ias 19 employee benefits

June 2012

Audit. Tax. Consulting. Corporate Finance.

IAS 19 Employee benefitsA closer look at the amendmentsmade by IAS 19R and theirimpacts in Switzerland

Contents

1. Introduction 1

2. Executive summary 2

3. The most important changes made by IAS 19R 3

4. Changes in IAS 19R with a significant impact expected in Switzerland 7

5. Other changes made by IAS 19R for which less impact is 13expected in Switzerland

6. Comparison of IAS 19R with IAS 19 15

Appendix I Disclosure requirements 19

Appendix II Comparison of IAS 19R with US GAAP 22

Appendix III Early application IAS 19 Employee Benefits 23(as revised in June 2011)

Your IFRS contacts 43

IAS 19 Employee benefits A closer look at the amendments made by IAS 19R and their impacts in Switzerland 1

International Accounting Standard 19 EmployeeBenefitsThe objective of IAS 19 is to prescribe the accountingand disclosure for employee benefits by employers.The Standard identifies four categories of employeebenefits with distinct requirements for each of:

short-term employee benefits;

post-employment benefits;

other long-term employee benefits; and

termination benefits.

IAS 19 was initially issued in February 1998 and hadalready been amended several times before thepublication of the revised Standard in 2011.

Chronology IASB project Post-EmploymentBenefits, including PensionsIn July 2006, the IASB added a project on post-employment benefits to its agenda with the goal ofrevising a number of aspects of accounting for post-employment benefits. In March 2008, the IASBpublished a discussion paper (Preliminary Views onAmendments to IAS 19 Employee Benefits). Thediscussion paper considered several elements of theaccounting model of IAS 19 and contained severalproposals for amendments.

Extensive feedback on the discussion paper led to thepublication of the exposure draft Defined Benefit Plans(Proposed amendments to IAS 19 Employee Benefits)on 29 April 2010. Further feedback on the exposuredraft (227 comment letters, including many fromSwitzerland) has been considered in finalising the revisedStandard.

In addition to this public consultation, the IASB soughtexpert advice from an Employee Benefits Working Group.

StructureIn this brochure the changes made by IAS 19R to therequirements of IAS 19 are described, starting with ageneric description of the changes in the executivesummary. Furthermore, the most important changesmade by IAS 19R and the potential impact are discussedin more detail, as well as other changes made by IAS19R that are expected to have an impact in Switzerland.

Finally, overviews are presented which contain the mostsignificant differences between IAS 19 and IAS 19R, thedisclosure requirements included in IAS 19R, the mostsignificant differences between IAS 19R and US GAAPand an example of an early application of therequirements of IAS 19R in the financial statements.

As the revisions to IAS 19 mainly relate to theaccounting for pensions and other post-employmentbenefits, this brochure focuses on this category ofemployee benefits.

You can keep up-to-date on future IFRS and IASBdevelopments via our IAS Plus Website atwww.iasplus.com. We hope that IAS Plus and thisbrochure, as well as other Deloitte publications willcontinue to assist you in navigating the ever-changingIFRS landscape.

1. Introduction

On 16 June 2011, the InternationalAccounting Standards Board (IASB)published a revised version of IAS 19Employee Benefits. The revised IAS 19(IAS 19R) represents the final outputfrom the IASBs project to improve theaccounting for post-employmentemployee benefits.

Full recognition of deficit (surplus) on thestatement of financial positionUnder IAS 19, for defined benefit plans some of theeffect of actuarial gains and losses can be excluded fromthe net defined benefit liability (asset) by using thecorridor approach, and the effect of unvested pastservice costs is recognised over the average vestingperiod. IAS 19R requires all such items to be recognisedimmediately. Actuarial gains and losses for definedbenefit plans will be recognised in other comprehensiveincome (OCI) and past service costs will be recognised inprofit or loss. Therefore, apart from any effect of theasset ceiling, the net defined benefit liability (asset)recognised on the statement of financial position willrepresent the actual deficit (surplus) in an entitysdefined benefit plan.

Introduction of net interest on the net definedbenefit liability (asset)Under IAS 19, the finance element of the costrecognised in profit or loss consists of the interest coston the defined benefit obligation (DBO) and theexpected return on plan assets. Under IAS 19R, theconcept of net interest on the net defined benefitliability (asset) is introduced as the equivalent of thefinance element of the cost under IAS 19. The netinterest on the net defined benefit liability (asset) isdefined as the change of the net defined benefit liability(asset) during the reporting period that arises frompassage of time and is determined by multiplying thenet defined benefit liability (asset) by the discount rate(market yields on high quality corporate bonds).Effectively, this means that the defined benefitobligation and the plan assets are multiplied by thesame interest rate.

The expected return on plan assets under IAS 19depends on the actual investment portfolio and istypically not equal to the discount rate applied for thedetermination of scheme liabilities. When the discountrate is lower than the expected return on the actualinvestment portfolio (which is generally the case),application of IAS 19R will decrease interest incomerecognised in profit or loss and reduce net profit or loss.Under IAS 19R, the difference between the interestincome component of net interest and the actual returnon plan assets is recognised in OCI.

Change in the presentation of the definedbenefit costUnder IAS 19R, the defined benefit cost comprisesservice cost, net interest and remeasurements. Servicecost (current and past service cost (includingcurtailments) and gains and losses on settlements) andnet interest are recognised in profit or loss, whileremeasurements (actuarial gains and losses, any changesin the effect of the asset ceiling and the differencebetween the interest income and the actual return) arerecognised in OCI.

Introduction of more extensive disclosurerequirements in the financial statementsIAS 19R introduces more extensive disclosurerequirements relating to the characteristics, risks andamounts in the financial statements regarding definedbenefit plans, as well as the effect of defined benefitplans on the amount, timing and uncertainty of theentitys future cash flows.

2. Executive summary

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IAS 19R will be applicable for reportingperiods starting on or after 1 January2013. The most significant changesrequired on application of the Standardare highlighted below.


The changes discussed in this chapter are:

Full recognition of deficit (surplus) on the statement offinancial position;

Introduction of net interest on the net defined benefitliability (asset);

Change in the presentation of the defined benefitcost; and

Introduction of more extensive disclosurerequirements in the financial statements.

Full recognition of deficit (surplus) on thestatement of financial positionUnder IAS 19R, the net defined benefit liability (asset)recognised on the statement of financial position is equalto the deficit (surplus) in the defined benefit plan, that iscomprised of the present value of the DBO, the fair valueof plan assets and the possible effect of the asset ceiling.Under IAS 19, this is not necessarily the case due to thepossibility of deferring actuarial gains and losses using thecorridor approach and the requirement to recogniseunvested past service costs over the average vestingperiod rather than immediately in the reporting period inwhich these occur. The corridor approach leads to lessvolatility in the financial statements, which is the mainreason why this treatment is permitted in IAS 19.

Recognition of actuarial gains and lossesActuarial gains and losses arise due to differencesbetween expectations and actual gains and losses andchanges in assumptions during the reporting period.As actuarial gains and losses can be either positive ornegative and depend on market conditions as well asentity specific developments, the impact on the netdefined benefit liability (asset) can change from year toyear. In order to decrease volatility in profit or loss,IAS 19 permits deferred recognition through thecorridor approach.

Under the corridor approach, the cumulativeunrecognised amount at the start of the reportingperiod is tested against a certain limit (corridor).Only the amount exceeding the corridor is recognisedin profit or loss over (at most) the expected averageremaining working lives of the employees participatingin the plan.

