Research Report

Overseas Research on Application of International AccountingStandard 19 and Its Implications

March 2011

This is an English translation of ―国際会計基準（IAS19）の適用に関する海外調査と示唆‖ except for its appendix. The original was issued
in Japanese.

The Japanese Society of Certified Pension Actuaries

This report is authorized to be made public at the meeting of the Board of Directors of theJapanese Society of Certified Pension Actuaries (JSCPA) held on February 17, 2011
according to the document publication rule of JSCPA .



The contents of this report are based on the information available when the report was
authorized to be made public and are subject to change without prior notice due to changes
in the economic or social environment and revision of laws and regulations.



JSCPA assumes no responsibility for damages incurred by the use of any analysis or
simulation contained in this report.

1Preface
This research report was prepared based on the field research on application of the International
Financial Reporting Standards (IFRS, mainly IAS 19 employee benefits) in four European countries
in September 2010.
In Japan, the accounting standard for post-employment benefits similar to the then US standard
and IAS 19 was adopted from fiscal years starting after April 2000. Recently, as a part of theconvergence to minimize the differences between the overall Japanese standards and IFRS, a projectis underway to further revise the accounting standard for post-employment benefits.
EU announced a judgment that the Japanese standards were equivalent to IFRS.

In 2008, theThe exposure draft(Step one of the longer project) issued by the Accounting Standards Board of Japan (ASBJ) in March2010 included the proposal to mostly erase the remaining differences between the Japanese standard
and IAS 19 regarding the valuation of post-employment benefit obligations, which is closely related
to our business activities.

The current schedule is to reach a conclusion by the end of March 2011.

Meanwhile, the position document (interim report) issued by the Business Accounting Council of
the Government of Japan in June 2009 considered it appropriate to permit application of IFRS as
issued by IASB on a voluntary basis as early as possible.

It set a target of around 2012 as thetiming for making a decision on compulsory application. Along with this, the Regulation ofConsolidated Financial Statements was amended in December 2009, and accordingly, application of
IFRS on a voluntary basis to consolidated accounting report of listed companies that satisfied certain
requirements started from the fiscal year ended in March 2010.
Based on these developments, at its meeting in December 2009, the Board of Directors of JSCPA
authorized field research to be carried out in European countries which have already introduced
IFRS.
Among our Committee members, Akihiro Hotta, Takahito Hombe, Takeshi Toyodome, Masashi
Kitano and Takashi Ogawa volunteered to participate, so six people including myself were going toundertake research. This became the Research Team on IFRS adoption, which started specificplanning from April 2010.

Takahito Hombe became a team leader.

All the members werecommitted to making the most of what they had despite their busy business schedules.
The Committee also has Japanese Standards Team (led by Kenichi Kusakabe) and International
Standards Team (led by Akihiro Hotta). The former watches the Japanese standards amendments
and is currently reviewing the entire text of the actuarial practice standards of JSCPA corresponding
to the convergence project.

The latter watches the amendments of IFRS (mainly IAS 19). Both

Teams supported this research, and I expect its results to be utilized in their activities.
Major countries were picked up for our research that have defined benefit plans where there is agood likelihood of interviewing appropriate people.

We eventually chose UK, Germany,
2

Netherlands and Switzerland. In setting up the places to visit, the following people kindly provided
great support. I would like to take this opportunity to extend my appreciation to them.
Gary R. Hibbard

Chair, Pensions and Employee Benefits Committee of IAA*

Alfred E. Gohdes

Chair, Accounting Standards Subcommittee of PEBC of IAA

Motohide Ozawa

Former member, Technical Committee of Employee Benefits of ASBJ

Ryo Matsubara

Full member, JSCPA

Akihiro Hotta

Member, the Committee

Takuma Fukuhara

Member, the Committee

Takanobu Miwa

Member, the Committee

Shinichi Nasukawa

Member, the Committee*IAA: International Actuarial Association

We believe the necessary information was obtained efficiently as we were able to interview many
people in leading positions, and the places we visited were diverse in the following aspects:･ Three types of companies: audit firms, actuarial consulting firms and preparers of financial
reports･ EU: UK, Germany and Netherlands belong to EU, while Switzerland does not.
･ Currency: Pound sterling (UK), Euro (Germany and Netherlands) and Swiss Franc (Switzerland)･ Pension plan: Trust scheme in UK and foundation (legal personality) in other three countries.
However, in Germany, other schemes including book reserve are also popular.

The design ofbenefits and funding standards vary depending on the country.
･ Accounting standards: In UK the difference between the local standard (FRS17) and IAS 19 issmall.

Various differences exist in other countries.

The research was based on the questionnaire e-mailed in advance. Utilizing the face-to-faceinterview, we not only gathered the answers but also tried to grasp the background. I would like tothank people who kindly accepted an interview for sparing their valuable time.
Since the research is based on interviews, it does not necessarily reflect statistical facts, and we
may have misinterpreted some points. We summarized the results by exchanging information
among research members during and after the field trip in order to avoid such problems as far as
possible.
I sincerely hope these research findings and implications contribute not only to members of
JSCPA but also to the many people who are interested in accounting for post-employment benefits.
March 2011
Yasuyuki Fujii, Chair
Accounting Standards Committee of JSCPA
3

Research Members
NameCompany

Chair

Yasuyuki Fujii

The Sumitomo Trust & Banking Co., Ltd.

Team Leader

Takahito Hombe

Russell Investments

Akihiro Hotta

Deloitte Touche Tohmatsu LLC

Takeshi Toyodome

Nippon Life Insurance Company

Masashi Kitano

The Sumitomo Trust & Banking Co., Ltd.

Takashi Ogawa

Mizuho Trust & Banking Co., Ltd.

Back row, from left, Akihiro Hotta, Takeshi Toyodome, Masashi Kitano, Takashi Ogawa
Front row, from left, Yasuyuki Fujii, Takahito Hombe4

Table of Contents
Page No.
I

Research Method

6II

Executive Summary and Implications for Japan11

III Research Findings

21

1

Estimation of yield curve22

2Discount rate25

3

Inflation rate30

4Relevance of financial assumptions

30

5

Mortality

31

6

Use of computational short cuts and approximation, roll forward

31

7

Hybrid plan

32

8Back loading

33

9

IFRIC 1433

10

Local GAAP

34

11

Topics regarding application of IFRS

34

12Actuarial practice standards for post-employment benefits accounting

35

13

Involvement of actuaries for post-employment benefits accounting

36

14

Other matters regarding post-employment benefits accounting

37

IV Appendix: Summary by Country


UK



GermanyNetherlands



Switzerland

This English version does not contain Appendix.

5

I. Research Method

6I Research Method

1. Research period

September 6-14, 2010

2. Research member

We split into two parties considering the locations of the places we visited.

