Document ID: chunk:federal_register_of_legislation:F2024L00075:reg:38:p45
Version: federal_register_of_legislation:F2024L00075
Segment Type: reg
Provision Reference: reg 38 (pt 45/76)
Character Range: 160099–163132

superannuation entity context and few benefits.  In response, the AASB conducted further targeted outreach on the cost and timeliness of implementing a principle similar to the requirements in AAS 25, but with more direction on its implementation designed to overcome the short-comings of the AAS 25 requirement.
BC128        After noting that there is not a consistent approach across the various Australian Accounting Standards to measuring different types of liabilities and having regard to the nature of defined benefit member liabilities and the regulatory environment in which superannuation entities operate, the AASB concluded it should identify a measurement principle for defined benefit member liabilities.  That principle is to measure defined benefit member liabilities as the amount of a portfolio of investments that would be needed as at the reporting date to yield future net cash inflows that would be sufficient to meet accrued benefits at that date when they are expected to fall due.
BC129        The AASB noted this principle is consistent with the notion that the superannuation entity needs to fund the liability, taking into account the timing and probabilities attaching to various factors that reflect the characteristics of the members/beneficiaries.  Those characteristics include expected mortality; rates of member turnover, disability, and early retirement; salaries and rates of salary adjustment; member choices of available options, such as lump sum or pension options; and any other risks specific to the liability.  The AASB further concluded that it would require:
(a)                   expected cash flows to be discounted by a rate that reflects the expected notional returns, including fair value changes, on a portfolio of investments that is judged by the trustees to be the optimal way to generate the net cash inflows needed to meet benefit payments, based on a realistic assessment of the relative risks and returns on those assets;
(b)                   the relevant portfolio of investments might not be the same as the existing portfolio of investments, for example, because the existing investments are currently in different asset classes, or the defined benefit member liability is under-funded/unfunded; and
(c)                   to the extent the relevant portfolio of investments is not the same as the existing portfolio of investments, it would need to be based on investment opportunities that are realistically available to the entity.
BC130        The AASB acknowledged that, in applying the above measurement principle and the concept of materiality, there would often be approaches to measuring defined benefit member liabilities that could be employed which do not involve undertaking a comprehensive actuarial assessment.  For example, the AASB noted that vested benefit calculations, including an assessment of the relationship between vested benefits and accrued benefits and the stability of that relationship, are the basis for some of the approaches that might be