IAS 19 also permits immediate recognition of actuarialgains and losses when they occur either in profit or lossor in OCI, as a result of which all actuarial gains andlosses are included in the net defined benefit liability(asset). Under IAS 19R, all actuarial gains and losses shallbe recognised in OCI in the reporting period in whichthey occur. Therefore, recognition of actuarial gains andlosses in profit or loss, either on a deferred or immediatebasis, is not be possible under IAS 19R.

The application of IAS 19R will impact the current equityposition and future profit or loss of entities currentlyusing the corridor approach. Upon adoption of IAS 19R,all cumulative unrecognised actuarial gains and losses atthe start of the earliest comparative period will berecognised in retained earnings. If an entity hasunrecognised actuarial losses, application of IAS 19R willdecrease the equity of the entity, leading to possibleknock on effects such as issues with loan covenants orpotential borrowing capacity of the entity. Also, OCI willbecome more volatile in future years, as all changes ofmarket-related assumptions (such as the discount rate)will be recognised in OCI. The statement of financialposition will however reflect the actual deficit (surplus)in the defined benefit plan, which increasescomparability between entities.

3. The most important changes madeby IAS 19R

In this chapter, the changes made byIAS 19R Employee Benefits as statedin the executive summary are discussedin more detail.

Example

An example of the impact of the first application of IAS19R on the statement of financial position is presentedabove. Under IAS 19, the entity applies the corridormethod and has recognised a net defined benefitliability of CU400, which is determined by the unfundedstatus of CU700 net of unrecognised actuarial losses ofCU300. Upon recognition of the cumulativeunrecognised actuarial losses in retained earnings(equity) due to the first application of IAS 19R, the netdefined benefit liability increases by CU300 (to CU700)and the entitys equity decreases by the same amount(to CU300).

Deferred recognition of past service costPast service costs arise when an entity introduces adefined benefit plan that attributes benefits to pastservice or changes the benefits for past service under anexisting defined benefit plan. Under IAS 19, when theplan sets vesting requirements, unvested past servicecosts are recognised in profit or loss on a straight-linebasis over the average period until the benefits becomevested.

Under IAS 19R, all past service costs are recognised inprofit or loss when they occur. Therefore, nounrecognised amount will exist relating to (unvested)past service cost after the adoption of IAS 19R.

ConcludingIAS 19R eliminates deferred recognition of actuarialgains and losses and unvested past service cost.Therefore, the net defined benefit liability (asset) in thestatement of financial position represents the deficit(surplus) in the defined benefit plan (other than theeffect of the asset ceiling). Also, OCI and profit or lossare more volatile due to immediate recognition ofactuarial gains and losses (for entities applying thecorridor approach) and past service cost (for all entities)when compared to IAS 19.

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Assets Balance sheet (in red based on IAS 19R) Liabilities

Total assets 1,000 1,000 Equity 600 300Net defined benefit liability 400 700Unfunded status 700 700Unrecognised actuarial losses (300)

1,000 1,000 1,000 1,000

Introduction of net interest on the net definedbenefit liability (asset)Under IAS 19, the finance element of the cost of definedbenefit plans recognised in profit or loss consists of theinterest cost on the DBO and the expected return on planassets. The discount rate used to determine the interestcost is based on market yields on high quality corporatebonds (or on government bonds in countries where thereis no deep market in such bonds), while the expectedreturn on plan assets is determined based on theexpected rate of returns on investments of plan assets.

The rate of return depends on the actual investmentportfolio and is typically not equal to the discount rate,except for insured contracts where pooled investmentsare in place. In general, the expected return on planassets exceeds the discount rate due to investments inassets with a higher level of risk than high qualitycorporate bonds (e.g. equities or property).

IAS 19R introduces the net interest on the net definedbenefit liability (asset), which is recognised in profit orloss. The net interest on the net defined benefit liability(asset) is defined as the change of the net definedbenefit liability (asset) during the reporting period thatarises from passage of time and is determined bymultiplying the net defined benefit liability (asset) by thediscount rate (market yields on high quality corporatebonds), both as determined at the start of the annualreporting period taking into account actualcontributions and benefits paid during the reportingperiod. Effectively, this means that the DBO as well asthe plan assets (subject to the effect of the asset ceiling)are both multiplied by the same interest rate. Comparedto IAS 19, the fact that the plan assets will be multipliedby the discount rate rather than the expected rate ofreturn can have a significant impact on profit or loss.


Not recognised in period

Recognised in period

Example

In the example above, the discount rate (4.0%) is lowerthan the expected return (5.0%). As a result, the netinterest on the net defined benefit liability (asset) basedon IAS 19R (CU20) will exceed the financing cost basedon IAS 19 (CU10). The total pension cost recognised inprofit or loss for the entity will therefore increase byCU10 when applying IAS 19R, thus reducing net profitor loss. However, as shown in the example, thereduction of net profit or loss is offset by an increase ofreturn on plan assets in OCI.

Although this change gives less room for subjectivityand will therefore improve comparability, effective assetmanagement is not reflected in profit or loss, whichmight be regarded by some companies as a negativeeffect of IAS 19R.

Discount rate 4.0% Defined benefit obligation 1,500Expected return 5.0% Fair value on plan assets (1,000)Actual return 5.0% Net defined benefit liability 500

IAS 19 IAS 19RInterest cost 60 Interest expense 60Expected return (50) Interest income (40)Financing cost (P&L) 10 Net interest on net defined benefit liability (P&L) 20

Expected return (50) Interest income (40)Actual return (50) Actual return (50)Actuarial gains and losses on plan assets Return on plan assets excluding interest income (OCI) (10)

In addition, while IAS 19 permitted the treatment ofadministration costs either as a reduction of expectedreturn or as part of actuarial assumptions, withoutproviding further guidance, under IAS 19R only the(administration) costs relating to managing plan assetsare deducted from the actual return (in OCI) and allother administration costs should be recognised in profitor loss as they are incurred.

Change in the presentation of the definedbenefit costUnder IAS 19, the pension expense recognised in profitor loss consists of several components, such as currentservice cost, interest cost and expected return on planassets, as well as (depending on the entitys accountingpolicy) the recognition of actuarial gains and losses.IAS 19 had little guidance on the presentation of theseitems within profit or loss and in practice a number ofpresentations were used.

IAS 19R is more prescriptive and introduces the termdefined benefit cost. The defined benefit costcomprises all cost (income) during a reporting periodthat lead to the development of the net defined liability(asset), excluding contributions paid. For those amountsrecognised in profit or loss (service cost and netinterest), IAS 19R does not require a specificpresentation in operating cost or financing cost.

IAS 19

Operating profit

Finance costs

OCI

Not recognisedwithin corridor

Recognised infuture periods

Defined benefit cost

Actuarial gains or losses

Expected return onassets

Interest cost

Service cost

As shown in the diagram opposite, the defined benefitcost is disaggregated into the following threecomponents:

Service cost is recognised profit or loss and comprises:

Current service cost.

Past service cost (which includes curtailment gainsand losses).

Settlement gains and losses.

Net interest on the net defined liability (asset) isrecognised in profit or loss.

Remeasurements of the net defined benefit liability(asset) is recognised in OCI and comprise:

Actuarial gains and losses on the DBO.

