Project Director Hans Nailor provides a progress report on this important project.

As reported previously in Inside Track, the ASB is undertaking a major research project into accounting for pensions. In addition, the European Financial Reporting Advisory Group (EFRAG) and European national standard setters have agreed to work more closely together so as to enable Europe as a whole to participate more fully in the development of global standards. These co-ordinated proactive activities are referred to by the acronym 'PAAinE', which stands for 'Proactive Accounting Activities in Europe'. Accounting for pensions was selected as a PAAinE project, which the ASB is leading. The ASB is being assisted in this project by a Pensions Advisory Panel appointed by the Board and a pan-European Working Group selected by EFRAG.

A project update Discussion Summary 30 June 2006 has been added to the ASB's website www.frc.org.uk/asb/technical/projects/project0065.html. In addition, in June staff of the ASB presented on the project to a meeting of the IASB and a meeting of European national standard setters.

An objective of the project is to contribute to the development of principles-based accounting standards on accounting for pensions and other post-retirement benefits. Our starting point for a principles-based approach is the IASB's Framework. The Framework is, however, currently being revised under a joint project of the IASB and FASB to develop a common conceptual framework (see article on page 3). Changes being considered to the definitions of assets and liabilities, the emergence of 'stand-ready' obligations in the recognition of liabilities, the reporting entity concept, control criteria for consolidation and the basis for measuring assets and liabilities are all highly relevant to our work.

The project update reports on discussions relating to:

• defining the benefits that are within the scope of the project;
• defining the liability that arises from the obligation to deliver benefits (ie what future events should be included);
• defining the assets and liabilities when a separate fund is established; and
• considering whether funds should be consolidated.

It should be treated as work-inprogress towards a discussion paper and, accordingly, the views expressed are tentative and will be developed as the project progresses.

In the initial part of the project we have considered what should be reflected in the measurement of liabilities, before going on to address how the measurement should be done. We take a fresh look the thorny issues of whether future salary increases should be reflected in the liability when benefits are linked to future salary growth and whether the liability should include so-called discretionary benefits.