Friday, January 23, 2009

Canadian Pension Funds suffered worst losses on record in 2008: What are the IFRS accounting implications?

So what's this got to do with financial reporting under IFRS? Read on.

According to a report this morning by RBC Dexia Canadian Pension Funds suffered the worst losses on record in 2008. You would have to go back to the Depression perhaps for comparable data. RBC Dexia note that prior to the 1960s information is spotty. In the total year the drop was 15.9 percent (compared with 12.7 percent in 1974! - that was still bad though). The drop in value was seven percent in the last quarter alone.

Watson Wyatt reported earlier this month that the ratio of a "typical"pension plan's solvency valuation ratio of assets to liabilities fell from 96 percent last January to 69 percent at year end.

The federal government and provinces have promised relief by lengthening funding periods. We may have more relief in next week's federal budget (especially for people with defined contribution plans such as RSPs).

Focus on funding and cash requirements. What about financial reporting and disclosure? How will you be affected when IFRS is adopted? Did you know that the IASB is planning to eliminate smoothing of actuarial losses by 2011. For you techies it means the elimination of the "corridor" method for accounting purposes. (We have it as an available option in Canada under Handbook Section 3461 but it is applied differently from IFRS methodology. Please refer to the IFRS Canada Differences Memo on the CICA website). There may be relief on what is charged to net income but that has not been decided.

Very little has been written about pension accounting and IFRS as a separate topic. There is a chapter on the issues in iGAAP:IFRS for Canada that is very extensive. There seems to have been little public debate in Canada. Recently Ernst and Young has issued a two page memorandum that discusses some of the issues in Canadian conversions related to applying IFRS pension rules of measurement and disclosure. As usual they extend beyond accounting. Please keep your eye on the road!

My advice is to get looking at it now an work with your actuary. Burying your head in the sand like an Ostrich will not help. (Yes I know this Ostrich thing is a myth - but you know what I mean).

I will be presenting a workshop on pension costs and pension plans next Wednesday at the IQPC seminar in Toronto. Hold on to your hats! Sorry a not so transparent plug for my blog on hats called Many Hatty Returns. There are so many issues I am having a tough time knowing what to leave out.

I will be reporting on the matters coming out of the IQPC seminar next week.

1 comment:

John Hughes said...

Hi Darla. I'm one of the co-editors of iGAAP 2008: IFRS for Canada. I wanted to thank you for your several kind comments about the book. I also wanted to mention that an online version of the text is now available through the publishers CCH and will be updated at least annually; it will also be fully linked to the original IFRS text and to other commentary. No doubt more issues will come up over the next few years than we can imagine - I'm looking forward to your perspective on them.

All the best

John Hughes