to preparers on accounting for contributions from employees or third parties. EFRAG also supports the IASB in addressing the existing inconsistency in IAS 19 (2011) in relation to the attribution of these contributions as this would reduce potential divergence in practice.
EFRAG believes, however, that the IASB should ensure that the wording of the proposed amendments does not lead to confusion and uncertainties in its practical application. EFRAG also recommends the IASB to provide application guidance as part of the ED to illustrate the calculations required by IAS 19 (2011) when the practical expedient cannot be applied or entities choose not to apply the practical expedient.
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© EFRAG - European Financial Reporting Advisory Group
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