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US GAAP versus IFRS - Employee benefits other than share-based payments - Ernst & Young - United States

US GAAP versus IFRS

Employee benefits other than share-based payments

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Similarities

ASC 715, Compensation — Retirement Benefits, and ASC 712, Compensation — Nonretirement Post-Employment Benefits, and IAS 19, Employee Benefits, are the principal sources of guidance for employee benefits other than share-based payments under US GAAP and IFRS, respectively.

Under both US GAAP and IFRS, the net periodic benefit cost recognized for defined contribution plans is based on the contribution due from the employer in each period. The accounting for defined benefit plans has many similarities as well.

The defined benefit obligation is the present value of benefits that have accrued to employees through services rendered up to that date, based on actuarial methods of calculation.

Both US GAAP and IFRS provide for certain smoothing mechanisms in calculating the periodic benefit cost.

Significant differences


 US GAAPIFRS
Actuarial method used for defined benefit plansDifferent methods are required depending on the characteristics of the plan's benefit formula.Projected unit credit method is required in all cases.
Valuation of defined benefit plan assets (to calculate the expected return on plan assets)Based on the market-related value (which is either the fair value or a "calculated value" that smoothes the effect of short-term market fluctuations over five years) as of the balance sheet date.Based on the fair value of plan assets as of the balance sheet date.
Treatment of actuarial gains and losses for net periodic benefit costMay be recognized in the income statement as they occur or deferred through a corridor approach.May be recognized in the income statement as they occur or deferred through a corridor approach. However, entities can also elect to recognize gains and losses immediately in other comprehensive income. Gains or losses recognized immediately in other comprehensive income are not subsequently recognized in the income statement.
Amortization of deferred actuarial gains and lossesAt minimum, amortize over the average remaining service period of active employees or over the remaining life expectancy of inactive employees (if all or almost all participants are inactive).

Any other systematic method of amortization that is applied consistently from period to period may also be used, provided it results in a higher amount than the minimum described above.		Over the average remaining service period (i.e., immediately if participants are inactive).Any other systematic method of amortization that results in faster recognition and is applied consistently from period to period may also be used.
Amortization of prior service costsOver the average remaining service period of active employees or, when all or almost all participants are inactive, over the average remaining life expectancy of those participants.Over the average remaining vesting period; immediate recognition if already vested.
Recognition of plan asset or liability in the balance sheet Must recognize on balance sheet the over/under funded status as the difference between the fair value of plan assets and the benefit obligation. The benefit obligation is the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for any other postretirement plans.

No portion of a plan asset can be classified as current; however, the current portion of the net postretirement liability is the amount expected to be paid in the next 12 months.		Must recognize a liability on the balance sheet equal to the present value of the defined benefit obligation plus or minus any actuarial gains and losses not yet recognized, minus unrecognized past service costs, minus the fair value of any plan assets. (Note: If this amount is negative, the resulting asset is subject to a "ceiling test.")

Balance sheet classification is not addressed in IAS 19.
Settlements and curtailments Settlement gain or loss is recognized when the obligation is settled.Curtailment losses are recognized when curtailment is probable of occurring, while curtailment gains are recognized when the curtailment occurs.Gain or loss from settlement or curtailment is recognized when it occurs.
Multi-employer pension plansAccounted for similar to a defined contribution plan.Plan is accounted for as either a defined contribution or defined benefit plan based on the terms (contractual and constructive) of the plan. If a defined benefit plan, must account for the proportionate share of the plan similar to any other defined benefit plan unless sufficient information is not available.

Convergence

The FASB and the IASB agreed to a long-term convergence project to comprehensively challenge the accounting for postretirement benefits. This project is expected to address many of the common concerns with the current accounting model, such as the smoothing and deferral mechanisms.

The IASB project was divided into two parts. Part 1 of the project, addressing the recognition and presentation of changes in the defined benefit obligation and in plan assets, disclosures, and other related issues, was completed in June 2011 when the IASB issued amendments to IAS 19, Employee Benefits, which are effective 1 January 2013.

Current differences between US GAAP and IFRS will be affected by the IASB's amendments to IAS 19. Note that this publication does not address the differences between US GAAP and IFRS resulting from the amendments to IAS 19 because of its delayed effective date.

The second phase of the project, which will focus on improving the measurement of defined benefit plans and contribution-based plans, has not yet begun. The FASB considers the project a lower priority and does not expect further action in the near term.


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