Executive Memo on Accounting for Pensions and Elimination of Segments - Essay Example

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Executive Memo on Accounting for Pensions and Elimination of Segments

As stated in paragraph 25 of IAS 19, there are two kinds of pensions: defined contribution and defined benefit plans. In defined contribution plans, the company’s actual obligation is just the amount it agreed to place in the fund. With this plan, the employee bears the risk if the total contribution is not enough to cover the expected benefits. In defined benefit plans, the risk is borne by the employer because they have to pay the amount of the agreed upon benefits and adjust their contributions accordingly to finance these benefits. For defined contribution plans, the accounting and reporting requirements are simple. The company merely recognizes the required amount to be contributed as an expense. A liability will be recognized if the actual payment to the fund is less than the required contribution and a prepaid expense will be recognized if the actual payment to the fund is more than the required contribution. For disclosure or reporting purposes, the company is only required to disclose the expense amount and the contributions pertaining to key management personnel. For defined benefit plans, the accounting processes are much more complex. If the company utilizes defined benefit plans, its expense will be based on calculations using actuarial techniques. This is because there are various assumptions that go into the calculation process. ...Show more

Summary

Executive Memo on Accounting for Pensions and Elimination of Segments Name University Reporting Requirements for Pension and Other Postretirement International Accounting Standard (IAS) 19, Employee Benefits, is all about the accounting for benefits employers provide to their employees…
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