IAS 26 provides guidance on the accounting and reporting requirements for retirement benefit plans. Retirement benefit plans include pension plans, provident funds, and other similar plans that provide retirement benefits to employees.
Here are some key points to keep in mind when accounting for retirement benefit plans:
- Measurement of plan assets: Plan assets should be measured at fair value. If fair value cannot be reliably determined, plan assets should be measured at cost.
- Valuation of plan liabilities: Plan liabilities should be measured using actuarial assumptions that reflect the best estimate of the amounts that will be required to settle the obligations.
- Recognition of gains and losses: Gains and losses arising from changes in actuarial assumptions, experience adjustments, and changes in the fair value of plan assets should be recognized in the statement of changes in net assets available for benefits.
- Presentation of financial statements: Retirement benefit plans should present a statement of net assets available for benefits, a statement of changes in net assets available for benefits, and notes to the financial statements that provide information about the significant accounting policies and assumptions used in measuring the plan’s obligations and assets.
- Disclosure requirements: Retirement benefit plans should disclose information about the plan’s objectives, investment policies, risk management, contributions, benefits paid, and other significant matters that may affect the plan’s financial position.
Example: Company A sponsors a defined benefit pension plan for its employees. The plan’s assets consist of a portfolio of stocks, bonds, and real estate. The plan’s liabilities are estimated using actuarial assumptions that take into account the expected mortality and retirement patterns of plan participants.
At the end of the reporting period, the fair value of the plan’s assets is $10 million, and the plan’s obligations are estimated to be $12 million. The plan has experienced a loss of $1 million due to changes in actuarial assumptions.
In this case, the plan should recognize the $1 million loss in the statement of changes in net assets available for benefits. The plan assets should be measured at their fair value of $10 million, and the plan liabilities should be measured using actuarial assumptions that reflect the best estimate of the amounts that will be required to settle the obligations. The plan should present a statement of net assets available for benefits, a statement of changes in net assets available for benefits, and notes to the financial statements that provide information about the significant accounting policies and assumptions used in measuring the plan’s obligations and assets.