Party A : UK, Germany and Netherlands
Yasuyuki Fujii(Sumitomo Trust & Banking)Akihiro Hotta(Deloitte Touche Tohmatsu)

Masashi Kitano(Sumitomo Trust & Banking)

Party B: UK, Germany and Switzerland
Takahito Hombe(Russell Investments)

Takeshi Toyodome(Nippon Life Insurance)

Takashi Ogawa(Mizuho Trust & Banking)

3. Places to visit

Places we visited to research are as follows.
Actuarial consulting
firms
(5)
UK
(9)
Germany(5)

Hewitt Associates
MercerTowers Watson
Hewitt Associates
Towers Watson

Netherlands(3)—

Switzerland(2)—

Audit firms(12)Deloitte
Ernst & Young
KPMG
PricewaterhouseCoopers
Deloitte
Ernst & Young
KPMG
Deloitte
Ernst & Young
KPMG
Ernst & Young
KPMG

Preparers of financial
reports(2)
BP
Unilever

—

—

—

7

I Research Method

4. Interviewees

Interviewees are as follows (titles omitted).

UK

Germany

Netherlands

Switzerland

Company nameIntervieweeBPAngus Bantock, Gary Hibbard

Deloitte

Richard Bradshaw, David Robbins, Shinichi Shibata

Ernst & Young

Heather Buttle, Nancy Stockmeyer, Lawrence Wong

Hewitt Associates

Martin Lowes, Kirsten Miller, Simon Robinson

KPMG

Alex Burton, Lynn Pearcy

MercerWarren Singer, Brian D Waite

PricewaterhouseCoopers

Tony de Bell, Richard Davis

Towers Watson

Mark O’Brien, Christine Farmer

Unilever

Noel Mulvihill

Deloitte

Hartmut Moormann

Ernst & Young

Lars Hesemann

Hewitt Associates

Philopp Derr, Rainer Goidbach, Dieter Oppermann

KPMG

Susanne Jungblut, Karsten Knauf

Towers Watson

Alfred E. Gohdes

Deloitte

Gerben Huijsman, Hiroya Yasuda

Ernst & Young

Casim Snoeks, Jeroen Vernooij, Kiyonobu Ikeuchi

KPMG

Kees Bergwerff, Alexander C. van Stee

Ernst & Young

Elisa Alfieri, Thomas Gisler, Frank Meisinger

KPMG

Susanne Haas

8

I Research Method

5. Research procedure

We e-mailed the following questionnaire in advance.

9

I Research Method

10II. Executive Summary and Implications for Japan

11

II Executive Summary and Implications for Japan

In applying IAS 19 in Japan, we summarize matters we believe to be of great interest in thecontext of the current accounting practice for post-employment benefits in Japan, and describe
implications for Japan based on the research findings.

1. Underlying interest rate for discount rate
Paragraph 78 of IAS 19 states ―The rate used to discount post-employment obligations shall be
determined by reference to market yields at the end of the reporting period on high quality corporate
bonds. In countries where there is no deep market in such bonds, the market yields (at the end of
the reporting period) on government bonds shall be used.‖ This leads to the issue of whether areference rate shall be on high quality corporate bonds or government bonds.

In all the countries we visited, the discount rate is determined by referring to market yields onhigh quality corporate bonds. Since these countries have life term annuity in general, it seems
difficult, compared with government bonds, to estimate market yields over the long term for the
benefit payments. Nevertheless, they somehow estimate a yield curve on high quality corporate
bonds and use it as the discount rate.

Also in Switzerland (which use Swiss Franc), one of the countries we visited, we believe the bondmarket is smaller than that of Japan, but they use market yields on high quality corporate bonds as areference. In Switzerland, they add a spread of high quality corporate bonds to government bonds(spread of corporate bonds) to a yield curve of government bonds in estimating a yield curve of highquality corporate bonds.

Based on these findings, we can conclude that it is natural in developed countries in Europe forthe discount rate to be determined by referring to market yields on high quality corporate bonds, andfor various measures to be taken on a practical level to estimate a yield curve of high quality
corporate bonds. We believe this serves as a useful reference for Japan.

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II Executive Summary and Implications for Japan

2. Estimation of yield curve

In all the countries we visited, the yield curve used under IAS 19 is the one estimated by actuarialconsulting firms. If the same yield curve is obtained no matter who estimates it, we can all use thesame yield curve estimated by someone. However, it is, in fact, not that simple to estimate a yield
curve of high quality corporate bonds that is appropriate for measuring DBO*. Starting from theselection of data, the estimation model to interpolation/extrapolation method, the scope of
consideration is quite broad.

For example, in some places we visited, they tried various measures (e.g. elimination of afinancial sector whose spread of corporate bonds jumped, change in the timing to collect reference
data in order to reflect a delay in rating update) in creating data universe during the financial crisis in
2008.

The world economy is globalizing, and effects are transmitted instantly. We have observed cases
where a crisis that occurred in a certain country or region had a significant influence on a financial
market of a geographically distant country or region. The financial crisis in 2008 is said to have
had a limited impact on the high quality corporate bond market in Japan. However, from 1997 to
1998 (Asian currency crisis (1997), Japan’s financial crisis (1997) and Russian debt crisis (1998)),
the spread of high quality corporate bonds in Japan was high. We must bear in mind that the samething might happen in the future.

Points to remember when estimating a yield curve of high quality corporate bonds can besummarized as follows.

First, it is necessary to understand the characteristics of a corporate bondmarket as well as its surrounding environment. Without such understanding, it is difficult to selectthe optimal universe. Next, it is necessary to consider a reasonable estimation model of a yield
curve and interpolation/extrapolation method.

Various factors need to be considered then, such as

work efficiency and impact of a chosen method on DBO. Lastly, it is important not to adhere to aselected approach but to review it in response to changes in the surrounding environment and makechanges as necessary so that such approach serves the principle purpose.

* DBO is a commonly used abbreviation for Defined Benefit Obligation under IAS 19. DBO isa correspondence to post-employment benefit obligations under the Japanese standard or
Projected Benefit Obligation (PBO) under the US standard.

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II Executive Summary and Implications for Japan

Reference: Yield curve of high quality corporate bonds

In general, it is necessary to keep the following points in mind when estimating ayield curve of bonds.
i.

Most of bond dealings are negotiation transactions, and all the specific results oftransactions are not necessarily made public.

ii. There are some bonds with no active trading.
iii. When there is no active trading or when the market is in turmoil, it is difficult toestimate prices of tradable bonds with public bid/ask information only.

In addition, the following points need to be considered in the case of a yield curve ofcorporate bonds.
iv. Since the amount of negotiable corporate bonds with long remaining periods issmaller than that of government bonds, the level of estimation by extrapolation ishigher.
v. Bonds that no longer meet the criteria of being high quality can remain in theuniverse for a time due to a delay in rating change by rating agencies.