The return on plan assets excluding amountsincluded in net interest on the net defined liability(asset).

Any change in the effect of asset ceiling excludingamounts included in net interest on the net definedliability (asset).

IAS 19R does not specify line items in which service costand net interest are presented and does not eitherspecify whether service cost and net interest should bepresented as components of a single line item of incomeor expense.

Introduction of more extensive disclosurerequirements in the financial statementsAccording to IAS 19R entities should discloseinformation that:

explains the characteristics of and risks associated withits defined benefit plans;

identifies and explains the amounts in its financialstatements arising from its defined benefit plans; and

describes how its defined benefit plans may affect theamount, timing and uncertainty of the entitys futurecash flows.

These disclosure requirements are more extensive thanthe disclosure requirements in IAS 19 and will provideadditional insight into the pension situation at the entity.

IAS 19R

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Profit and loss(no line specified)

Profit and loss(no line specified)

OCINothingdeferred

Defined benefit cost

Examples of these more extensive disclosurerequirements include:

the disclosure of the nature of the benefits;

a description of the risks to which the employeebenefit plan exposes the entity;

the results of a sensitivity analysis that indicates theinfluence of each significant actuarial assumptions onthe outcome of the pension valuation;

a narrative description of funding arrangements;

information about the maturity profile including theduration of the pension liabilities;

entities that participate in a multi-employer definedbenefit plan should for example disclose:

the extent to which the entity is liable for otherentities obligations;

qualitative information about agreed deficit/surplusallocation on wind-up or withdrawal.

Based on this information, users of the financialstatements should be provided with additional insightof the entitys obligations regarding employee benefits.The additional disclosure requirements may, on theother hand, lead to higher costs for the entity ingathering the required information.

Service cost current service cost interest on service cost past service cost non-routine settlements

Net interest cost interest on net defined

benefit liability (afterasset ceiling)

Remeasurement gains/losses actual return on assets change in asset ceiling


Figure 1. What is the policy for recognising actuarial gains and losses?

Corridor approach

Immediate recognition approach OCI (ie. equity)

Immediate recognition approach in income statement (0%)

63%

37%

The objective of this revised standard was to improvefinancial reporting of employee benefits by eliminatingsome presentation options, thus increasingcomparability and enhancing the disclosures about risksarising from defined benefit plans. In Switzerland, thefollowing amendments will have a significant impact onthe financial statements:

elimination of the option to use the corridorapproach;

change in the presentation approach and eliminationof expected return on plan assets;

inclusion of risk sharing elements in the determinationof the defined benefit liability; and

introduction of new disclosures.

Elimination of the option to use the corridorapproach in recognising actuarial gains andlossesIAS 19 Employee Benefits allows, until end of 2012, anumber of options for the recognition of actuarial gainsand losses. The elimination of the corridor method asannounced in the revised standard will significantlyimpact the shareholders equity of Swiss companies.Our last analysis1 based on the 2011 annual reportspublished by 30 public companies found that19 companies are using the corridor approach.

These 19 companies, about two thirds, will need torecognise the cumulative unrecognised actuarialgains/losses in retained earnings upon the firstapplication of the revised standard. Furthermore, underIAS 19 revised, all past service costs are recognised inprofit or loss as they occur and are no longer spreadover any vesting period.

The net liability (asset) recognized in the statement offinancial position may significantly increase or decreaseupon adoption of the revised standard. For someentities, the change to the statement of financialposition may significantly impact the debt equity ratiowhich may also have consequences on debt covenantcompliance.

The immediate recognition approach results in greatervolatility in the statement of financial position and inOCI when compared to the corridor approach. Based onour estimates1, equity of Swiss companies will bereduced by 6% on average due to the impact ofunrecognised pension costs which comprises actuariallosses and past service costs.

4. Changes in IAS 19R with asignificant impact expected inSwitzerland

In this chapter, the changes made byIAS 19R on defined benefits plans forwhich a significant impact is expected inSwitzerland are discussed in more detail.

1 Deloitte IFRS Survey 2012Focus on financialreporting in Switzerland

The users of the corridor approach are aware that theimpact will be significant and they have alreadycommunicated this information in their financialstatements as at 31 December 2011. Illustrativeexamples are Givaudan and Swatch Group, bothapplying the corridor method, which provide disclosurein their paragraph with regard to this revised IFRS inissue but not yet effective.

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Figure 2. Elimination of the corridor method and corresponding decrease on reported equity

< 5% > 5% and < 10% > 10%

42%

42%

16%

b) Issued and effective for 2013 and after

Amendments to IAS 19: Employee Benefi ts

These new amendments require the immediate recognition of the actuarial gains and losses arising from defi ned benefi ts plans in the statement of other comprehensive income, the recognition of service and fi nance cost in the income statement, and enhanced disclosures. These amendments will have a signifi cant impact on the consolidated fi nancial statements of the Group by increasing its liabilities for post-employment benefi ts and fi nancial income (expense), and decreasing its other comprehensive income and decreasing equity.

Givaudan, Annual Report 2011

Swatch Group, Annual Report 2011


Change in the presentation approach andelimination of expected return on plan assetsThe amendment introduce a new approach forpresenting changes in defined benefit obligations andplans assets in profit or loss and OCI. Entities will needto segregate changes in the defined benefit obligationand fair value of plan assets into those associated with:

service costs component;

net interest component; and

remeasurement component.

Note that IAS 19R does not specify how an entity shouldpresent service cost and net interest on the net definedbenefit liability (asset). The entity should determine anappropriate presentation under IAS 1 Presentation ofFinancial Statements. Accordingly, entities have anaccounting policy choice as to whether to present servicecost and net interest separately or as a single net figure.Entities have also a choice to determine where in profit orloss an entity should present the net interest component.Out of the 30 companies surveyed1, only 5 presented anallocation of the pension costs between salaries andfinance costs.

Another significant change is the removal of theexpected return on plan assets in the calculation of thepension cost. In many cases, using the discount rate tocalculate the interest income on the plan assets willreduce net profit, since the interest income will notreflect the benefit from the expectation of higherreturns on riskier investments.

This change may also cause an entity to become moreconservative in its investment strategies relating to itsdefined benefit plan which could lead to higher costs ofproviding the associated benefits.

Unsurprisingly, in the sample of companies surveyed1,the expected return always exceeded the discount rate.We estimated that Swiss companies may see theirpension cost increasing by 64% on average versusthe reported 2011 numbers. 4 companies out of the30 surveyed may see their pension cost more thandouble.

Figure 3. Estimated increase of the pension cost

< 30% 30% 100% > 100%

43%

43%

14%

With the rise of pension costs recognised in profit orloss, IAS 19R will have significant consequences onSwiss companies operating profitability. Illustrativeexamples are Swisscom and Schindler which provide adisclosure in their paragraph about this revised IFRSs inissue but not yet effective, with their own estimation ofthe impact on their profit or loss.

