IAS 19 Recognition and measurement – defined benefit plans

Last Updated on 19/02/2020 by 75385885

IAS 19 Employee BenefitsIAS 19 Recognition and measurement

IAS 19 Recognition and measurement

Post-employment benefits: defined benefit plans

56 Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting entity and from which the employee benefits are paid. The payment of funded benefits when they fall due depends not only on the financial position and the investment performance of the fund but also on an entity’s ability, and willingness, to make good any shortfall in the fund’s assets. Therefore, the entity is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognised for a defined benefit plan is not necessarily the amount of the contribution due for the period.

57 Accounting by an entity for defined benefit plans involves the following steps:

  1. determining the deficit or surplus. This involves:
    1. using an actuarial technique, the projected unit credit method, to make a reliable estimate of the ultimate cost to the entity of the benefit that employees have earned in return for their service in the current and prior periods (see paragraphs 67–69). This requires an entity to determine how much benefit is attributable to the current and prior periods (see paragraphs 70–74) and to make estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs) that will affect the cost of the benefit (see paragraphs 75–98).
    2. discounting that benefit in order to determine the present value of the defined benefit obligation and the current service cost (see paragraphs 67–69 and 83–86).
    3. deducting the fair value of any plan assets (see paragraphs 113–115) from the present value of the defined benefit obligation.
  2. determining the amount of the net defined benefit liability (asset) as the amount of the deficit or surplus determined in (a), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling (see paragraph 64).
  3. determining amounts to be recognised in profit or loss:
    1. current service cost (see paragraphs 70–74).
    2. any past service cost and gain or loss on settlement (see paragraphs 99–112).
    3. net interest on the net defined benefit liability (asset) (see paragraphs 123–126).
  4. determining the remeasurements of the net defined benefit liability (asset), to be recognised in other comprehensive income, comprising:
    1. actuarial gains and losses (see paragraphs 128 and 129);
    2. return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) (see paragraph 130); and
    3. any change in the effect of the asset ceiling (see paragraph 64), excluding amounts included in net interest on the net defined benefit liability (asset).Where an entity has more than one defined benefit plan, the entity applies these procedures for each material plan separately.

58 An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the end of the reporting period.

59 This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period.

60 In some cases, estimates, averages and computational short cuts may provide a reliable approximation of the detailed computations illustrated in this Standard.

Source EU rules on financial information disclosed by companies

 

Last Updated on 19/02/2020 by 75385885

Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Individual jurisdictions around the world may require or permit the use of (locally authorised and/or amended) IFRS Standards for all or some publicly listed companies.  The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. The specific status of IFRS Standards should be checked in each individual jurisdiction. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement IAS 19 Recognition and measurement