It is important to keep in mind that a yield curve of high quality corporate bonds isestimated under such constraints.

In particular, it is necessary to pay careful attention to a spread of corporate bonds
during the time of economic turmoil such as financial crisis.

In Europe’s corporate bond market, the credit risk of financial institutions increased
during the financial crisis in 2008, and the spread of corporate bonds of financial
institutions expanded significantly.

It is also said that the effect of changes in the

short-term liquidity premium due to a worsening balance of supply and demand was not
small.

The spread of corporate bonds expanded greatly due to the short-term

supply-demand relationship as many investors became risk-averse and dumped bonds
out of concern for a depletion of liquidity. Reviews of ratings by rating agencies may
be delayed compared with the reality, and this point attracted attention in particular at
the end of fiscal year in December 2008.

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II Executive Summary and Implications for Japan

3. How to determine discount rate

How to select an approach to determine the discount rate is influenced by various factors such as
the shape of a yield curve (flat or steep), conditions of a yield curve such as stability (whether achange in a shape through time is significant), convenience (workload to estimate the time of benefit
payment, compatibility with roll forward) and suitability with asset management strategies.

In the countries we visited, the yield pickup approach has been commonly used so far. Thisapproach does not reflect any changes in the shape of a yield curve.

But since yield curves in

Europe have been relatively flat, the effect of a difference in approaches to determine the discountrate was minimal, so that this approach has been popular given its ease of use in practice.

However, changes in the economic environment triggered a shift from an approach that cannot
reflect a change in the shape of a yield curve to approaches that do. Furthermore, some countries
we visited also adopted the sample cash flow approach.

This approach seems to allow bothreflection of a change in the shape of a yield curve and convenience.

In fact, the sample cash flow approach requires selection of cash flows to be used as samples, butsince there are lots of similarities in the design of benefits in these countries (e.g. life annuity andstraightforward benefit formula), it may be possible to classify cash flow characteristics by using therelatively small number of parameters. Meanwhile, in the case of the Japanese system, it seems
quite difficult to adopt a similar approach since classifying future cash flows is not easy for thefollowing reasons: (1) the lump-sum post-employment benefit system is widespread, (2) a pension
system is in place where an employee receives a lump-sum withdrawal payment or a lump-sum
optional payment, (3) the benefit formula often varies by plan and may discontinuously jumps, andtherefore the effect of employee turnover is significant.

However, we need to consider the fact that the sample cash flow approach that allows for better
rationality and convenience is actually used and the attitude to review an approach in response tochanges in the environment. As the relationship between development of actuarial approaches andthe consistency in accounting is not explicit, such an attitude implies it is important to keep thinking
of a better way to achieve an principle objective or changing an approach to be used in accordancewith changes in the environment, rather than sticking to the same approach.

Also, the approach used to determine the discount rate is not unrelated to asset management

15

II Executive Summary and Implications for Japan

strategies. In particular, when a strategy to increase the correlation between assets and liabilities is
adopted, the approach used to determine the discount rate becomes more important.

Under such a

strategy, conditions must be developed that allow asset management to easily follow changes in
DBO associated with changes in interest rates. For example, when a strategy to offset benefits withcash flow from management of bonds (cash flow matching strategy) is used, it may be more
important to reflect the yield curve in valuing DBO as much as possible.

4. Role of actuaries in the process of determining the discount rate

As is well known, the discount rate is determined by a preparer of financial reports, not an actuary.
However, in the countries we visited, actuaries are involved in various aspects of the entire processof determining the discount rate. For example, actuaries are involved in the selection of data
universe used in estimating a yield curve. Actuaries’ communication with clients is also considered
important.

The role of actuaries in the countries we visited can be summarized as follows.

First, it is to

propose a discount rate that is considered reasonable. Second, it is to explain the calculation
process of the proposed discount rate and its reason. Third, it is to guide clients until the final
discount rate is determined.

It becomes important to make sure they understand the information

provided. The people actuaries communicate with may include concerned parties such as auditors
as necessary.

Fourth, it is to submit a proposal for review when a review becomes necessary due tochanges in the environment.

Changes in the environment include significant changes in theeconomic environment, personnel organization and expected cash flow due to changes in pension
plans.

In reality, it is rare for the discount rate proposed by actuaries to not be accepted. Formally,
clients agree to the advice of actuaries in determining the discount rate, but in fact, clients (small
enterprises in particular) leave determination of the discount rate entirely to actuaries.

5. Mortality

In the countries we visited, life annuity is prevalent, and therefore the effect of mortality issignificant. Since the mortality has been continuously improving, and this trend is expected to16II Executive Summary and Implications for Japan

continue, interest in mortality is very high. An improvement in the future mortality is incorporated
in the process of DBO calculation by using the mortality tables by generation.

In Japan, since most post-employment benefit plans consist of lump-sum, fixed-term annuity orlife annuity with a guarantee period, the effect of changes in the mortality is limited. Therefore, themortality is not considered to be an important assumption, and it is not common to incorporate afuture improvement of mortality in calculation. However, even in Japan, in a plan whose benefits
are greatly influenced by changes in the mortality, there may be room for further consideration about
reasonably incorporating an expected improvement in the mortality in the future, like in Europe.

In the countries we visited, finely-tuned responses are not taken on a practical level when making
assumptions with no great impact.

For example, the impact of a difference in employee turnover

on DBO is not so big since life annuity benefits are prevalent and a benefit formula isstraightforward. Therefore, regardless of the size of a corporation, many respondents said that they
commonly used a uniform employee turnover for all ages or a model turnover. This is in stark
contrast to Japan where, since many plans are influenced greatly by employee turnover, calculationof employee turnover rate by plan based experience has been established on a practical level.

6. How to measure DBO as of the end of the reporting period

In the countries we visited, it is not common to calculate DBO by directly using the data as of theend of the reporting period. The approach commonly used is to calculate DBO by using the data
before the end of the reporting period, roll forward it until the end of the reporting period and makeadjustments based on the sensitivity analysis to reflect the discount rate at the end of the reporting
period.

The fundamental idea of roll forward is the same in these countries, but there are some differences
on a practical level. The biggest difference is the age of the data to be used for roll forward. In
general, the date of origination for roll forward seems to be affected by the current funding standards
and tax practices. In the countries we visited, accounting treatment varies in line with thesedifferences on a practical level.

In UK, since full actuarial valuation is usually implemented every three years for funding
purposes, and companies are allowed to use roll forward for other years, the date of origination for
DBO’s roll forward for accounting purposes is often set at three years before at the maximum. In

17

II Executive Summary and Implications for Japan

Germany, since companies are allowed for tax purposes to use the data of three months before, thedate of origination for roll forward is set at three months before in principle.