1 Deloitte IFRS Survey 2012Focus on financialreporting in Switzerland

Swisscom, Annual Report 2011

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> Amendments to IAS 19 Employee Benefits (effective as from 1 January 2013): As a result ofthe amendments to IAS 19, actuarial gains and losses in future must be recorded directly underother comprehensive income. The previous accounting option to either record them immedi-ately in the income statement or under other comprehensive income or defer recording themin accordance with the so-called corridor method is eliminated. In addition, in future Manage-ment shall no longer estimate the return on the pension funds assets in accordance with antic-ipated income interest on the basis of the allocation of assets, but the return on the fundsassets may only be recorded to the extent of the discounting rate. In addition, the amended IAS19 requires more extensive note disclosures. In future, entities must provide disclosures as tothe financing strategy of their pension plans and not only describe but also quantify the financ-ing risks inherent in their pension plans. Amongst other things, a sensitivity analysis is requiredshowing to what degree pension obligations fluctuate depending on changes in significantmeasurement assumptions. In future, the average remaining duration of employment benefitobligations must also be disclosed. If the amendments had already been adopted in the 2011consolidated financial statements, it is estimated that the costs of defined-benefit pensionplans in the income statement would increase by CHF 76 million.

The application of the revised standard IAS 19 Employee Benefits will leadto changes in accounting practices. In particular, actuarial gains and losseswill no longer be treated according to the corridor approach and will, instead,be recognized immediately in other comprehensive income. In addition,pension cost will be recalculated. The expected return on plan assets and theinterest on the defined benefit obligation were previously calculated sepa-rately. Under the new approach, interest is calculated on a net funding basis.

The Schindler Group intends to early adopt the revised IAS 19 as of January 1,2012, with related retrospective application in 2011. Based on currentknowledge, the financial impacts of its application in 2011 are expected tobe approximately as follows:

Net profit: reduction of CHF 10 million Equity: reduction of CHF 250 million as of December 31, 2011

Schindler, Annual Report 2011


Inclusion of risk sharing elements in thedetermination of the defined benefit liabilityRisks relating to pensions are typically shared betweenthe employer (i.e. plan sponsor) and the (former)employees (i.e. plan participants) in certain jurisdictions.IAS 19 does not take this risk sharing into accountproperly. IAS 19R acknowledges that part of the pensionrelated risks are shared between the employer and theplan participants. An important aspect of risk sharing forthe pension situation includes employee contributions,which is discussed in more detail below.

It is not uncommon that employees contribute to thepension accrual in their pension plans, usually bycontributing a percentage of their pensionable salary.Under IAS 19 the expected future employee contributionsare not taken into account in the determination of thepresent value of the defined benefit obligation. IAS 19Rclarifies that an entity should take mandatory employeecontributions into account in the valuation of the presentvalue of the defined benefit obligation. Thesecontributions are regarded as a negative benefit. The netbenefit (the total benefit excluding future employeecontributions) should therefore be attributed over theservice period under the projected unit credit method.The service cost therefore only represents the increase ofthe defined benefit obligation funded by the employer.Given the nature of most Swiss pension plans, this willbetter reflect the best estimate of the ultimate cost of thebenefits to the entity, when employee contributions areapplicable to a pension plan.

When the employee contributions are actually paid, boththe present value of the defined benefit obligation andthe fair value of the plan assets are increased with theamount contributed. By accounting for employeecontributions in this way, there will be no impact on thefunded status and the profit or loss when contributionsare paid.

ExampleIn the example below, the employees contribute 8% oftheir pensionable salary to the pension plan theyparticipate in.

The present value of the future employee contributionsamounts to CU150. Based on IAS 19R, the definedbenefit obligation will be adjusted to CU850.

In Switzerland, the risk sharing which will affect thedefined benefit obligation is a key issue. However, ourcurrent understanding is that the impact on the overallpension liability will be minor. There are currently variousmethods discussed among actuaries how these IAS 19Rrisk sharing provisions shall be reflected in their models.

Introduction of new disclosuresThe amendments set objectives to improve theunderstandability and usefulness of disclosures, allowingusers of financial statements to evaluate better thefinancial effect of liabilities and assets arising fromdefined benefit plans.

The revised standard outlines the following disclosureobjectives:

Explain the characteristics and related risks of definedbenefit plans.

Identify and explain the amounts in the financialstatements arising from defined benefit plans.

Describe how benefit plans may affect the amount,timing, and uncertainty of future cash flows.

Many of the disclosure requirements of the currentIAS 19 standard have been carried forward into IAS 19R.

The requirement to disclose information about thecharacteristics of defined benefit plans and risksassociated with them is not new. However, the revisedstandard requires the new characteristics, for example:

information about the characteristics of its definedbenefit plans, including:

description of the regulatory framework in whichthe plan operates, for example the level of anyminimum funding requirements, and any effect ofthe regulatory framework on the plan, such as theasset ceiling;

description of any other entitys responsibilities forthe governance of the plan, for exampleresponsibilities of plan trustees or of boardmembers;

Liability (in red based on IAS 19R)

Defined benefit obligation (before 1,000 1,000effect of employee contributions)

Present value of future employee (150)contributions

Defined benefit obligation (after 1,000 850effect of employee contributions)

description of risks to which the plan exposes theentity, focused on any unusual, entity-specific orplan-specific risks, and of any significantconcentrations of risk;

description of any plan amendments, curtailments andsettlements.

Although we may think that these new disclosures willbe narrative only, some additional quantitativeinformation is also required. The requirement to providea rollforward reconciliation for plan assets and thedefined benefit obligation is not new, but the itemsrequired to be presented separately in the reconciliationshave been expanded. For example, in the past actuarialgains and losses were disclosed in the aggregate.The requirement to separately disclose actuarial gainsand losses from changes in demographic assumptionsand those from changes in financial assumptions is asignificant new requirement, which may requireadditional information to be provided by the entitysactuary.

An important note is that IAS 19R is effective for annualperiods beginning on or after 1 January 2013, withearlier application being permitted. Retrospectiveapplication is required, and so it will be important toconsider IAS 1s requirements around the presentationof a statement of financial position as of the beginningof the comparative period in case of retrospectivechange in accounting (e.g., 1 January 2012 when thenentity adopts IAS 19R for its financial statementsbeginning on 1 January 2013).

However, there are two exceptions to this retrospectiveapplication:

When benefit costs are included in the carryingamount of assets outside the scope of IAS 19(e.g., inventories), these assets are not required tobe adjusted before the date of initial application(the beginning of the earliest comparative period).

In financial statements for periods beginning before1 January 2014, comparative information does notneed to be presented for the disclosures on thesensitivity of the defined benefit obligation.

Appendix III gives examples of an early application ofthe requirements of IAS 19R.

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The changes discussed in this chapter are:

clarification regarding the classification of definedbenefit plans;

change in the definition of short-term employeebenefits, and

clarification of the definition and recognition oftermination benefits.

Clarification regarding the classification ofdefined benefit plansUnder IAS 19R the classification of a pension plan asdefined contribution plan is clarified to certain extent.The existence of a benefit formula can no longer solelyfrustrate a classification of a pension plan as definedcontribution plan. In addition to this benefit formula theentity should be required to provide further contributionsif assets are insufficient to meet the benefits in the planbenefit formula in order to conclude with a classificationas defined contribution, according to paragraph 29a ofIAS 19R.

Besides the afore mentioned clarification, all actuarialrisk and investment risk should fall, in substance, on theentity in order for the pension plan to be classified as adefined benefit plan, according to paragraph 28 ofIAS 19R.

In certain jurisdictions, these types of risks are typicallyshared between the entity, (former) participants and theexecuter of the plan. Based on the interpretation of insubstance it is therefore expected that the classificationof certain defined benefit plans in these jurisdictionsmight change to defined contribution plans, for examplein the Netherlands.

