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Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council

Content

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Transitional provisions

153. This section specifies the transitional treatment for defined benefit plans. Where an enterprise first adopts this Standard for other employee benefits, the enterprise applies IAS 8, net profit or loss for the period, fundamental errors and changes in accounting policies.

154. On first adopting this Standard, an enterprise should determine its transitional liability for defined benefit plans at that date as:

(a) the present value of the obligation (see paragraph 64) at the date of adoption;

(b) minus the fair value, at the date of adoption, of plan assets (if any) out of which the obligations are to be settled directly (see paragraphs 102 to 104);

(c) minus any past service cost that, under paragraph 96, should be recognised in later periods.

155. If the transitional liability is more than the liability that would have been recognised at the same date under the enterprise's previous accounting policy, the enterprise should make an irrevocable choice to recognise that increase as part of its defined benefit liability under paragraph 54:

(a) immediately, under IAS 8, net profit or loss for the period, fundamental errors and changes in accounting policies; or

(b) as an expense on a straight-line basis over up to five years from the date of adoption. If an enterprise chooses (b), the enterprise should:

(i) apply the limit described in paragraph 58(b) in measuring any asset recognised in the balance sheet;

(ii) disclose at each balance sheet date: (1) the amount of the increase that remains unrecognised; and (2) the amount recognised in the current period;

(iii) limit the recognition of subsequent actuarial gains (but not negative past service cost) as follows. If an actuarial gain is to be recognised under paragraphs 92 and 93, an enterprise should recognise that actuarial gain only to the extent that the net cumulative unrecognised actuarial gains (before recognition of that actuarial gain) exceed the unrecognised part of the transitional liability; and

(iv) include the related part of the unrecognised transitional liability in determining any subsequent gain or loss on settlement or curtailment.

If the transitional liability is less than the liability that would have been recognised at the same date under the enterprise's previous accounting policy, the enterprise should recognise that decrease immediately under IAS 8.

156. On the initial adoption of the Standard, the effect of the change in accounting policy includes all actuarial gains and losses that arose in earlier periods even if they fall inside the 10 % "corridor" specified in paragraph 92.

Example illustrating paragraphs 154 to 156

At 31 December 1998, an enterprise's balance sheet includes a pension liability of 100. The enterprise adopts the Standard as of 1 January 1999, when the present value of the obligation under the Standard is 1300 and the fair value of plan assets is 1000. On 1 January 1993, the enterprise had improved pensions (cost for non-vested benefits: 160; and average remaining period at that date until vesting: 10 years).

The transitional effect is as follows:

The enterprise may choose to recognise the increase of 136 either immediately or over up to 5 years. The choice is irrevocable. 

At 31 December 1999, the present value of the obligation under the Standard is 1 400 and the fair value of plan assets is 1 050. Net cumulative unrecognised actuarial gains since the date of adopting the Standard are 120. The expected average remaining working life of the employees participating in the plan was eight years. The enterprise has adopted a policy of recognising all actuarial gains and losses immediately, as permitted by paragraph 93.

The effect of the limit in paragraph 155(b)(iii) is as follows.

Effective date

157. This International Accounting Standard becomes operative for financial statements covering periods beginning on or after 1 January 1999, except as specified in paragraphs 159 and 159A. Earlier adoption is encouraged. If an enterprise applies this Standard to retirement benefit costs for financial statements covering periods beginning before 1 January 1999, the enterprise should disclose the fact that it has applied this Standard instead of IAS 19, retirement benefit costs, approved in 1993.

158. This Standard supersedes IAS 19, retirement benefit costs, approved in 1993.

159. The following become operative for annual financial statements covering periods beginning on or after 1 January 2001:

(a) the revised definition of plan assets in paragraph 7 and the related definitions of assets held by a long-term employee benefit fund and qualifying insurance policy; and

(b) the recognition and measurement requirements for reimbursements in paragraphs 104A, 128 and 129 and related disclosures in paragraphs 120A(f)(iv), 120A(g)(iv), 120A(m) and 120A(n)(iii).

Earlier adoption is encouraged. If earlier adoption affects the financial statements, an enterprise should disclose that fact.

159A. The amendment in paragraph 58A becomes operative for annual financial statements(21) covering periods ending on or after 31 May 2002. Earlier adoption is encouraged. If earlier adoption affects the financial statements, an enterprise should disclose that fact.

159B. An entity shall apply the amendments in paragraphs 32A, 34-34B, 61 and 120-121 for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity applies these amendments for a period beginning before 1 January 2006, it shall disclose that fact.

159C. The option in paragraphs 93A to D may be used for annual periods ending on or after 16 December 2004. An entity using the option for annual periods beginning before 1 January 2006 shall also apply the amendments in paragraphs 32A, 34-34B, 61 and 120-121.

160. IAS 8 applies when an entity changes its accounting policies to reflect the changes specified in paragraphs 159-159C. In applying those changes retrospectively, as required by IAS 8, the entity treats those changes as if they had been applied at the same time as the rest of this Standard, except that an entity may disclose the amounts required by paragraph 120A(p) as the amounts are determined for each annual period prospectively from the first annual period presented in the financial statements in which the entity first applies the amendments in paragraph 120A.

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