A global convergence of accounting standards is on the horizon, marked most recently by the Securities and Exchange Commission’s (SEC’s) vote to move U.S. companies toward International Accounting Standards. As a result, changes made by the International Accounting Standards Board (IASB) could have important implications for publicly traded companies around the world. Yet, many companies are not familiar with the IASB’s proposed changes to IAS19 – its standard for accounting for employee benefits – and the majority of those that are do not support its proposal.

Watson Wyatt’s survey on the IASB’s March 2008 discussion paper, “Preliminary Views on Amendments to IAS19 Employee Benefits,” examines employers’ reactions to the proposal, which would make significant changes to the way retirement benefits are accounted for in employer financial statements. While, if implemented, the changes would not reduce most employers’ commitment to their defined benefit (DB) pension and retiree medical plans, a sizeable minority say the proposal would weaken their company’s commitment to its DB plans.

Key findings include:

• Twenty-two percent of companies are not familiar with the IASB’s preliminary views paper.

• Eight in 10 employers think it is necessary to change pension accounting by improving/clarifying requirements for the measurement of cash balance, career average pay, notional defined contribution and similar pension plans, but only a minority find the IASB’s proposed solutions appropriate.

• A narrower majority (56 percent) support changing pension accounting by removing options to defer the recognition of plan gains and losses. Eighty percent, however, do not support the IASB’s suggestion to recognize all plan experience immediately in the profit and loss (P&L) account, one of three options the IASB is considering in this area.

• Though most surveyed companies do not believe the IASB’s proposed changes would weaken their company’s commitment to its DB pension and retiree medical plans, a significant number (46 percent) say the proposed changes to cost recognition would discourage them from offering DB plans in the future. The results are more pronounced among U.S. and U.K. respondents, with this proposal weakening most employers’ commitment to their existing plans in these countries.