This clarification might have important implications forpension plans executed by industry-wide multi-employerpension funds. Such plans, when classified as definedbenefit plan under IAS 19, may be classified as definedcontribution plan under IAS 19R. This then betterreflects the actual arrangement between entities andsuch pension funds, as in general for such plans theentity is only required to pay an agreed contributionrelating to current service and does not run any risk ofadditional contributions due to e.g. deficits in thepension fund. A change of classification for thesepension plans results in less (strict) disclosurerequirements for the financial statements of theaffiliated entities.

The Swiss IAS 19 discussion group comprising auditfirms and actuaries has confirmed that the classificationof Swiss BVG/LPP pension plans, including so calledfully insured pension plans, will not change under therevised standard.

Change in the definition of short-term employeebenefitsIAS 19R changes the definition of short-term employeebenefits. Short-term employee benefits under IAS 19 arebenefits that are due to be settled within twelve monthsafter the end of the period in which the employeesrender the related service.

In contrast, under IAS 19R only benefits that areexpected to be settled wholly within twelve monthsafter the end of the annual reporting period in whichthe employees render the related service are classified asshort-term employee benefits. The inclusion ofexpected and wholly in the definition of short-termemployee benefits might lead to a change ofclassification.

For example for annual leave (paid leave which isaccumulated by employees over time), it is in generalnot required (or expected) that the accrued annualleave is wholly used (settled) before the end of the nextannual reporting period. Due to the adjusted definition,similar benefits classified as short-term employeebenefits under IAS 19 might be classified as long-termemployee benefits under IAS 19R.

5. Other changes made by IAS 19Rfor which less impact is expectedin Switzerland

In this chapter, the other changes madeby IAS 19R on defined benefit plan butalso on short-term employee benefits andtermination benefits, for which lessimpact is expected in Switzerland, arediscussed in more detail.

Short-term employee benefits are accounted for on anundiscounted basis in the period in which the service isrendered. For employee benefits that classify as otherlong-term employee benefits discounting is required ande.g. salary increases should be incorporated. The changeof the definition might therefore have an impact on the(net) balance sheet liability regarding those employeebenefits and therefore on the financial statements of anentity.

The impact of the change of the definition of short-termemployee benefits is expected to be significant forexample in Australia, where annual leave is typicallytreated as a short-term employee benefit under IAS 19.The change of the definition of short-term employeebenefits under IAS 19R would therefore lead to areclassification as other long-term employee benefits.For Switzerland, the legislation on annual leave(Article 329 of the Swiss Code of obligations) is silent;there should not be reclassification of annual leave asother long-term employee benefits. The effect of thechange of the definition is therefore expected to belimited in Switzerland.

Clarification of the definition and recognition oftermination benefitsThe definition of termination benefits in IAS 19 includesemployee benefits that are payable as a result of anemployees decision to accept voluntary redundancy inexchange for those benefits. In IAS 19R the definitionhas been amended to clarify that an employee shouldaccept an offer of benefits in exchange for thetermination of employment. Employee benefits resultingfrom termination of employment without an employersoffer or as a result of mandatory retirement requirementsare therefore not termination benefits but are post-employment benefits.

IAS 19 states that termination benefits should berecognised when the entity has demonstrated itscommitment either to terminate the employment ofemployees before the normal retirement date or toprovide termination benefits as a result of an offer madein order to encourage voluntary redundancy. The Boardclarified in IAS 19R that termination benefits should berecognised at the earlier of the following dates:

(a) when the entity recognises costs for a restructuringwithin the scope of IAS 37 Provisions, ContingentLiabilities and Contingent Assets that included thepayment of termination benefits; and

(b) when the entity can no longer withdraw the offer ofthose benefits.

Further guidance is given in IAS 19R as to when anentity is no longer able to withdraw an offer of benefitsin exchange for termination of employment.

The impact of the clarification of the definition andrecognition of termination benefits is expected to besignificant for example in Italy and France, where thetermination benefits are commonly part of the terms ofemployment between entities and their employees.For Switzerland, this type of termination benefits is notcommonly applicable and therefore the impact isexpected to be limited.

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6. Comparison of IAS 19R with IAS 19

In this chapter, the content of IAS 19R will be compared with thecontent of IAS 19 in more detail. The first table below contains themore significant differences between IAS 19R and IAS 19. The secondtable contains several areas in which IAS 19R attempts to offerclarification.

Issue IAS 19R IAS 19

Presentation of net definedbenefit liability (asset)

The net defined liability or asset reflectsthe full amount of the deficit/surplus ofthe long-term employee benefit plans.

The net defined liability or asset does notalways reflect the amount of the deficit/surplus of the long-term employeebenefit plans (Corridor method).

Presentation of definedbenefit cost

The defined benefit cost comprises:

service cost recognised in profit or loss;

net interest on the net defined benefitliability (asset) recognised in profit orloss, and

remeasurements recognised in OCI.

Service cost, interest cost, expectedreturn on assets and/or reimbursementrights, amortisation of past service cost,the effect of curtailments andsettlements in profit or loss. Actuarialgains and losses and changes in theeffect of the asset ceiling are recognisedeither in profit or loss or OCI dependingon the accounting policy.

Net interest on the netdefined benefit liability(asset)/interest cost andexpected return on planassets

Net interest on the net defined benefitliability (asset) is determined bymultiplying the net defined benefitliability (asset) over the reporting periodby the discount rate (market yields onhigh quality corporate bonds).

Interest cost is calculated by multiplyingthe discount rate by the DBO over thereporting period. Expected return onplan assets is based on marketexpectations for returns over the entirelifetime of the related obligation.

Actuarial gains and losses recognition

Deferral of the recognition of actuarialgains and losses is not permitted.Actuarial gains and losses are recognisedimmediately in OCI. Reclassification ofamounts recognised in OCI to profit orloss is not permitted.

Actuarial gains and losses can berecognised immediately in profit or lossor in OCI or deferred via the corridorapproach. Reclassification of amountsrecognised in OCI to profit or loss is notpermitted.

Past service cost recognition

Recognised in full in profit or loss whenthey occur.

Unvested past service cost is recognisedin profit or loss on a straight line basisover the average vesting period.

More significant differencesIn the table below the more significant differences between IAS 19 and IAS 19R are presented.

16


Taxes payable Financial assumptions include taxespayable by the plan on contributionsrelating to service before the reportingdate or on benefits resulting from thatservice.

No specific requirements.

Risk sharing employeecontributions

Non-discretionary contributions (set out inthe formal terms of the plan) byemployees in respect of service areattributed to periods of service as anegative benefit in accordance with theprojected unit credit method.Discretionary contributions by employeesreduce service cost upon payment ofthese contributions.

Contributions by employees to theon-going cost of the plan reduce thecurrent service cost to the entity on acash basis.

Risk sharing liability ceiling The present value of the DBO isdetermined based on the ultimate costof the benefits, taking account of theeffect of any limit on contributions.

In determining the present value of theDBO, no liability ceiling is taken intoaccount.

Risk sharing conditionalindexation

Actuarial assumptions will include futurebenefit changes set out in formal termsor based on a constructive obligationregarding conditional indexation.


Curtailments and pastservice costs

Past service cost is the change in thepresent value of the defined benefitobligation for employee service in priorperiods, resulting from a planamendment (the introduction orwithdrawal of, or changes to, a definedbenefit plan) or a curtailment (asignificant reduction by the entity in thenumber of employees covered by aplan).