We felt there was a slight difference by country or by plan in how much they would reflect
experiences in roll forward. This indicates that they think of roll forward flexibly considering thesize or stability.

For adjustments made to reflect changes in the discount rate, these countries use the sensitivity
analysis of DBO.

In Japan, it is common to roll forward DBO measured by the data of approximately one year ago
while considering practical efficiency and influences and make adjustments to reflect the impact ofchanges in the discount rate. We confirmed that the approach basically similar to the one in Japan
was adopted for the practice of IAS 19 in the countries we visited.

7. Actuarial practice standards for post-employment benefits accounting

Official interpretation of IFRS is provided by IFRIC. Therefore, there is no mandatory actuarial
practice standard for IAS 19 in the countries we visited.

However, they have working-levelguidelines for actuaries as follows. This may be helpful in considering the shape of Japan’s
actuarial practice standard.

i.

UK: They apply the actuarial guidance note for the local GAAP that is similar to IAS 19.

ii.

Germany: The society of actuaries creates a non-mandatory guideline for all the members. It
is virtually mandatory since the members are required to follow the guideline unless there is aclear and sufficient reason for not doing so.

iii. Switzerland: The working group (actuaries also participate), established by the Institute ofCertified Public Accountants and Tax Accountants, summarizes examples on a practical level
and their implications and publishes them in authoritative journals. They function as the defacto standard. However, they do not cover all the standards.

18

II Executive Summary and Implications for Japan

8. Valuation of DBO and attribution of benefits

For judgment of back loading that is considered difficult to implement in Japan, since a benefit
formula is straightforward in the countries we visited, we believe there are few plans that may
become problematic.

In countries other than UK, it is often the case that the DBO valuation method stipulated by IAS
19 is considered unfit for each country’s plan. However, DBO valuation is practiced based on thesituation in each country. This may be useful for Japan on a practical level.

For example, for attribution of period of benefits under a cumulative benefit plan, the straight line
method is uniformly applied. These countries share the idea that there is no description in IAS 19
that assumes such a plan, but there is a slight difference in responses between the countries wevisited and interviewees as to why the straight line method is used. One reason is that since a
cumulative benefit plan can be considered as an average salary proportionate plan by changing theformula, DBO should be evaluated in a manner that produces a same result to that of an averagesalary proportionate plan. The other reason is that it is back loading. We may be able to take itthat back loading under IAS 19 is properly handled as a result of using the straight line method.

In Germany, DBO under the unique DC plan (a plan that provides guarantee of principal for
retirement while holding the balance of DC) is evaluated in a unique manner not stipulated in IAS 19.
That is, they define DBO as the plan asset or DBO of the guaranteed portion, whichever is greater.
Under the current IAS 19, since any plan other than pure DC shall be treated as DB, this plan isclassified as DB for accounting purposes. However, there is no description in IAS 19 about a DBO
valuation method that matches such plan, so they evaluate DBO in their own way since ―there seems
to be no factor that precludes this type of valuation.‖

9. IFRIC 14

In the countries we visited except for Germany, they believe that the current IFRIC 14 has someincompleteness or ambiguities. In Germany, it is interpreted that there is no stipulation equivalent
to the minimum funding requirement. Meanwhile, in UK, they feel little inconvenience on apractical level.

19II Executive Summary and Implications for Japan

In Japan, when we try to apply IFRIC 14 to the Japanese system, questions arise such as ―What is
an equivalent of the minimum funding requirement?‖ ―There may be no stipulation equivalent to theminimum funding requirement,‖ and ―There are some ambiguities that make any judgment
difficult.‖ We found that similar questions arose in other countries as well.

10. Involvement of actuaries for post-employment benefits accounting

What should actuaries involved in accounting-related activities for post-employment benefits beaware of?

We would like to think of a few points after finishing the interviews.

First, they should properly calculate DBO in accordance with the accounting standards and report it.
This is, in a sense, a minimum requirement.

Then, they will be required to explain the calculation process, meaning and characteristics of therelevant figures. The relevant figures of accounting for post-employment benefits are usually very
important figures for financial reports. Actuaries need to consider various ways to ensure thatclients accurately understand the meaning of the figures reported. Reporting in documents isimportant, but direct communication can also be an effective measure. When clients need to makedecisions on something, it is important for actuaries to support this decision-making process.

Actuaries are also required to help prepare disclosure information.

Qualitative disclosure

information for accounting for post-employment benefits is expected to be further expanded, andtherefore, the support of experts will be in greater demand than ever. Disclosure information helps
people understand data in financial reports and is an important investor relations tool to help
investors properly understand the post-employment benefit plans of companies.

In order for

information for accounting for post-employment benefits to be reflected correctly in the valuation of
a company, ideally disclosure information should be prepared based on proper advice and support
from experts. The actuaries themselves should also be aware of this fact and measure up to suchexpectations.

20III. Research Findings

21

III Research Findings

1. Estimation of yield curve

Corporate bond or government bond
IAS 19 states ―the rate used to discount post-employment benefit obligations shall be determinedby reference to market yields at the end of the reporting period on high quality corporate bonds. In
countries where there is no deep market in such bonds, the market yields on government bonds shallbe used.‖In the countries we visited, market yields on corporate bonds, not on government bonds, are used
when determining the discount rate. However, there are two approaches to estimate a yield curve.
One is to directly estimate a yield curve from the data of corporate bonds, and the other is to estimate
a yield curve by reflecting the spread of corporate bonds in the yield curve of government bonds.

When we look at each country, in UK, it is common to directly estimate a yield curve from thedata of corporate bonds, and the approach to estimate a yield curve by reflecting the spread ofcorporate bonds in the yield curve of government bonds is used in a supplemental way as necessary.
Germany and Switzerland often use the approach to estimate a yield curve based on that ofgovernment bonds by reflecting the spread of corporate bonds.

How to estimate yield curve
When summarizing the results of interviews, the approach to estimate a yield curve by using thedata of corporate bonds is implemented as follows.

First, the data source used for the bond market is usually the one of private-sector organizations(iBoxx (bond index of Markit) and Bloomberg, etc.).

The range of data used (universe) is determined specifically by considering matters such as―difference between bid and ask,‖ ―whether to include bonds with options‖ and ―whether to set
restrictions by amount of issue considering liquidity.‖ However, it is common to exclude an outlier
even if it is included in the universe. High quality corporate bonds under IAS 19 are interpreted as
those with an AA rating.

Also in UK, apart from corporate bonds, interest rate swap and index-linked bonds may be used as
reference.

22

III Research Findings

After determining the universe, it is common to estimate a yield curve by using a famous model*
in economics. In some models, a yield curve may decline unnaturally for an ultra long term. In
such a case, the corrections can be made to remove such an unnatural decline.

