Company Valuation Under IFRS : Interpreting and Forecasting ...

Company valuation under IFRS
The calculation of the PBO is as follows:
Opening PBO
X
+ Service cost X
+ Interest on PBO X
+/- Actuarial gains/losses X
+ Prior service costs X
Gross pension costs
X
- Benefits paid (X)
€
Closing PBO balance
X
Notes
1. IAS 19 uses the term DBO (defined benefit obligation) but this is the same
as the more widely used PBO.
2. ABO and PBO are identical in schemes not related to pay (flat benefit plans).
3. Both ABO and PBO are based on present values and hence each measure is
very sensitive to the discount rate used. The required discount rate is that for
a high quality corporate bond of equivalent maturity and currency. IAS 19
suggests a corporate bond with a AA (so called double ‘A’ rating).
4.2.4 Pension Plan Assets
This can be calculated as the assets at the start of the year plus returns and
contributions less the payments to pensions. The assets (equities, bonds, real
estate and cash instruments) are marked to market for the purposes of calculating
the funded status of the scheme. Remember that if the scheme is unfunded then
there will be no assets, just a PBO.
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