(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009Recognition—profit-sharing and bonus plans28.8 An entity shall recognise the expected cost of profit-sharing and bonus paymentsonly when:(a)(b)the entity has a present legal or constructive obligation to make suchpayments as a result of past events (this means that the entity has norealistic alternative but to make the payments), anda reliable estimate of the obligation can be made.Post-employment benefits: distinction between definedcontribution plans and defined benefit plans28.9 Post-employment benefits include, for example:(a)(b)retirement benefits, such as pensions, andother post-employment benefits, such as post-employment life insuranceand post-employment medical care.Arrangements whereby an entity provides post-employment benefits arepost-employment benefit plans. An entity shall apply this section to all sucharrangements whether or not they involve the establishment of a separate entityto receive contributions and to pay benefits. In some cases, these arrangementsare imposed by law rather than by action of the entity. In some cases, thesearrangements arise from actions of the entity even in the absence of a formal,documented plan.28.10 Post-employment benefit plans are classified as either defined contribution plansor defined benefit plans, depending on their principal terms and conditions.(a)(b)Defined contribution plans are post-employment benefit plans underwhich an entity pays fixed contributions into a separate entity (a fund) andhas no legal or constructive obligation to pay further contributions or tomake direct benefit payments to employees if the fund does not holdsufficient assets to pay all employee benefits relating to employee service inthe current and prior periods. Thus, the amount of the post-employmentbenefits received by the employee is determined by the amount ofcontributions paid by an entity (and perhaps also the employee) to apost-employment benefit plan or to an insurer, together with investmentreturns arising from the contributions.Defined benefit plans are post-employment benefit plans other thandefined contribution plans. Under defined benefit plans, the entity’sobligation is to provide the agreed benefits to current and formeremployees, and actuarial risk (that benefits will cost more or less thanexpected) and investment risk (that returns on assets set aside to fund thebenefits will differ from expectations) are borne, in substance, by theentity. If actuarial or investment experience is worse than expected, theentity’s obligation may be increased, and vice versa if actuarial orinvestment experience is better than expected.168 © IASCF