Distinguishing between past service costand a curtailment is not necessary asboth are recognised immediately.

A curtailment occurs when an entityeither: is demonstrably committed tomake a significant reduction in thenumber of employees covered by a plan;or amends the terms of a definedbenefit plan so that a significant elementof future service by current employeeswill no longer qualify for benefits, or willqualify only for reduced benefits.

Past service cost is the change in thepresent value of the defined benefitobligation for employee service in priorperiods, resulting in the current periodfrom the introduction of, or changes to,post-employment benefits or other long-term employee benefits.

Distinguishing between the two issignificant as the effects of a curtailmentare recognised immediately, whereaspast service costs are recognised overthe average period until vesting.

Remeasurement in interimfinancial statements

Requirements of IAS 34 Interim FinancialReporting are unchanged, but basis ofconclusions to IAS 19R note that entitiespreviously deferring recognition of somegains and losses are now more likely tojudge that remeasurement is required forinterim reporting.

Pension cost for an interim period iscalculated on a year-to-date basis byusing the actuarially determined pensioncost rate at the end of the prior financialyear, adjusted for significant marketfluctuations since that time and forsignificant curtailments, settlements, orother significant one-off events.



Short-term employeebenefits definition

Employee benefits (other thantermination benefits) that are expectedto be settled wholly before twelvemonths after the end of the annualreporting period in which the employeesrender the related service.

Employee benefits (other thantermination benefits) that are due to besettled within twelve months after theend of the period in which theemployees render the related service.

Past service cost timing Past service cost are recognised fully inprofit or loss at the earlier of the date onwhich the related restructuring cost ortermination benefits are recognised andthe date

Past service cost are recognised in profitor loss when an entity introduces adefined benefit plan that attributesbenefits to past service or changes thebenefits payable for past service underan existing defined benefit plan, to theextent that the benefits are vested.

Settlement definition A settlement occurs when an entityenters into a transaction that eliminatesall further legal or constructiveobligation for part or all of the benefitsprovided under a defined benefit plan,other than a payment of benefits to, oron behalf of, employees that is set out inthe terms of the plan and included in theactuarial assumptions. For example, aone-off transfer of significant employerobligations under the plan to aninsurance company through thepurchase of an insurance policy wouldbe classified as a settlement. A lump-sum cash payment is made under theterms of the plan to, or on behalf of,plan participants in exchange for theirrights to receive specified post-employment benefits; this is notclassified as a settlement.

A settlement occurs when an entityenters into a transaction that eliminatesall further legal or constructiveobligation for part or all of the benefitsprovided under a defined benefit plan.

Mortality assumption determination

Mortality assumptions are based on theentitys best estimate of the mortality ofplan members during and afteremployment and include expectedchanges in mortality for example usingestimates of mortality improvements.

Mortality assumptions are based on theentitys best estimate of the mortality ofplan members during and afteremployment.

Return on plan assets costdeduction

In determining the return on plan assets,an entity should only deduct the cost ofmanaging the plan assets.

In determining the expected return onplan assets, an entity should deductthe cost of administering the plan(other than included in the actuarialassumptions used to measure the DBO).

Most significant clarificationsIAS 19R also contains clarifications on several areas in IAS 19. In the table below the most significant clarifications arepresented.

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Termination benefits definition

Termination benefits are benefits thatarise from the termination ofemployment rather than employeeservice. Termination benefits can resultfrom either an entitys decision toterminate the employment or anemployees decision to accept an entitysoffer of benefits in exchange fortermination of employment.

Termination benefits are employeebenefits payable as a result of either anentitys decision to terminate anemployees employment before thenormal retirement date or an employeesdecision to accept voluntary redundancyin exchange for those benefits.

Termination benefits timing

An entity shall recognise a liability andexpense at the earlier of the date whenthe entity recognises related restructuringcosts and the date when the entity can nolonger withdraw the offer of thetermination benefits.

An entity shall recognise terminationbenefits as a liability and an expensewhen, and only when, the entity isdemonstrably committed to eitherterminate the employment of anemployee or group of employees beforethe normal retirement date; or providetermination benefits as a result of anoffer made in order to encouragevoluntary redundancy.

Defined contribution plans definition

DC plans are post-employment benefitplans under which an entity pays fixedcontributions into a separate entity andwill have no legal or constructiveobligation to pay further contributions ifthe fund does not hold sufficient assets.In consequence, actuarial risk (thatbenefits will be less than expected) andinvestment risk (that assets invested willbe insufficient to meet expectedbenefits) fall, in substance, on theemployee.

DC plans are post-employment benefitplans under which an entity pays fixedcontributions into a separate entity andwill have no legal or constructiveobligation to pay further contributions ifthe fund does not hold sufficient assets.In consequence, actuarial risk (thatbenefits will be less than expected) andinvestment risk (that assets invested willbe insufficient to meet expectedbenefits) fall on the employee.

Defined contribution plans classification

A legal or constructive obligation thatfrustrates a DC classification arises dueto a plan formula that is not solely linkedto the amount of contributions andrequires the entity to provide furthercontributions if assets are insufficient tomeet the benefits in the plan benefitformula.

A legal or constructive obligation thatfrustrates a DC classification arises dueto a plan formula that is not solely linkedto the amount of contributions.

Multi-employer plans exit An entity recognises and measures aliability that arises from the wind-up of amulti-employer defined benefit plans, orthe entitys withdrawal from a multi-employer defined benefit plan inaccordance with IAS 37.



In the table below, a summary of the disclosure requirements fordefined benefit post-employment benefit plans under IAS 19R ispresented.

Appendix I Disclosure requirements

Paragraph Disclosure requirement

General disclosure requirements

135 a) Explanation of characteristics and risks associated with all defined benefit plans.b) Identification and explanation of amounts in the financial statements.c) How defined benefit plans may affect the amount, timing and uncertainty of future cash

flows.

136 In meeting the objectives of paragraph 135, consider:a) level of detail necessary;b) emphasis on each of the various requirements;c) how much aggregation or disaggregation to undertake; anda) whether users need additional information to evaluate quantitative information.

137 If the detailed disclosures are not sufficient to meet the requirements of paragraph 135,additional information should be provided.

138 Disaggregation of disclosures should be based on materially different risks.

Characteristics of defined benefit plans and risks associated with them.

139 a) Disclosure of the characteristics of the plan, including:i) the nature of the benefits;ii) a description of the regulatory framework; andiii) governance responsibilities;

b) Description of the risks to which the plan exposes the entity; andd) Description of plan amendments, curtailments and settlements.

Explanation of amounts in the financial statements

140 Reconciliation from the opening balance to the closing balance fora) The net defined benefit liability, showing separately:

i) plan assets;ii) present value of the defined benefit obligation, andiii) the effect of the asset ceiling;

b) reimbursement rights.

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141 Reconciliations as determined should include:a) current service cost;b) interest income or expense;c) remeasurements, showing separately:

i) return on plan assets excluding interest income;ii) actuarial gains or losses and experience gains or losses from demographic assumptions;iii) actuarial gains or losses and experience gains or losses from financial assumptions; andiv) the effect of the asset ceiling;

d) past service cost and gains or losses arising from settlements;e) foreign exchange rate effects;f) employer and employee contributions;g) benefit payments from the plan; andh) the effect of business combinations and disposals.

142 Disaggregation of the fair value of plan assets into different asset classes distinguished on thenature and risks of the plan assets.

