IFRS Exorcist Update

It was a very busy week on the IFRS front last week.

First of all I attended the IQPC Summit in Toronto. There were many high profile speakers speaking about their IFRS experiences. When I am able to catch my breath I will be writing about some of this. However, I will respect the off the record aspect of the presentations. There were some themes though. Later on last Thursday I went as an Observer to the afternoon session of the Canadian Accounting Standards Board Advisory Group. Some interesting stuff there, especially concerning the role of the auditors from now into 2011. I will post about the issue very soon.

I presented a workshop on pension issues and IFRS at the Summit. The issue has not received much airtime. It is interesting that there has been so little written about the subject given the historic meltdown in pension assets. I predict that pension accounting will be as political, if not more political, than the fair value debate in the banking industry. My views on this are essentially do not shoot the messenger. How do you present the facts transparently? There may be cases when it is not appropriate for the accounting head to wave the the regulatory tail. Or is that the other way around? In any case you get my drift I hope. The pension accounting issues need debate and we expect an Exposure Draft from the IASB soon. The proposals in the Discussion Paper on Pension Accounting very much focused on getting away from smoothing for accounting purposes. That is writing off actuarial losses and past service costs for defined benefit plans immediately. Obviously given the long term orientation of pension plans this is not a good place to be for funding. There are few, if any, companies that can afford to make up a deficiency in one gulp. Do we really want to make defined benefit plans go the way of the Dodo? Do employees really want to take on investment risk given the dramatic stock market melt down last year. There are serious policy issues here. I predict active governmental involvement in the pension area. Involvement in the financial reporting aspects has not really started yet. There are hover, quite a few proposals on how to deal with funding issues. Just wait until legislators get a handle on the financial reporting issues!

I am of course available to help present the issues and develop courses in the area. Please take a look at my background on http://ifrsexorcist.com/.
As I have been telling regular readers here I plan to move the blog to its own site. There are a number of reasons for this and I will explain the rationale in a later post.

Right now like Mary Schapiro, the new Chair (Revision - erroneously referred to as "Chief Accountant"- my apologies of course I knew she is the new Chair) of the SEC, I am taking a deep breath and regrouping when it comes to IFRS. More IFRS to come I promise.

By the way speaking of SEC the comments are due on the IFRS Roadmap proposal very soon. The FEI has asked for an extension for comments and this proposal makes a lot of sense. It comes in the middle of a very difficult year end for most companies.

David Albrecht an accounting professor who publishes a blog called the Summa recently summarized the issues for comment. It's kind of a roadmap to the roadmap. You may now that David is part of the IFRS Resistance movement in the USA. It's all done in good spirits.

A few weeks ago I wrote a post about my IFRS Exorcist identity. I had an indication that someone had taken it as a user name on a site. I do police it. When I tried to sign up on a site I got a message that the name was taken. I wrote to the company to investigate and it took quite a lot of time to investigate. The reason was not that the name was taken it was because it was an unsuitable name it has "sex" in it -IFRSexexorcist you know. You don't want your kids reading about IFRS! Well if you find IFRS sexy you really do need a life!

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.