The IASB is proposing changes in the accounting of defined pension

The IASB is proposing changes in the accounting of defined pension plans as outlined in the chapter material. Using the reports of three Canadian companies in the telecommunications industry, determine the impact of these changes on the companies’ financial statements. Access the 2009 fiscal year-end reports for BCE Inc., Rogers Communications Inc., and TELUS.

Instructions

Using the financial statements for the three companies:

(a) Prepare a schedule that reports for each company:

1. The balance of the benefit asset/liability reported on the statement of financial position (be sure to identify the asset impact separately from the liability impact)

2. The funded status

3. The total of the unrecognized (unamortized) past service costs, net actuarial gains/losses, and transition balances at the balance sheet date

4. Total assets

5. Total liabilities

6. Total shareholders’ equity

(b) Calculate the current total debt-to equity ratio and the debt to total assets ratio for each of the three companies at the report date.

(c) Determine revised balances for the total liabilities and total shareholders’ equity, assuming the companies implement the proposals.

(d) Recalculate the total debt-to-equity ratios using the revised balances from part (c), and comment on your findings.

(e) What is the amount that is recorded as the pension cost? What would be the amounts under the new proposals for the service cost, interest cost, and the remeasurement costs to OCI (ignoring income taxes)?

(a)  and (b)

The following table was prepared based on the companies’ 2009 financial statements and includes pension benefit plans and other benefit plans.

(in millions of dollars)	BCE Inc.	Telus	Rogers
The balance of the accrued benefit asset/liability reported on the balance sheet (including pension plans and other benefit plans).	1,704	1,351	134
Shown as assets	2,316	1,565	134
Shown as liabilities	(612)	(214)
Funded status	(1,611)	(60)	(8)
Total of the unrecognized (unamortized) past service costs, net actuarial gains/losses, and transition balances at the balance sheet date.	3,315	1,411	142
Total assets as reported	38,050	19,219	17,018
Total liabilities as reported	20,027	11,644	12,745
Total shareholders' equity as reported (including non-controlling interest)	18,023	7,575	4,273
Debt / Equity ratio as reported	1.11	1.54	2.98
Debt/asset ratio as reported	0.53	0.61	0.75

(c)  and (d)

The following table presents the revised balances for the total liabilities and total shareholders’ equity, assuming companies are required instead to recognize the funded status balance on the balance sheet and the unamortized past service costs, the net actuarial gains/losses, and the transition amounts in accumulated other comprehensive income (loss).

(in millions of dollars)	BCE Inc.	Telus	Rogers
Revised total assets	35,734	17,654	16,884
Revised Total liabilities	21,026	11,490	12,753
Revised Total shareholders' equity	14,078	6,164	4,131
Debt / Equity ratio	1.49	1.86	3.09
Debt/Asset ratio	0.59	0.65	0.76

As the funded status of all three companies are worse than what’s reported on the balance sheets, the changes made above resulted in the higher debt/equity ratios. BCE’s and Telus’ ratios deteriorated quite significantly with this change  in the presentation, with very little changes in Roger’s.    BCE’s D/E ratio increased by 34% and Telus’ D/E ratio increased by 21%.  Rogers D/E only increased by 3%.  The debt to asset ratios also worsened.

  

   (e)

$millions	BCE Inc.	Telus	Rogers
Pension expense recorded (1)	239	18	51
Actuarial (losses) arising in the year	(1,043)	(991)	(23)
Actual return on plan assets	1,566	767	25
Service cost (2)	175	51	21
Interest cost (3)	892	374	43
Net settlement			30
Remeasurements to OCI – income (expense)	523	(224)	2
Net Impact on income statement (1) – (2) –(3)	(653)	(407)	(13)
Net income before taxes as originally reported	2,405	1,205	1,980
% impact on net income - reduction	27%	34%	0.6%

As can be seen from the table above, TELUS and BCE will have significant impacts on their net earnings when the remeasurements are taken to the OCI.  In contrast, Rogers will have little impact on the net earnings, which will only change by less than 1%.