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Page 1: International Financial Reporting Standards (IFRS)/media/corporate/allfiles/... · ii. actuarial present ... International Financial Reporting Standards (IFRS) 3 ... (IFRS) and accompanying

International Financial Reporting Standards (IFRS)FACT SHEET September 2011

IAS 26 Accounting and Reporting by Retirement Benefit Plans (This fact sheet is based on the standard as at 1 January 2011.)

Important note:This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety, in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the most recent changes made to the standard.

IASB application date (non-jurisdiction specific)IAS 26 is applicable for annual reporting periods commencing on or after 1 January 1988.

SCOPE IAS 26 applies for financial statements of retirement benefit plans, where such financial statements are prepared. It deals with reporting to all participants as a group, and specifically does not deal with reports to individuals about their retirement benefits.

IAS 26 does not deal with other forms of employment benefits such as employment termination indemnities, deferred compensation arrangements, long service leave benefits special early retirement or redundancy plans, health and welfare plans or bonus plans. It also does not deal with government social security type arrangements.

All other standards apply to financial statements of retirement benefit plans to the extent that they are not superseded by IAS 26. Note that IAS 19 Employee benefits is concerned with the determination of the cost of retirement benefits in the financial statements of employers having plans. Hence IAS 19 complements IAS 26.

PRESCRIBED ACCOUNTING TREATMENTDefined contribution plansFor defined contribution plans, the objective of reporting is to provide information about the plan and the performance of its investments.

The financial statements of a defined contribution plan shall contain a statement of net assets available for benefits and a description of the funding policy.

Defined benefit plansFor defined benefit plans, the objective of reporting is to provide information about the financial resources and activities of the plan that will facilitate an assessment of the relationships between the accumulation of resources and plan benefits over time.

The financial statements of a defined benefit plan shall contain either:

a) a statement that shows:

i. net assets available for benefits;

ii. actuarial present value of promised retirement benefits, distinguishing between vested benefits and non-vested benefits; and

iii. resulting excess or deficit

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b) a statement of net assets available for benefits including either:

i. a note disclosing actuarial present value of promised retirement benefits, distinguishing between vested benefits and non-vested benefits, or

ii. a reference to this information in an accompanying actuarial report.

Where actuarial valuation has not been prepared at the date of the financial statements, the most recent valuation shall be used as a base and the date of the valuation shall be disclosed. In many countries, actuarial valuations are not obtained more frequently than every three years.

The financial statements shall explain the relationship between the actuarial present value of promised retirement benefits and the net assets available for benefits, and the policy for the funding of promised benefits. The actuarial present value of promised retirement benefits shall be based on the benefits promised under the terms of the plan of service rendered to date based on either current salary levels or projected salaries. Disclosure of the basis is necessary. Changes in actuarial assumptions with significant effect on the actuarial present value of promised retirement benefits shall also be disclosed.

Valuation of plan assetsRetirement benefit plan investments shall be carried at fair value. For marketable securities, the fair value is the market value. Where plan investments are held for which an estimate of fair value is not possible (e.g. reliable measurement cannot be achieved), a disclosure explaining the reason for not using fair value is required. Where some investments are carried at amounts other than market value or fair value (e.g. market value obtained from a thinly traded market), fair value (e.g. valuation technique) is generally disclosed, if not carried in the books.

DISClOSURESRefer Appendix 1 for a checklist to assist with IAS 26 disclosure requirements.

IMPORTANT DEfINITIONS

Actuarial present value of promised retirement benefits

the present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already rendered.

Defined benefit plans retirement benefit plans under which amounts to be paid as retirement benefits are determined by reference to a formula usually based on employees’ earnings and / or years of service.

Defined contribution plans retirement benefit plans for which the amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon

Funding The transfer of assets to an entity (the fund) separate from the employer’s entity to meet future obligations for the payment of retirement benefits.

Net asset availability The assets of a plan less liabilities other than the actuarial present value of promised retirement benefits.

Participants The members of a retirement benefit plan and others who are entitled to benefits under the plan.

Retirement benefit plans Arrangements whereby an entity provides benefits for employees on or after termination of service (either in the form of an annual income or as a lump sum) when such benefits, or the contributions towards them, can be determined or estimated in advance of retirement from the provisions of a document or from the entity’s practices.

Vested benefits benefits, the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.

AUSTRAlIAN SPECIfIC REqUIREMENTSIAS 26 has not been issued in Australia.

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APPENDIx 1 – DISClOSURE ChECklISTThis checklist can be used to review your financial statements – you should complete the Yes / No / N/A column about whether the requirement is included and provide an explanation for No answers to ensure the completeness of disclosures.

Yes / No / N/A

Explanation (if required)

IAS 26 Accounting and reporting by retirement benefit plans – Applicable for financial statements of retirement benefit plans for periods beginning on or after 1 January 1988.

IAS 26.34 Do the financial statements of a retirement benefit plan, whether defined benefit or defined contribution, contain the following information:

• A statement of changes in net assets available for benefits

• A summary of significant accounting policies and

• A description of the plan and the effect of any changes in the plan during the period.

IAS 26.35 Do the financial statements include the following, if applicable:

a) A statement of net assets available for benefits disclosing:

i. Assets at the end of the period suitably classified

ii. The basis of valuation of assets

iii. Details of any single investment exceeding either 5% of the net assets available for benefits or 5% of any class or type of security

iv. Details of any investments in the employee

v. Liabilities other than the actuarial present value of promised retirement benefits

b) A statement of changes in net assets available for benefits showing the following:

i. Employer contributions

ii. Employee contributions

iii. Investment income such as interest and dividends

iv. Other income

v. Benefits paid or payable

vi. Administrative expenses

vii. Other expenses

viii. Taxes on income

ix. Profits and losses on disposal of investments and changes in value of investments and

x. Transfers to and from other plans.

c) A description of the funds policy

d) For defined benefit plans, the actuarial present value of promised retirement benefits based on the benefits promised under the terms of the plan, on service rendered to date and using either current salary levels or projected salary levels; this information may be included in an accompanying actuarial report to be read in conjunction with the related financial statements; and

e) For defined benefit plans, a description of the significant actuarial assumptions made and the method used to calculate the actuarial present value of promised retirement benefits.

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OThER MATTERSlegal Notice

Copyright © CPA Australia Ltd (ABN 64 008 392 452), 2011. All rights reserved. Save and except for direct quotes from the International Financial Reporting Standards (IFRS) and accompanying documents issued by the International Accounting Standards Board (IASB) (“IFRS Copyright”), all content in these materials is owned by or licensed to CPA Australia. The use of IFRS Copyright in these materials is in accordance with the IASB’s Terms and Conditions. All trade marks and trade names are proprietary to CPA Australia and must not be downloaded, reproduced or otherwise used without the express consent of CPA Australia. You may access and display these pages on your computer, monitor or other video display device and make one printed copy of any whole page or pages for personal and professional non-commercial purposes only. You must not (i) reproduce the whole or part of these materials to provide to anyone else; and/or (ii) use these materials to create a commercial product or to distribute them for commercial gain.

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These materials are; (i) intended to be a guide only and no part of these materials are intended to be advice, whether legal or professional; (ii) not a complete representation of the Standard referred to and/or quoted and consequently are no substitute for reading the latest and complete standards. All individuals are advised to seek professional advice to keep abreast of reforms and developments, whether legal or regulatory.

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