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Member, Beacon International Group, Ltd.
LONDON (Reuters)—Companies across the world will have to spell out more clearly to investors the costs of employee pensions under a new accounting standard published on Thursday.
The International Accounting Standards Board (IASB), whose IAS rules are used in more than 100 countries, including the European Union, said defined benefit pension schemes represent the biggest single financial liability for many companies.
"The amendments to IAS 19 issued today will ensure that investors and other users of financial statements are fully aware of the extent and financial risks associated with those commitments," IASB Chairman David Tweedie said in a statement.
"At the same time the amendments help to separate out the background noise of changes in pension liabilities from the underlying financial performance of the core business," Mr. Tweedie said.
Many companies have already scrapped costly defined benefits schemes, where a pension is linked to salary levels, regardless of how the money invested has fared.
The amended rule takes effect January 2013 and is part of a broader regulatory effort to shine a light on off-balance-sheet activities of firms.
Companies will no longer be able to defer the recognition of gains and losses and will be required to provide a much clearer picture of obligations and how they will affect the company's financial performance and cash flow.
KPMG, a consultancy and auditing firm, said the rule change will trim reported profits in Britain by £10 billion ($16.23 billion) due to costs such as having to disclose separately the costs of running employee benefit plans.
"The requirement to separate these out will perhaps bring more of a board-level focus on the costs of maintaining defined benefit provision, and hence lead to pressure to reduce provider costs," KPMG said.