Finance and Accounting : Advanced Financial Accounting - Essay Example

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Finance and Accounting : Advanced Financial Accounting

There were some recent changes made in IAS 19 during June 2011 by the IASB and it has a significant impact on the accounting procedures to be followed by the entities regarding defined benefit schemes in the form of pension funds. The time was just right for these changes to take place because it was long awaited by people for IASB to make such changes.
One of such change in the accounting of defined benefit plans is the recognition of changes in pension related liabilities or assets to the immediate effect. Only Other Comprehensive Income (OCI) will include the actuarial profit or loss of an entity now. Previously there was other option of including such profit or loss in the income statement or making use of corridor approach by allowing deferred recognition of such profits and losses. This change can have a significant effect on the entities using the corridor approach by increasing the volatility in its balance sheets. Recent revision of IAS 19 reduces the complexity regarding the requirement of different accounting treatments to be followed in case of amendments in plan or its curtailment. The accounting treatment of service costs in past whether it is vested or unvested is now aligned together. Costs related to defined benefit schemes are now required to be segregated into three different components, namely, service costs which should be presented in profit and loss statement, finance cost which includes the net interest of liability of defined benefit schemes and re-measurements that are to be included in OCI. ...Show more

Summary

Employee benefits actually include every type of consideration received by the business entities in lieu of the services rendered by its employees. The basic underlying principle of IAS 19 is that the recognition of costs incurred because of providing benefits to the employees by business entities should be done in the earning period of such benefits, rather that when it is paid to the employees. …
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