International Financial Reporting Standards_guide.pdf

278 Chapter 25 Employee Benefits (IAS 19)
sees each period of service as giving rise to an additional unit of benefit entitlement
and measures each unit separately to build up the final obligation.
■ Unbiased and mutually compatible actuarial assumptions about demographic variables
(for example, employee turnover and mortality) and financial variables (for example,
future increases in salaries and certain changes in benefits) should be used in determining
the present value of the liability.
■ To determine the amount to be included in the statement of financial position the
present value of the liability should be increased for any unrecognized actuarial gains,
reduced for unrecognized actuarial losses and past service cost not recognized. Furthermore,
the fair value of the plan assets should be deducted. The net amount is then
recognized as a liability or asset.
■ When it is virtually certain that another party will reimburse some or all of the
expenditure required to settle a defined benefit obligation, an entity should recognize
its right to reimbursement as a separate asset.
■ Offsetting assets and liabilities of different plans is not allowed.
■ The amount recognized in profit or loss is the net total of current-service cost, interest
cost, expected return on plan assets, any reimbursement rights, recognized actuarial
gains and losses, and recognized past-service cost. The effect of any plan curtailments
or settlements should be recognized as expense or income.
■ Past-service costs are recognized on a straight-line basis over the average period until
the amended benefits become vested.
■ Gains or losses arising on the curtailment or settlement of a defined benefit plan are
recognized when the curtailment or settlement occurs.
■ Actuarial gains or losses may be recognized in one of three ways:
1. the full amount is recognized in other comprehensive income as it arises;
2. the full amount is recognized in profit or loss as it arises;
3. the gains or losses are only recognized to the extent that the cumulative unrecognized
gains or losses exceed the greater of
• 10 percent of the present value of the defined benefit obligation (before
deducting plan assets), and
• 10 percent of the fair value of any plan assets at the end of the previous
reporting period (the corridor approach).
In terms of the corridor approach the minimum amount to be recognized for each defined
benefit plan is the excess outside of the 10 percent corridor at the previous reporting date,
divided by the expected average remaining working lives of the employees participating in
that plan.
25.4.6 IFRIC 14 was issued to provide guidance on the interaction between minimum
funding requirements and the limit on the defined benefit asset. The IFRIC gives guidance
on how the existence of a minimum funding requirement may limit the amount of refunds
or reductions in future contributions available to the entity and consequently the amount of
any asset that can be recognized in terms of IAS 19. Furthermore, the extent to which contributions
in respect of a minimum funding requirement will not be available as a refund or
reduction after they have been paid into the fund will result in a liability when the obligation
arises.