*Models to estimate a yield curve that the respondents to the questionnaire mentioned
 Nelson-Siegel model Method that uses spline function
 Svensson method

In estimating a yield curve by reflecting the spread of corporate bonds on the yield curve ofgovernment bonds, we found that the yield curve of government bonds estimated by the Central
Bank was used in Germany, while estimated by the Swiss National Bank was used in Switzerland.
We could not obtain information on how to estimate the spread of corporate bonds in detail.

What we felt strongly during our visit was that the yield curve differs depending on who estimates
it, and therefore certain judgment is required and, when appropriate, accompanied by good
discussion by the relevant parties (actuaries, management and auditors) .

When we asked how companies had responded during the financial crisis in 2008, they said thatquestions about the reliability of credit rating were raised, and the interested parties had discussions
on whether to exclude the entire banking sector from the universe of high quality corporate bonds.
They sometimes corrected data in view of the time lag between the actual market conditions and thetiming of rating change. We also heard that as a result of accumulating these judgments, thedifference in the level of yield curves estimated by actuarial consulting firms expanded toapproximately 1% during the financial crisis.

Who estimate yield curve
We obtained responses from all the countries we visited saying that the yield curve was estimatedand provided by actuarial consulting firms. Audit firms also estimate a yield curve on their own forauditing purposes. When a company (preparer of financial reports) directly employs an actuary,such actuary is deeply involved in the estimation process.

Reference material for yield curve
The guidance note (GN) 36 prepared by the Institute of Actuaries in UK has the following
descriptions about FRS 17 that is considered markedly similar to IAS 19. The current management
body of GN 36 is the Board for Actuarial Standards, an organization of the Financial Reporting23

III Research Findings

Council.

As is obvious from GN 36, FRS 17 explains about the use of a reasonable proxy.

In FRS 17, anapproach to add a spread of corporate bonds, as a reasonable proxy, to government bonds is
illustrated by an example. FRS 17 also describes that high quality corporate bonds that should be
used as the discount rate are bonds with an AA rating. In GN 36, a swap is mentioned as an
example of a reasonable proxy as follows.

Since there is no such description in IAS 19, it requires certain interpretation when these are
adopted in the practice of IAS 19.

GN36 4.2.2

4.2.2 FRS 17 states that if there is no liquid market in suitable bonds to determine thediscount rate, then a reasonable proxy should be used (see paragraphs 32, 33 and 34). It is
recognised that for many UK pension schemes, the duration of the liabilities may be longer
than the duration of available AA bonds. Further, the liquidity of the corporate bond market
will vary by jurisdiction and type and can be expected to vary from time to time. Where areasonable proxy is required, it should be determined by reference to one or more of:･an extrapolation of the yields on available AA-rated corporate bonds,･the yield on interest rate swaps, and･the yield on other fixed interest or index-linked bonds.

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III Research Findings

2. Discount rate

Classification of approaches to determine the discount rate used in DBO calculation
IAS 19 stipulates ―The discount rate reflects the estimated timing of benefit payments. In practice,an entity often achieves this by applying a single weighted average discount rate that reflects theestimated timing and amount of benefit payments and the currency in which the benefits are to be
paid.‖ (paragraph 80)

Summarizing the results of the interviews, it is clear that the approach to determine the discountrate used in DBO calculations can be classified into the following five categories. The name ofeach approach has been chosen by us for descriptive purposes.

i.

Index approachThis approach sets the actual trading performance of high quality corporate bonds or yield valueof bond index as the discount rate based on the average timing to estimate benefit payments undera post-employment benefit plan without using a yield curve.

Since this approach uses actual market interest rate of high quality corporate bonds without
making any change, it is directly influenced by the degree of dispersion of a reference interest rate.
This approach is used in determining the discount rate in some countries, but currently, mostcompanies are shifting to the approaches of referring to a yield curve, such as approaches ii. to v.
described below.

ii. Yield pick-up approachThis approach picks up a yield from a yield curve that corresponds to duration as arepresentative value and sets it as the discount rate.

Since this approach does not reflect the shape of the yield curve, the discount rate will be thesame as the one under the direct yield curve approach if the yield curve is flat.

Otherwise, adifference will arise.

iii. Sample cash flow approachThis approach determines the discount rate by using sample cash flows.

First, sample cash flows are prepared based on multiple plans with different characteristics such

25III Research Findings

as duration. Then, the single weighted average discount rates (equivalent to DBO) are calculated
by applying the yield curve equivalence approach as described in iv. below to these sample cash
flows. The discount rate of each plan is calculated by interpolation (extrapolation in some cases)
for the weighted average discount rates obtained from multiple sample cash flows with similar
characteristics.

Since this approach does not require cash flow to be forecast in a way that is unique to eachplan, unlike approaches iv. and v., it is easy to use in practice.

In some of the countries we visited, we confirmed that they used the sample cash flow approach.
Since there are lots of similarities in the design of benefits in these countries (e.g. life annuity andstraightforward benefit formula), it may be possible to classify cash flow characteristics inselecting sample cash flows by using a relatively small number of parameters. Meanwhile, in thecase of the Japanese system, it seems quite difficult to adopt a similar approach since classifying
future cash flows is not easy for the following reasons: (1) the lump-sum post-employment benefit
system is widespread, (2) a system is in place where an employee receives a lump-sum withdrawal
payment or a lump-sum optional payment, (3) the benefit formula often varies by plan and may
discontinuously jumps, and therefore the effect of employee turnover is significant.

iv. Yield curve equivalence approachThis approach calculates the single discount rate that is equivalent to DBO measured by the
direct yield curve approach v. and sets it as the weighted-average discount rate.

The difference between this approach and the direct yield curve approach v. is that it isrelatively easy, by using the single discount rate, to implement roll forward for DBO evaluated byusing the data as of the date before the end of the reporting period and to make adjustments toreflect the discount rate at the end of the reporting period based on the sensitivity analysis.

v. Direct yield curve approachThis approach calculates DBO by directly using a yield value by duration at each timing of
estimated benefit payment.

This approach reflects the timing to estimate benefit payment in DBO calculation in the mostrigorous manner, out of the five approaches. It can be said that it has the heaviest workload on apractical level.

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III Research Findings

The characteristics of these five approaches to determine the discount rate can be summarized asfollows.

Uses a yield
curve?

Reflects theshape of a yield
curve?

