Peeling the IFRS Onion

The SEC's proposed road map for a move to International Financial Reporting Standards (IFRS) by U.S. issuers by 2014 is so sweeping that the layers of complexity seem endless -- so much so that some critics glibly call IFRS the "Accountants' Full Employment Plan" or the accountants' equivalent of Y2K.

Critics of the intended common financial language warn that cultural interpretations of the new rules can look as different as escargot and Big Macs, and that non-U.S. companies that are reporting in IFRS have tweaked their interpretations of the rules so much that it defeats the purpose of a global standard.

One commonly overlooked area where IFRS will have major consequences is pensions. While few would argue that current pension accounting standards are in dire need of an overhaul, the handful of companies that have taken a look at the changes proposed in the International Accounting Standards Board's (IASB's) preliminary views paper don't like much of what they see.

Most respondents in a Watson Wyatt Worldwide survey of finance and employee benefit directors in seventeen countries say change is needed in several key areas of pension accounting. Improvements to requirements for the measurement of cash balance and similar pension plans are viewed as most necessary, but the IASB has indicated that it might make this area a low priority.

Most respondents (56 percent) agree with the IASB that pension accounting should change by removing options to defer the recognition of plan gains and losses. But 80 percent of them don't support the IASB's suggestion to recognize all plan experience immediately in the profit and loss (P & L) account, one of three options the IASB is considering in this area. "If implemented, the proposed changes could mean higher assessments of liabilities and increased volatility in employer financial statements," said John Steele, a senior retirement consultant at Watson Wyatt.

Differences between employers and the IASB over priorities in pension accounting reform don't stop there. Fifty-eight percent of survey respondents believe requirements for the measurement of final salary and retiree medical plans should be improved but this area isn't addressed in the IASB's discussion paper.

Get more information on the IASB's proposal and the survey report.