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Inclusion of Provision for Adverse Deviation in financial reporting for DB pension plan sponsors reporting under CPA Canada Handbook Sections 3462 and 3463

The Accounting Standards Board (AcSB) has issued a Decision Summary which affects defined benefit pension plan sponsors that report under Sections 3462 (Private Enterprise) and 3463 (Not-for-Profit Organizations) of the Chartered Professional Accountants of Canada (CPA Canada) Handbook and elected to use funding valuation assumptions for financial reporting. The Decision Summary provides long-awaited guidance on the inclusion or exclusion of the explicit Provision for Adverse Deviations (PfAD) in the financial reporting of these entities.

The AcSB’s standard for funding valuation requires valuations to be prepared in accordance with legislative, regulatory and contractual requirements. In its Decision Summary, the AcSB has indicated that, where legislative, regulatory and contractual requirements stipulate separate calculations for various components of the funding requirement, the funding valuation reflected in financial statements will be comprised of the aggregate of those various components. This will include the PfAD.

It is expected that audit firms will follow the AcSB’s Decision Summary. For entities that have elected to use results from their funding valuations rather than conducting separate accounting valuations in their financial statements, this would mean including the explicit PfAD in the going concern liability and normal cost when reporting in their financial statements.


This change will affect the financial reporting of defined benefit pension plan sponsors who report under CPA Canada Handbook Sections 3462 and 3463 and elected to use funding valuation assumptions for financial reporting, are registered in provinces that require a PfAD be included as a component of funding valuations, and have not been including the PfAD in their financial reporting. It remains unclear whether auditors will require revisions of 2018 financial statements, or will wait until the coming year before implementing. Companies that are still in the process of preparing their 2018 financial reporting may wish to consult with their auditors to confirm what they would deem reasonable in the financial reporting for the 2018 year.

The AcSB has directed its staff to consider further public communications in regards to the Decision Summary. Additional details and direction clarifying the Decision Summary may therefore be released in the coming months.

News & Views - February 2019 (PDF)