Timing to estimate
benefit payment

Single/multiple
rate

i. Index

No

No

Not specified

Singleii. Yield pick-up

Yes

No

Duration

iii. Sample cash flow

Yes

Yes

Sample cash flow

Yes

Yes

Yes

Yes

approachiv. Yield curve equivalence
v. Direct yield curve

Actual cash flow
Actual cash flow

SingleSingleSingleMultiple

Selection of an approach to determine the discount rate and its trend
When we summarize the results of the interview on the selection of the abovementioned
approaches to determine the discount rate, approaches i. to iii. are selected more often than iv. and v.,
and when comparing iv. and v., only major companies adopt v. Meanwhile, since the calculation
workload of actuaries increases from i. through v. (v. is heaviest), we can say that relatively simple
approaches are used frequently. However, in the countries we visited, the approaches selected haverecently been shifting from i. and ii. to iii., iv. and v., which suggests there is a gradual change to an
approach that reflects the timing to estimate benefit payment in the discount rate as much as
possible.

We also felt that people were becoming more interested in selecting an approach to determine thediscount rate.

In particular, since the economic environment changed drastically due to thefinancial crisis that began in September 2008 and the spread of corporate bonds expanded in eachcountry, discussions about whether the selection of an approach to determine the discount rate isreasonable have been frequently held at actuarial consulting firms and audit firms since then.
Specifically, the number of cases where audit firms asked the company’s management to reveal thebasis of their judgment when determining the discount rate increased. And in addition, the numberof cases where meetings by actuaries, management and auditors were held to select an approach todetermine the discount rate has also been increasing.

Another reason for the heightened interest in how to select an approach to determine the discountrate is its relationship with asset management strategies. An actuary who belongs to a company

27

III Research Findings(preparer of financial reports) in UK said, ―When we adopt the cash flow matching strategy, it may
be effective to use the direct yield curve approach for DBO calculation.

However, it is notnecessary for our company to do that.‖

Some interviewees responded that since the interest rate was low and the shape of the yield curve
was flat, there was no difference whichever approach was chosen to determine the discount rate.

We had the impression that there was no particularly notable difference among the four countries
we visited in terms of how they select the approach to determine the discount rate, other than UK
more tending to shift to approaches iv. and v.

As for the consistency of the approach used to determine the discount rate, we heard that, in all thefour countries we visited, it did not necessarily mean continuing to use the approach selected. Thismay be based on the idea that the discount rate is one of the factors of economic variables, and whenthe economic environment changes significantly, there is a possibility that they may not be able toaccomplish the principle purpose of the discount rate if they only continue to use the approachselected. We felt that this idea was prevailing in actuarial practices in these countries.

Duration
Duration means the average timing to estimated benefit payments as well as discount ratesensitivity. We found that the approach mainly used to obtain duration was to use the rate ofchange of DBO calculated by multiple interest rates.

Difference in perspectives between actuarial consulting firms and audit firms regarding theselection of an approach to determine the discount rate
We had the impression that actuarial consulting firms gave more specific answers than audit firms
in the interview, regarding how to select an approach to determine the discount rate.

This may be attributable to a difference in their positions, meaning that actuarial consulting firms
advise preparers of financial reports, while audit firms confirm the reasonableness of the discountrate from an auditing perspective.

Determination of the discount rate in the case of multiple plans
As mentioned above, according to paragraph 80 of IAS 19, it is necessary to reflect the timing toestimate benefit payments in determination of the discount rate. Therefore, except for cases where
the direct yield curve approach is adopted, when there are multiple plans, it becomes necessary to set

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III Research Findings

the discount rate for each plan in order to reflect the timing to estimate the benefit payment of eachplan. In the interview, many people responded that they set the discount rate for each plan inprinciple.

Of course, judgment from the perspective of materiality principle of accounting is involved indetermining the discount rate.

The discount rate needs to be set for each currency area, but for

example, companies that have multiple offices in the euro-zone calculate the weighted average
discount rate by using the discount rates adopted under the plans in major countries in the euro-zone.
And if there is a mixture of large plans and small plans, they apply the discount rate determined
under the large plans to the small ones.

Role of actuaries in the process of determining the discount rate
It is needless to say that actuarial assumptions such as discount rate should be determined by
preparers of financial reports. However, in all the countries we visited, we found that actuaries
propose the discount rate to be used to the management, and in reality, it is rare for the proposed
discount rate to not be accepted. As such, we felt that actuaries have established a professional
position on accounting for post-employment benefits and played an important role in providing
information to the management as well as support for decision-making.

The actual process of determining the discount rate seems to proceed with the involvement of
actuaries as follows: (1) accept a proposal of the discount rate from an actuarial consulting firm
(multiple firms in the case of large companies), (2) hold discussions with the actuary and record
them and (3) hold a three-way meeting among the actuary, management and auditor as necessary.

Disclosure of discount rate
Almost all companies disclose the weighted average discount rate. The same is true in the casewhere the direct yield curve approach is adopted or the case where different discount rates are
determined for each plan. Companies with multiple subsidiaries may disclose discount rates not asa single rate but as a range.

Calculation of interest cost
The respondents said that they calculated the interest cost by multiplying DBO as of the beginningof the reporting period by the weighted average discount rate.

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III Research Findings

3. Inflation rate
Paragraph 77 of IAS 19 states ―Financial assumptions shall be based on market expectations, atthe end of the reporting period, for the period over which the obligations are to be settled.‖

In UK, since price-indexed bonds are traded in the market, it is common to estimate the inflation
rate by referencing them.

However, since the inflation rate estimated from the yield ofprice-indexed bonds (break-even inflation rate) includes factors other than the expected inflation rate(liquidity premium, etc.), certain adjustments are made.

Meanwhile, in countries with no adequate market to reference such as Germany, the long-termtarget inflation rate set by the Central Bank is referenced. In UK, it is believed that the long-termtarget inflation rate of the Bank of England contains many political factors and therefore is not
appropriate for use in estimating the inflation rate.

4. Relevance of financial assumptions
Paragraph 75 of IAS 19 states ―actuarial assumptions are mutually compatible if they reflect theeconomic relationships between factors such as inflation, rates of salary increase, the return on plan
assets and discount rates.‖ Thus, it is understood that the rate of salary increase, inflation and thediscount rate are correlated. In particular, the rate of salary increase and inflation are believed to beclosely related in terms of ―Rate of salary increase = Inflation rate + Margin (factors such as
promotion)‖.
(Note: In general, the rate of salary increase is determined as a uniform rate (annual rate) regardlessof age, not as a salary increase index determined by age in Japan.)

However, we heard that since the economic environment is relatively stable, such relationship is
not so emphasized. We also heard that although there is a correlation between the rate of salary
increase and the inflation rate, there is no direct correlation between the discount rate that directlyreflects the market at the end of the reporting period and the rate of salary increase/inflation rate.

From an auditing perspective, whether actuarial assumptions are consistent as a whole andwhether each of the assumptions is acceptable are considered.

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III Research Findings

5. Mortality

Each of the countries we visited has life annuity in general, and the mortality is of particularlyhigh interest compared with Japan where lump-sum payment and fixed-term annuity are prevalent.