143 Disclosure of the fair value of the entitys own transferable financial instruments held asplan assets.

144 Disclosure of significant actuarial assumptions in absolute terms.

Amount, timing and uncertainty of future cash flows

145 Indication of sensitivity of measurement of defined benefit obligation:a) sensitivity analysis;b) methods and assumptions used to perform the sensitivity analysis; andc) changes in preparing the sensitivity analysis.

146 Description of asset liability matching strategies.

147 Indication of the effect of the defined benefit plan on the entitys future cash flows:a) description of any funding agreements and funding policy;b) expected contributions in the next reporting period; andc) information about the maturity profile of the defined benefit plan, e.g. the weighted average

duration of the plan.

Multi-employer plans

148 Entities that participate in multi-employer defined benefit plans, should disclose:a) a description of funding arrangements;b) a description of the extent to which entity is liable for other entities obligations;c) a description of any agreed deficit/surplus allocation on:

i) wind-up; orii) entitys withdrawal from the plan;

d) when defined benefit plan is accounted as defined contribution plan (according to IAS19.34):i) the fact that the plan is a defined benefit plan;ii) the reason why sufficient information is not available;iii) information concerning future contributions;iv) information about the deficit/surplus that may affect future contributions;v) indication of the level of participation compared to other participating entities.

Examples of measures that might provide an indication:1. The entitys proportion of the total contributions to the plan;2. The entitys proportion of the total number of participants.



Defined benefit plans that share risks between entities under common control

149 Entities that participate in a defined benefit plan that shares risks between entities undercommon control should disclose:a) the contractual agreement or stated policy for charging the net defined benefit cost or the

fact that there is no such policy;b) the policy for determining the contribution to be paid by the entity;c) if the entity accounts for an allocation of the net defined benefit cost as noted in paragraph

41, all the information about the plan as a whole required by paragraphs 135-147; anda) if the entity accounts for the contribution payable for the period as noted in paragraph 41,

the information about the plan as a whole required by paragraphs 135-137, 139, 142-144and 147(a) and (b).

150 The information required by paragraph 149(c) and (d) can be disclosed by cross-reference todisclosures in another group entitys financial statements if:a) that group entitys financial statements separately identify and disclose the information

required about the plan; andb) that group entitys financial statements are available to users of the financial statements on

the same terms as the financial statements of the entity and at the same time as, or earlierthan, the financial statements of the entity.

Disclosure requirements in other IFRSs that may be applicable

151 IAS 24 Related Party Disclosures.

152 IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

In the table below, the content of IAS 19R will be compared with thecontent of US GAAP in more detail.

Appendix II Comparison of IAS 19Rwith US GAAP

22

Subject IAS 19R US GAAP

Recognition of prior service cost Immediately recognised in profit orloss as part of service costcomponent.

Prior service costs are immediatelyrecognised in OCI and amortisedover the remaining service period(or life expectancy if all or almost allof the participants are inactive) toprofit or loss.

Recognition of actuarial gains andlosses

Immediately recognised throughOCI as part of the remeasurementcomponent. No recycling from OCIto profit or loss.

Immediately recognised eitherthrough OCI or in profit or loss.Amounts recognised through OCIare subsequently recycled to profitor loss by adopting either thecorridor approach or a systematicmethod that results in fasterrecycling.

Expected return on plan assets Not applicable (the market yieldbased interest income is included inthe net interest component andrecognised in profit or loss).

Calculated by applying theexpected long-term rate on returnon plan assets to the market-related value of the plan assets.Recognised in profit or loss.

Recognition of gains/losses on acurtailment

Gains/losses are recognised as ofthe earlier the date of curtailmentoccurs or related restructuring costsor termination benefits arerecognised. Amounts are includedin the service cost component.

A curtailment loss is recognisedwhen it is probable that acurtailment will occur and theeffects are reasonably estimable.A curtailment gain is recognisedwhen the relevant employees areterminated or the plan suspensionor amendment is adopted, whichcould occur after the entity isdemonstrably committed and acurtailment is announced.The significance test is based onthe number of years of serviceeliminated, not the number ofemployees.


This appendix gives you examples of the application ofthe requirements of IAS 19 (as revised in 2011).

Key assumptions used in the preparation of thisappendix are as follows:

International GAAP Holdings Limited is assumed tohave early applied IAS 19 (as revised in 2011) in thecurrent year in advance of its effective date. 1 January2010 is considered to be the date of initial applicationof this Standard. These changes have resulted inchanges in amounts reported in the financialstatements (see note 2).

IAS 19 (as revised in 2011) has been appliedretrospectively in accordance with IAS 8 and therelevant transitional provisions of IAS 19.172 and.173. In this appendix, for illustrative purposes,amounts for the comparative period 2010 arerestated. Therefore, a statement of financial positionas at the beginning of the earliest comparative periodin accordance with IAS 1.10(f) is included.

This appendix does not include a full set of financialstatements; only the statement of financial position,income statement, statement of comprehensive income,statement of changes in equity, statement of cash flowsand certain notes affected by IAS 19 (as revised in 2011)are included. Regarding the statement of comprehensiveincome, the two-statement presentation method is usedand expenses are aggregated according to their nature.In addition, regarding the statement of cash flows,the direct method is used to report cash flows fromoperating activities.

For simplicity purposes, this appendix assumes that thetaxing authorities in the jurisdictions where the Groupoperates adopts all of the amendments to IAS 19 (asrevised 2011) retrospectively such that there are nodeferred income tax implications resulting from thechange in accounting policy with respect to theapplication of IAS 19 (as revised in 2011). This may notalways be the case. Taxing authorities may choose tonot adopt some or all of the amendments to IAS 19or may choose to adopt the amendments to IAS 19prospectively only. In these cases, there would likelybe deferred income tax implications that should bereflected in the financial statements and notes thereto.The financial statements and appendix do reflect thecurrent income tax effect of the application of IAS 19(as revised in 2011) for the current and prior year(restated) effect on profit or loss and othercomprehensive income. For completeness, the entireincome tax footnote is included in the appendix.

For details of the disclosure and presentationrequirements of IAS 19 (as revised in 2011), readersshould refer to Deloitte's 2011 IFRS Compliance,Presentation and Disclosure Checklist. This checklist canbe downloaded from Deloitte's web sitewww.iasplus.com

Note that in this appendix, we have included line itemsfor which a nil amount is shown, so as to illustrate itemsthat, although not applicable to International GAAPHoldings Limited, are commonly encountered inpractice. This does not mean that we have illustrated allpossible disclosures. Nor should it be taken to meanthat, in practice, entities are required to display lineitems for such nil' amounts.

Appendix III Early applicationIAS 19 Employee Benefits (as revisedin June 2011)

This Appendix is an extract of the Deloitteglobal publication: IFRS Model FinancialStatements 2011 (with early application ofnew and revised Standards and Interpretationsthat are not mandatorily effective on1 January 2011) available athttp://www.iasplus.com/fs/2011modelfsearlyadoption.pdf.

