Okay to account for pension plan longevity swaps at fair-value: IFRS

The Interpretations Committee of the International Financial Reporting Standards (IFRS) concluded recently that it is okay to account for a longevity swap as a single instrument and to measure it at fair value as part of pension plan assets.

The Interpretations Committee meets to discuss issues that arise, either through its own work or at the request of an external person or organisation, which require interpretation through rules such as under International Accounting Standards Board (IASB) which could lead to amendments or changes.

An issue was submitted regarding longevity swaps at the IFRS Interpretations Committee (IFRIC) meeting in November, seeking clarification as to whether a longevity swap held under a defined benefit pension plan should be accounted for as a single asset, at fair-value, or whether it should be split into two components with one measured as a qualifying insurance policy.

The IFRIC responded that it did not find the use of longevity swaps widespread and that when such transactions do take place the typical practice is to; “Account for a longevity swap as a single instrument, and measure it at fair value as part of plan assets, applying paragraphs 8 and 113 of IAS 19 and IFRS 13.”

On the basis that IFRIC could not find any diversity in the way this is applied, suggesting that all cases it looked at accounted for the longevity swap as a single, fair-value measured instrument. As a result it decided not to add this issue to its agenda, where it would have been looked at more deeply.

The IFRS has a comment period, during which interested parties can submit their opinion on the accounting methodology that should be applied to longevity swaps. The comment period ends on 20th January 2015.