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5- Employee benefits - Coggle Diagram
5- Employee benefits
Defined benefit plans
A separate plan is established into which the entity makes regular payments, as advised by the actuary
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The entity bears the risks and benefits of the pension plan, so it records the pension plan asset at FV and pension plan liabilities at present values. In substance, it owns the assets and the liabilities
Complexity
The future benefits (arising from current and prior services) cannot be measured exactly but whatever they are, the employer will have to pay them. So, liability should be recognised now. To measure the future obligations, it is necessary to use actuarial assumptions
The obligations payable in future years need to be discounted because the obligations may be settled in many years' time
If actuarial assumptions change, the amount required contributions to the fund will change, and there may be actuarial gains and losses. This will cause the expense for that period not equal the contribution into the fund.
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Short term benefits
Wages, salaries, social security contributions
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Criticisms of IAS 19
Definitions of types of plans. They are all defined benefits, given that contributions are not fixed. However, it may be appropriate to have diff. form of accounting or to revise the definitions
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Use of P/L vs OCI
Interest element is recognised in p/l while the correction (diff. between actual return and interest applied) is recognised in OCI. The logic for the split is that the interest element shows financing effect of paying for benefits in advance or arrears
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Disclosures
IAS 19 requires risk based disclosures, including detail on investments, future cash requirements and info about risks to which the plan exposes the co.
It is an opportunity given to the entity to explain their pension plan risks and how they manage those risks
Current development- amendment to IAS 19 - plan amendment, curtailment or settlement
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After
When the net defined benefit liability or asset is remeasured as a result of plan amendment, settlement, curtailment, updated actuarial assumptions should be used to determine current service cost and net interest for the remainder of the reporting period
The IASB believes that this change will enhance the understandability and provide more useful info to users of FS
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