Employee Compensation Flashcards
What does DB stand for in the context of pension plans?
DB stands for Defined Benefit.
True or False: Under IFRS, pension expenses are recognized based on the projected unit credit method.
True.
Which accounting framework requires the use of the projected unit credit method for DB pension plans?
Both IFRS and US GAAP require the projected unit credit method.
Fill in the blank: Under US GAAP, the discount rate used for pension obligations should reflect the _______.
market yield on high-quality corporate bonds.
What is the primary difference between IFRS and US GAAP regarding the recognition of actuarial gains and losses?
Under IFRS, actuarial gains and losses are recognized in other comprehensive income, while under US GAAP, they can be amortized.
What is the term used for the amount that a company expects to pay out to employees in the future from a DB pension plan?
Projected Benefit Obligation (PBO).
True or False: The service cost is the present value of benefits earned by employees during the current period.
True.
In the context of DB pension plans, what does ‘funded status’ refer to?
Funded status refers to the difference between the fair value of plan assets and the projected benefit obligation.
What is the minimum funding requirement for DB pension plans under US GAAP?
The minimum funding requirement is determined by the Pension Protection Act.
True or False: Under IFRS, companies can choose to use a single discount rate for all pension obligations.
False.
What is the role of the actuary in DB pension plans?
The actuary assesses the financial implications of uncertain future events, such as mortality and retirement rates.
What assumption is critical for estimating the future salary increases in DB pension plans?
Salary growth rate assumption.
Fill in the blank: The _______ rate is used to calculate the present value of future pension obligations.
discount rate.
Which financial statement reflects the pension expense for the period?
The income statement.
What is the main purpose of the pension plan’s asset allocation strategy?
To optimize returns while managing risk.
True or False: Under IFRS, a company can recognize a surplus in its pension plan as an asset.
True.
What is the ‘corridor approach’ in the context of pension accounting?
It allows companies to amortize actuarial gains and losses that exceed a certain threshold.
What are the two main types of pension plans?
Defined Benefit and Defined Contribution.
Under IFRS, what is required to be disclosed in the financial statements regarding pension plans?
The risks associated with the pension obligations.
What does the term ‘vesting’ refer to in pension plans?
The process by which an employee earns the right to benefits from a pension plan.
Fill in the blank: The _______ rate reflects the expected return on plan assets.
expected long-term rate of return.
True or False: DB pension plans provide retirement benefits based on a formula that considers salary and years of service.
True.
What is a key factor in determining the retirement age in DB pension plans?
The plan’s specific provisions regarding eligibility.
Which assumption affects the calculation of the pension expense related to the service cost?
The discount rate assumption.