Among the countries we visited, in UK, Germany and Netherlands, the standard mortality table iscreated by generation incorporating future improvement.

In Switzerland, although the standard

mortality table currently in use does not incorporate future improvement (future improvement may
be incorporated separately in calculating DBO), the standard mortality table to be applied from 2011
will incorporate future improvement, the same as in other countries.

In some cases, further improvement may be added to the standard mortality table.

The standard mortality table in these countries is updated approximately every five years, but
adjustment of the mortality rate may be made by shifting ages in any year before the regular update.

The cohort method (method to adjust the improvement rate of the mortality that varies bygeneration) in UK incorporates improvement by 2020, but there are cases where an improvement ofapproximately 1% (per year) is incorporated for the period after 2020. Also in UK, use of amortality table that varies by region is widespread.

6. Use of computational short cuts and approximation, roll forward

The method used to calculate DBO in advance before the end of the reporting period and obtain
DBO as of the end of the reporting period by making appropriate corrections to it is widely used ineach country we visited.

Under the funding standards in UK, full actuarial valuation is required every three years, andcalculation by roll forward is permitted for periods other than years of full actuarial valuation.
Under the tax law in Germany, the use of data that was generated up to three months before thecalculation reference date is permitted. Calculation for accounting purposes is often handled in thesame manner. In general, if there is no significant change during the correction period, the amountfor accounting purposes is obtained by making adjustments to the discount rate as of the end of the31

III Research Findings

reporting period by the sensitivity analysis after the period correction by roll forward.

However, if

such a change is significant, DBO may be revaluated.

If there is little materiality, only expensing of contributions may be charged to the accounting, not
DBO calculation.

7. Hybrid plan

In UK, the respondents said that there were few cash balance plans. Career average plan is themainstream.

This is an average salary proportionate plan that re-evaluates past salaries andtherefore is considered to be a hybrid plan.

In Germany, they have the unique DC plan (a plan that provides guarantee of principal for
retirement while holding the balance of DC) as a hybrid plan.

Under IAS 19, this plan isconsidered to be classified as DB, but a method to evaluate DBO is not proposed. In valuation,
they define DBO as the plan asset or DBO of the guaranteed portion, whichever is greater, since―there seems to be no reason that precludes this type of valuation.‖In Netherlands, the term ―hybrid plan‖ does not seem common, and there were some cases where
the intention of our questions was not understood easily. Most pension plans in Netherlands
implement conditional indexation according to financial conditions based on an average salary
proportionate plan and are considered to be classified into a hybrid plan in Japan.

In Switzerland, a cumulative pension plan is common that is designed and managed to achieve anamount greater than the principal (credit) plus the guaranteed minimum dividend yield (statutory
minimum requirement), and most systems are considered to be a hybrid plan.
When evaluating DBO of a cumulative plan, the ―straight line‖ approach is used based on an ideathat it is equivalent to an average salary proportionate plan.

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III Research Findings

8. Back loading

Many benefit formulas for final salary proportionate plans and average salary proportionate plans(including those with indexation) are in the form of ―Amount of pension = Final (average) salary ×Years of service × Fixed rate,‖ and it is considered that there is no system that falls under backloading.

There were some opinions that cumulative plans were all treated as back loading. Even in thiscase, since DBO is calculated by the ―straight line‖ approach, they seemed to believe back loading
under IAS 19 was properly handled.

9. IFRIC 14

Paragraph 58 of IAS 19 states that there is a ceiling on the amount that can be presented as DB
asset (asset ceiling), and this amount shall be a present value of the economic benefit available in theform of refunds from a plan or reductions of future contributions to a plan. Since questions areraised about in what cases refunds or reductions of future contributions can be used, IFRIC 14 (IAS
19 – The Limit on a DB Asset, Minimum Funding Requirements and their Interaction) was issued in2007 as the interpretive criteria. However, in Japan, there are some arguments that IFRIC 14 has
ambiguities as to the meaning of minimum funding requirements. We asked about the situation ineach country based on this background.
In UK, audit firms and actuarial consulting firms generally responded that ―Problems werepointed out and examined when IFRIC 14 was issued, but the minimum funding requirement is still
a thorny issue.‖ However, we found opinions from preparers of financial reports that ―It is quite
logical and simple when we think of it under the scheme in UK.‖ On a practical level, minimum
funding requirements are understood to be contributions agreed between a trustee and company as ofthe end of the reporting period.

In Germany, since it is common to consider minimum funding requirements do not exist, no
problem occurs fundamentally.

In Netherlands, there are difficulties in how to apply minimum funding requirements and33

III Research Findings

economic benefit. The reality appears to be that the contents of IFRIC 14 are interpreted in various
ways, and as a result, there are many cases where a DB asset is not presented due to the asset ceiling.
In Switzerland, the main issue was how to calculate ―economic benefit available as reductions ofcontributions,‖ but now ―IFRIC 14 and Swiss Pension Plans‖ prepared by the working party of the
Swiss Institute of Certified Public Accountants and Tax Accountants is used as a reference forpractices. The 2009 revision of IFRIC 14 clarified how to treat prepayments of a minimum funding
requirement in response to the conditions in Switzerland.

10. Local GAAP

The local GAAP in UK is in its practical effect almost the same as IAS 19 except for the lack ofan option to have a delayed recognition of actuarial gains and losses and the asset ceiling.

In Germany, the local GAAP was based on the tax law standard prior to the amendment in January
2010, and therefore there was a large discrepancy with IAS 19. After the amendment in January
2010, the local GAAP became similar to IAS 19, but there remain some discrepancies such as theuniform discount rate being the seven-year average rate of 15-year bonds.

In Netherlands, only contributions amount were charged to the accounting prior to 2005, but the
local GAAP was changed to one that was almost the same as IAS 19 in 2005 when it became
obligatory for listed companies in the EU to apply IFRS to their consolidated financial report.
However, companies have been permitted to freely choose their method only to charge contributions
amount to the accounting from 2010.

Since the local GAAP in Switzerland requires companies only to charge contributions amount toaccounting, it is significantly different from IAS 19.

11. Topics regarding application of IFRSThe EU obliged listed companies in the EU to apply IFRS as a standard when preparing theirconsolidated financial reports from January 2005. Of the countries we visited, UK, Germany andNetherlands are members of the EU.

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III Research Findings

In UK, the local GAAP was changed from SSAP 24 to FRS 17 before the application of IFRS.
Since there was little difference between FRS 17 and IAS 19, the impact of the application of IFRS
in 2005 was limited.

In Germany, only 1% of companies apply IFRS or US-GAAP.

