Companies may make changes to their policies regarding employee benefits because of proposed new accounting rules, according to a Mercer web briefing earlier today.
“Some organizations may be reluctant to make improvements to benefit plans as the cost of the improvement will have an immediate impact on net equity,” says Darrin Bull, a principal and co-lead of the post-retirement benefit accounting specialist group with Mercer Human Resource Consulting. “Other organizations may switch to defined contribution(DC)plans or curtail healthcare benefits for future retirees.”
Last month, an Exposure Draft of proposed amendments to the Canadian Institute of Charters Accountants Handbook Section 3461 on employee future benefits was issued by the Accounting Standards Board.
There are three major changes proposed: the funded status of benefits plans must be recognized on the balance sheet; plan assets and obligations will have to measured at fiscal year-end, not up to three months early as currently allowed; and footnote disclosures will need to change to become consistent with balance sheet recognition.
Non-profit organizations and publicly traded enterprises must recognize their plans’ funded status in their balance sheets starting with fiscal years ending on or after December 31, 2007. It will take effect a year later for private firms.
Public sector organizations and government entities following public sector accounting standards will not be affected as they have their own specific requirements for reporting pension and other post-retirement benefits which are somewhat different than CICA rules.
To read the draft, click here.
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