Document ID: chunk:federal_register_of_legislation:F2024L00075:reg:38:p46
Version: federal_register_of_legislation:F2024L00075
Segment Type: reg
Provision Reference: reg 38 (pt 46/76)
Character Range: 162864–165927

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 used in practice to measure defined benefit member liabilities for financial reporting purposes.  However, the AASB noted that, because of the varied circumstances facing different plans, it would be inappropriate to identify particular approaches as being those that would apply in any particular cases.
BC131        The AASB discussed an alternative view that a risk-free rate representing only the time value of money should be applied to present value expected cash outflows.  The AASB noted that, although arguably facilitating comparability among entities, this would tend to result in overstated defined benefit member liabilities and give rise to up-front deficits that would later reverse.

'Higher of' benefit options
BC132        During its deliberations on measuring member liabilities, the AASB noted the issues regarding a 'higher of' benefit that arises in a case where members are entitled to the higher of a defined benefit entitlement and a contributions-based amount.
BC133        In its Discussion Paper Preliminary Views on Amendments to IAS 19 Employee Benefits, the IASB proposed that an employer-sponsor account for a higher of benefit option in a manner consistent with an embedded option under IAS 39 Financial Instruments: Recognition and Measurement such that an employer-sponsor would:
(a)                   recognise and account for the host defined benefit promise in the same way as a defined benefit member liability under IAS 19; and
(b)                   account for the higher of benefit option separately, measured at its fair value assuming the terms of the benefit promise will not change.
BC134        The AASB concluded ED 179 should seek input from constituents on accounting for a higher of benefit option separately from member liabilities, and how the benefit option might be measured (prior to making any proposals on the matter), since the IASB's proposals were at an early stage of development and had been specifically developed for application by employer-sponsors.
BC135        Respondents to ED 179 confirmed that higher of benefit options are presently measured at their 'intrinsic values' as:
(a)                   the difference between the defined benefit members' accrued benefits and their account balances when account balances are greater than accrued benefits; and
(b)                   at nil when account balances are less than accrued benefits.
BC136        In addition, most of the respondents to ED 179 disagreed with the IASB's proposed approach because:
(a)                   there are no compelling reasons to depart from current practice under AAS 25 and AASB 119, which ensures accrued benefits are measured on the basis of future benefit payments that members are likely to receive;
(b)                   in the Australian