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ContentsPage

Consolidated income statement 25

Consolidated statement of comprehensive income 26

Consolidated statement of financial position 27

Consolidated statement of changes in equity 29

Consolidated statement of cash flows 31

Notes to the consolidated financial statements, including:

2 Application of new and revised International Financial Reporting Standards 32

3 Significant accounting policies 33

10 Income taxes relating to continuing operations 34

13 Profit for the year from continuing operations 36

14 Earnings per share 37

39 Retirement benefit plans 38

Consolidated income statement for the year ended 31 December 2011

Notes Year Yearended ended

31/12/11 31/12/10

CU000 CU000(restated)

Continuing operations

Revenue 140,918 151,840 Investment income 3,608 2,351 Other gains and losses 647 1,005 Changes in inventories of finished goods and work in progress 7,134 2,118 Raw materials and consumables used (84,659) (85,413) Depreciation and amortisation expenses (11,193) (13,878) Employee benefits expense 13 (10,553) (11,951) Finance costs (4,418) (6,023) Consulting expense (3,120) (1,926) Other expenses (10,268) (8,005) Share of profits of associates 1,186 1,589 Gain recognised on disposal of interest in former associate 581 Other [describe]

Profit before tax 29,863 31,707 Income tax expense 10 (11,432) (11,672)

Profit for the year from continuing operations 18,431 20,035

Discontinued operations

Profit for the year from discontinued operations 8,310 9,995

Profit for the year 26,741 30,030

Attributable to:

Owners of the Company 22,741 27,267 Non-controlling interests 4,000 2,763

26,741 30,030

Earnings per share 14

From continuing and discontinued operations

Basic (cents per share) 130.5 135.5

Diluted (cents per share) 114.0 129.1

From continuing operations

Basic (cents per share) 82.8 85.8

Diluted (cents per share) 72.5 81.8

Note: The format outlined above aggregates expenses according to their nature.


Source International GAAP Holdings Limited


26

Consolidated statement of comprehensive income for the year ended 31 December 2011

Year Yearended ended

31/12/11 31/12/10

CU000 CU000 (restated)

Profit for the year 26,741 30,030

Other comprehensive income

Exchange differences on translating foreign operations Exchange differences arising during the year 75 121 Loss on hedging instruments designated in hedges of the net assets

of foreign operations (12) Reclassification adjustments relating to foreign operations disposed

of in the year (166) Reclassification adjustments relating to hedges of the net assets of

foreign operations disposed of in the year 46

(57) 121

Available-for-sale financial assets Net gain on available-for-sale financial assets during the year 94 81 Reclassification adjustments relating to available-for-sale financial

assets disposed of in the year

94 81

Cash flow hedges Gains arising during the year 436 316 Reclassification adjustments for amounts recognised in profit or loss (123) (86) Adjustments for amounts transferred to the initial carrying amounts

of hedged items (257) (201)

56 29

Gain on revaluation of properties 1,643

Share of other comprehensive income of associates

Remeasurement of defined benefit obligation 806 191

Income tax relating to components of other comprehensive income (269) (619)

Total comprehensive income for the year 27,371 31,476

Total comprehensive income attributable to:

Owners of the Company 23,371 28,713 Non-controlling interests 4,000 2,763

27,371 31,476




Consolidated statement of financial position at 31 December 2011

Notes 31/12/11 31/12/10 01/01/10

CU000 CU000 CU000 Assets (restated) (restated)

Non-current assets

Property, plant and equipment 109,783 135,721 161,058 Investment property 1,968 1,941 170 Goodwill 20,285 24,060 23,920 Other intangible assets 9,739 11,325 12,523 Investments in associates 7,402 7,270 5,706 Deferred tax assets 2,083 1,964 1,843 Finance lease receivables 830 717 739 Other financial assets 10,771 9,655 7,850 Other assets

Total non-current assets 162,861 192,653 213,809

Current assets

Inventories 31,213 28,982 29,688 Trade and other receivables 19,249 14,658 13,550 Finance lease receivables 198 188 182 Amounts due from customers under construction contracts 240 230 697 Other financial assets 8,757 6,949 5,528 Current tax assets 125 60 81 Other assets Cash and bank balances 23,446 19,778 9,082

83,228 70,845 58,808 Assets classified as held for sale 22,336

Total current assets 105,564 70,845 58,808

Total assets 268,425 263,498 272,617

Note: IAS 1.10(f) requires that an entity should present a statement of financial position as at the beginning of theearliest comparative period when it applies an accounting policy retrospectively or makes a retrospectiverestatement of items in its financial statements, or when it reclassifies items in its financial statements.

In this appendix, the application of IAS 19 (as revised in 2011) has resulted in retrospective restatement of itemsin the financial statements (see note 2). Therefore, this appendix includes an additional statement of financialposition.

In some jurisdiction, where it is required to distinguish between distributable reserves and non-distributablereserves, it could be appropriate to create a separate reserve for accumulating the remeasurement of netdefined benefit asset (liability) recognised through other comprehensive income.



28

Consolidated statement of financial position at 31 December 2011 continued Notes 31/12/11 31/12/10 01/01/10

CU000 CU000 CU000 (restated) (restated) Equity and liabilities

Capital and reserves

Issued capital 32,439 48,672 48,672 Reserves 4,237 3,376 1,726 Retained earnings 111,440 95,288 74,366

148,116 147,336 124,764 Amounts recognised directly in equity relating

to assets classified as held for sale

Equity attributable to owners of the Company 148,116 147,336 124,764

Non-controlling interests 24,316 20,005 17,242

Total equity 172,432 167,341 142,006

Non-current liabilities

Borrowings 17,868 29,807 25,785 Other financial liabilities 15,001 Retirement benefit obligation 39 1,954 1,482 2,194 Deferred tax liabilities 10 6,729 5,657 4,436 Provisions 2,294 2,231 4,102 Deferred revenue 59 165 41 Other liabilities 180 270

Total non-current liabilities 44,085 39,612 36,558

Current liabilities

Trade and other payables 16,373 21,220 52,750 Amounts due to customers under construction contracts 36 15 245 Borrowings 22,446 25,600 33,618 Other financial liabilities 116 18 Current tax liabilities 10 5,542 6,030 5,142 Provisions 3,356 3,195 2,235 Deferred revenue 265 372 63 Other liabilities 90 95

48,224 56,545 94,053

Liabilities directly associated with assets classified as held for sale 3,684

Total current liabilities 51,908 56,545 94,053

Total liabilities 95,993 96,157 130,611

Total equity and liabilities 268,425 263,498 272,617




Consolidated statement of changes in equity for the year ended 31 December 2011

Properties Share Share General revaluation

capital premium reserve reserve

CU000 CU000 CU000 CU000

Balance at 1 January 2010 23,005 25,667 807 51

Adjustments (note 2)

As restated 23,005 25,667 807 51

Profit for the year (restated) Other comprehensive income for the year,

net of income tax (restated) 1,150

Total comprehensive income for the year (restated) 1,150

Recognition of share-based payments Payment of dividends

Balance at 31 December 2010 (restated) 23,005 25,667 807 1,201

Profit for the year Other comprehensive income for the year, net of income tax

Total comprehensive income for the year

Payment of dividends Additional non-controlling interests arising on the

acquisition of Subsix Limited (note 44) Additional non-controlling interests relating to outstanding

share-based payment transactions of Subsix Limited (note 44) Disposal of partial interest in Subone Limited (note 19) Recognition of share-based payments Issue of ordinary shares under employee share option plan 314 Issue of ordinary shares for consulting services performed 3 5 Issue of convertible non-participating preference shares 100 Issue of convertible notes Share issue costs (6) Buy-back of ordinary shares (5,603) (10,853) Share buy-back costs

ias 19 employee benefits

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