Application of IFRS toconsolidated financial report started during the period between 1995 and 2000, and there was no
particularly notable change in 2005. Some companies shifted to the DC plan at the time IFRS wasapplied, but since it is required by law under the DC plan in Germany to have a principal guarantee
at the time of retirement, it is treated as a DB plan for accounting purposes.

In Netherlands, since the local GAAP changed the method of contribution based accounting to one
that is almost the same as IAS 19 at the time of the adoption of IFRS, companies that did not need to
implement IFRS were also affected.

In Switzerland, although it is not a member of the EU, most companies listed on the Swiss Stock
Exchange have been obliged to apply IFRS or US-GAAP since 2005.

12. Actuarial practice standards for post-employment benefits accounting

The official interpretation of IFRS is provided by IFRIC. Therefore, there is no mandatory
actuarial practice standard for IAS 19 in the countries we visited. The handling of IAS 19 on apractical level varies by country.

In UK, the guidance note (GN) 36 prepared by the Institute of Actuaries exists for FRS 17, thelocal GAAP. Since there is little difference between IAS 19 and the local GAAP, GN 36 isreferenced in implementing IAS 19.

In Germany, there is a guideline on IAS 19, prepared by the Society of Actuaries of Germany 11
years ago, and the members are required to follow this guideline unless there is a sufficient reason
not to do so.

In Netherlands, no reference standard exists that can be used in the actuarial practice of IAS 19.

In Switzerland, some implications exist that summarized essential portions of IAS 19, and they35

III Research Findings

function as the de facto standard.

They were created by the working party (actuaries also

participate) established by the Institute of Certified Public Accountants and Tax Accountants.

13. Involvement of actuaries for post-employment benefits accounting

Involvement of actuaries who belong to actuarial consulting firms
In all the countries we visited, actuarial consulting firms are the main provider of actuarial
services regarding accounting for post-employment benefits. Besides DBO calculation, actuaries
who belong to actuarial consulting firms have discussions with clients to determine actuarial
assumptions and provide information necessary for preparing financial reports. They also suggest
items to be disclosed as necessary.

The clients should make the final decision in preparing financial reports. However, thoughformally clients accept the advice of actuaries, in fact clients (small enterprises in particular) also
leave the determination of the discount rate entirely to actuaries.

Our overall impression was that actuaries have established a professional position.

Involvement of actuaries who are engaged in audit work
Actuaries who belong to audit firms are engaged in audits from the perspective of examining theappropriateness and consistency of actuarial assumptions, reasonableness of calculation results andcompleteness of data.

However, the degree of their involvement varies depending on the significance of the
post-employment benefit plans and necessity, and in many cases, actuaries are not involved.

Involvement of actuaries who do not fall under the abovementioned categories
In the countries we visited, there are some cases where independent actuaries provide actuarial
services to companies that own small-size pension plans.

In Netherlands, some people pointed out that since it became possible to choose a contribution
based method from 2010, due to the amendment of the local GAAP, the amount of work regarding
accounting for post-employment benefits might decrease.

In large corporations, there are cases where they directly engage actuaries in activities related to36

III Research Findings

their private pension plans.

14. Other matters regarding post-employment benefits accounting

Handling of difference in general actuarial calculation under the current IAS 19
Under the current IAS 19, companies are permitted to choose either delayed recognition of
actuarial gains and losses or OCI recognition.

In UK, most companies adopt OCI recognition even under IAS 19 because the local GAAP
permits only OCI recognition.

In Germany, most companies included in DAX30 adopt OCI recognition. For companies otherthan those, delayed recognition is the mainstream.

In Netherlands, although delayed recognition is the mainstream, more and more companies havebeen adopting OCI recognition recently.

In Switzerland, blue chip companies adopt OCI recognition. Although delayed recognition is themainstream for companies other than those, more and more companies have been adopting OCI
recognition recently.

In the countries we visited, we heard of little number of companies that adopted immediate
recognition in their profit or loss account.

Opinions and comments on the exposure draft for the amendments of IAS 19
In UK, the overall stance was positive, but some people were concerned that truly important
information might be buried due to the large amount of items to disclose.

In Germany, Netherlands and Switzerland, since many companies adopt delayed recognition of
actuarial gains and losses, there are concerns that delayed recognition may be abolished.

Also in Netherlands, IAS 19 was considered unfit for pension plans there to begin with, and there
were many negative comments on all the items of the current IAS 19 as well as the exposure draft.
In the comment letter to the exposure draft, problems were pointed out by accountants, actuaries andthe business community in their joint names. Some respondents believed they should eye thepossibility of curve outing from IAS 19.

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III Research Findings

Status of DBO calculation software
They seemed unable to imagine a preparer of financial reports purchasing DBO calculation
software and performing calculations without the involvement of actuaries. Therefore, we could
not obtain any specific examples.

Examples of legal proceedings and damages
Although they cannot deny the possibility of an individual actuary or a firm an actuary belongs tobeing sued, there were few cases (or they have never heard of such cases) where they were indicted
in reality.

Involvement of actuaries in accounting for post-employment benefits of foreign subsidiaries
It is common for local actuaries to be in charge of detailed matters regarding DBO calculation andaccounting for post-employment benefits of subsidiaries, while actuaries engaged in accounting forpost-employment benefits of headquarters (global actuaries) tally the results of each subsidiary.

The specific role of global actuaries is to manage the calculation process, prepare a unified reportand confirm the reasonableness of each calculation. Major assumptions taken in the calculation
process, such as the discount rate, are often determined at the headquarters based on advice fromglobal actuaries.

However, when a post-employment benefit scheme is of less importance due to its small size,
global actuaries may not get involved.

Investors’ perspective on net income and comprehensive income
Many respondents to the interview said that current income has been emphasized so far.
However, there were some opinions that comprehensive income that includes factors for a change infuture contributions should be emphasized as well. We heard of major investment companies
conducting corporate analysis by using comprehensive income for such a reason.

Dividend rule and policy
Dividend is provided based on each company’s policy within the limitation of the local GAAP orlaws and regulations in each country. Therefore, IFRS has no direct impact in this area.

The local GAAP in UK is similar to IFRS.

That is, the local GAAP has a presentation

classification for OCI, and actuarial gains and losses of post-employment benefits are recognized38

III Research Findings

immediately in OCI.

The dividend limit is determined based on the realized profit, and no

adjustment is required when accumulated OCI is negative. When it is positive, that amount can betaken into consideration, provided that it is agreed that the amount will be refunded to the company.

39

Research Report
Overseas Research on Application of International Accounting Standard 19 and Its Implications

Issued in March 2011
Issuer: The Japanese Society of Certified Pension Actuaries
B1F Mita NN Building
4-1-23 Shiba Minato-ku, Tokyo
108-0014 Japan
Tel.: +81-(0)3-5442-0208
Fax: +81-(0)3-5442-0700

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