Asia Connect - Compliance, Efficiency and Financial Impact

May 2010

By Mike Murphy,
Principal and Senior Actuary, Employee Benefits & Actuarial Consulting, Australia

In this article

The challenge
Our solution
The value Aon that delivered
Contact
Aon's perspective

International Financial Reporting Standards (IFRS) have become increasingly important in today's financial environment. These standards are particularly relevant to companies providing retirement and termination benefits -- especially those that are related to salary. Critically, Asian companies and their European and US subsidiaries may not be aware that they need to report the liabilities arising from salary-related benefits plans.

Currently, only 23 countries require all companies to use IFRS to report retirement and termination benefit liabilities. However, more countries are adopting IFRS for its transparency or because they want their local accounting standards to reflect the international standards. For example, India, Korea and Japan have announced plans to adopt or converge with IFRS from 2011. In August 2008, the US Securities and Exchange Commission announced a timetable that would (a) require some companies to report under IFRS as soon as 2010 and (b) require all US-quoted companies to do so by 2014.

Given these changes and the trend towards reporting under IFRS, companies report their increasing concerns about how to:

Meet compliance requirements for local and international financial reporting for long-term employee benefits;
Improve the efficiency of the year-end financial reporting process;
Better understand and manage the financial impact of their employee benefit obligations; and
Manage any requirements of the parent company/head office.

The challenge

XYZ, a global equipment manufacturing company, was faced with the daunting task of consolidating their employee benefits disclosures for the many different plans they had around the world (including two in India and one in China). They also needed to submit individual plan disclosures to their local offices and complete all final results, including reports, within two weeks of the financial year-end.

So they turned to Aon Consulting for assistance.

Our solution

Step 1:
The framework

Our first step was to create the framework for a successful project. We translated the benefit summary into English and gathered past reports, disclosures and data used to produce those disclosures. This stage concluded with establishing the templates and programs needed to run the required data once it was available. Setting the framework with our client in this manner ensures that we will be able to deliver the results on time and according to the client’s requirements.

Step 2:
The financial model

The next step involved setting up a financial model suitable for this exercise. This model was meant to replicate previous results using existing data to ensure a correct starting position and confirm our understanding of the benefit design. We then identified the data issues and resolved any resulting queries. Creating a financial model ensures that we have a clear understanding of the benefit plan at an early stage, By so doing, we eliminate potential confusion and our client can rest assured that the data collection process and validation will run smoothly without delay.

Step 3: Validation

The final step, once we had the required data for our calculations, was conducting checks to ensure consistency and reasonableness against previous data. We ran the data through our valuation program and checked the results we obtained for consistency with the previous results. The final results were analyzed, and we prepared explanations of any items that our client might query. Aon also used the calculation and reporting features of Greater Insight^TM, Aon's secure global benefits and compensation management on-line platform, to coordinate the delivery of results from several different locations around the world and to consolidate them efficiently for the parent company.

The value that Aon delivered

Our client's local offices received management reports within eight days of the year-end and we delivered our consolidated results to the parent company within 14 days of year-end. Our proactive approach meant we could anticipate any auditor’s queries and prepare the information required in advance.

Our project management approach ensured the timely delivery of both consolidated and individual results. We developed a full understanding of the benefit design for new plans well in advance of the project deadlines and communicated with our client effectively to ensure we met the project timetable.
According to Mike Murphy, Principal of Aon Consulting Australia, "The challenges facing companies as they seek to manage and understand their employee benefit liabilities are real and especially pressing in today's economic environment. Aon Consulting has shown that, with its unique and effective approach, those challenges can be overcome. The extensive employee benefit experience of Aon's consultants is a key factor in why the company feels comfortable working with Aon."

Contact

Please contact Mike Murphy at mike.murphy@aon.com.au for more information about how Aon Consulting can assist you in addressing long-term employee benefit IFRS obligations within your organization.

Aon Consulting's perspective

Aon believes that to deliver a successful employee benefits accounting outcome for our clients, we must:

Gain a full understanding of our client, their needs and their employee benefit obligations. This includes reviewing plan documents and past reports, verifying and testing data accuracy and completeness, answering any client queries, obtaining feedback, and identifying our client's risk reporting needs.
Develop project plans that define the project scope, methodology and processes, establish clear lines of communication, and allow us to meet deadlines.
Conduct financial modeling and risk analysis using a flexible approach to match our client’s needs, apply innovative tools and processes, produce practical solutions and conduct sensitivity analyses to test how much the results are influenced by changes in actuarial assumptions.
Communicate effectively. By producing formal management reports, discussing issues and risks with clients, proactively providing legislative updates and establishing a process for future monitoring, we are able to deliver a first-class solution to our clients.

Delivering value every day

Aon Consulting delivers value for clients by clearly identifying the impact areas where organizations can reduce the time and resources allocated to complying with financial reporting requirements for long-term employee benefits. We have:

the ability to help clients spend less of their time on liaising with auditors and more on other key areas and, at the same time, reducing the stress of meeting reporting deadlines.
the talent to understand each client's cost drivers and long-term funding requirements, allowing better management of employee benefit costs and reducing the inherent volatility of their balance sheet.
the expertise to meet all compliance requirements and to help our clients understand the implications of employee benefit decisions, safeguard their reputation, and reap benefits from more informed decision making.

Asia Connect Home

Back to Asia Connect Home

Download article

Click here to download a copy of the article

Subscribe to Asia Connect

Click here to sign up for the Asia Connect e-newsletter.
Aon Consulting understands the need to keep abreast of critical human capital issues across Asia Pacific. So we have created Asia Connect to share our insights with you directly.