The Accounting Standards Board (ASB) has completed its research project into the Financial Reporting of Pensions and issued its final report ‘The Financial Reporting of Pensions: Feedback and Redeliberations’. The objective is to provide the International Accounting Standards Board (IASB) with recommendations on matters it might consider in developing a future financial reporting standard on pensions.

The report is a follow-up to the January 2008 Discussion Paper (DP) ‘The Financial Reporting of Pensions’. It sets out the ASB’s redeliberations and recommendations following the comments received during the consultation process. A total of 103 responses were received to the DP and the ASB has spent considerable time in reviewing the issues raised.

The report is being published under the Pro-active Accounting Activities in Europe (PAAinE) initiative by the ASB, the European Financial Reporting Advisory Group (EFRAG), the Accounting Standards Committee of Germany (ASCG) and the French Conseil National de la Comptabilité (CNC). The recommendations are, however, only those of the ASB. The other bodies consider the report a useful contribution to the debate on the financial reporting of pensions but do not express a view as to the recommendations.

The report has, in the main, affirmed the views set out in the DP, acknowledging that a number of them cover difficult issues and are controversial. In particular, on the measurement of liabilities, it has affirmed the view that the discount rate used should reflect the time value of money, and therefore should be a risk-free rate. The ASB has reiterated that it is not possible to make a reliable estimate of the risk arising from the size and variability of the liability to pay pension benefits. In its view users of financial statements are better served by disclosures regarding the risk rather than through adjustment of the underlying liability.

In addition there is an attempt to clarify the cash flows that should be used in measuring the liability to pay pensions.

The ASB has, however, decided not to affirm its view that the actual return on assets held to fund pension liabilities should be presented separately as financing income in the statement of comprehensive income. Whilst acknowledging the conceptual merits of this approach, it took into consideration the views of some respondents, including users of financial statements, who did not consider the approach useful. The ASB considers that further research is required in this area.