CIA (e)Bulletin/(e)Bulletin de l'ICA
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March 2014

Update on International Standard under IAS 19

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By Catherine Robertson, FCIA

In October 2013, the International Actuarial Association (IAA) issued an exposure draft of proposed International Standard of Actuarial Practice 3 (ISAP 3) – Actuarial Practice under International Accounting Standard (IAS) 19 Employee Benefits.

As the name suggests, this is the third ISAP issued by the IAA. ISAP 1 deals with general actuarial practice, and was adopted by the IAA in November 2012. ISAP 2 applies to actuarial services performed in the context of social security programs, and was adopted by the IAA in October 2013. A fourth ISAP, dealing with actuarial practice in relation to insurance contracts, is currently being developed by the IAA.

This article reviews the content of ISAP 3 and summarizes the comments submitted by the CIA to the exposure draft in March 2014. The comments were prepared by the Subcommittee on International Pension and Employee Benefits Standards following the due process of the Committee on International Relations.

The IAA has defined the purposes of ISAP 3 as:

  • Provide guidance for actuaries providing actuarial services under IAS 19 to facilitate convergence in actuarial practice within and across jurisdictions;
  • Increase public confidence in actuaries’ services under IAS 19;
  • Increase reporting entities’ and their auditors’ confidence in actuaries’ contributions to International Financial Reporting Standards (IFRS) reporting of employee benefits; and
  • Demonstrate the IAA’s commitment to support the work of the International Accounting Standards Board (IASB) in achieving comparable financial reporting internationally.

The focus of ISAP 3 is on services provided for a reporting entity’s preparation of IFRS financial statements, for any type of benefit the reporting entity determines to be covered by IAS 19. It addresses aspects of actuarial services in accordance with IAS 19, to the extent not covered in ISAP1, such as:

  • The role of the actuary in providing actuarial services for IAS 19 purposes;
  • Knowledge of and compliance with IAS 19, those aspects of other IFRS relevant to the engagement, and the reporting entity’s accounting policies;
  • Knowledge and consideration of the reporting entity’s specifications regarding materiality for the engagement;
  • Scope and categorization (for example, as defined benefit or defined contribution) of the contractual and constructive employee benefit obligations as defined in IAS 19;
  • General process to be followed and factors to be considered by the actuary when advising a reporting entity on the selection of actuarial assumptions to be used for IAS 19 purposes;
  • Identifying "significant" assumptions and their "reasonably possible" variations for the reporting entity’s financial statement disclosures; and
  • Items to be included in the actuary’s communication of results.

The IAA should be commended for the work involved in developing ISAP 3. For the most part it complements the actuarial standards of practice that currently exist in Canada on this issue. However, some particular issues identified in the CIA’s response to the exposure draft include:

  • At times the guidance in the draft goes beyond the provision of actuarial services, and veers towards interpreting accounting standards.
  • There is significant detail included around selecting the discount rate. Whilst the content is valuable, in the CIA response submission we noted that we felt it went beyond the scope of IAS 19. We felt the details would be better suited to an educational note.
  • We noted that there are areas of overlap between ISAP 1 and ISAP 3, and suggested that the IAA remove the redundant duplication.

It is easy to see that the ISAP will be of significant value in jurisdictions that have either have no standard or limited standards in place for actuarial services for IAS 19. However, similar to ISAP 1, it is more difficult to identify the value in Canada, where we already have extensive standards in place. That said, we look forward to a revised draft.

The draft IASP 3 can be found here and the CIA response will be available here soon.

Catherine Robertson, FCIA, is Chair of the Subcommittee on International Pension and Employee Benefits Standards of the Committee on International Relations.

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