F6 Flashcards
What is the difference between PBO & ABO? What is the name for the pension plan liability under IFRS?
ABO - Accumulated Benefit Obligation past compensation levels
PBO - Projected benefit obligation - future compensation level.
Under IFRS, the pension plan liability is the defined benefit obligation (DBO).
Define two types of pension plans.
Defined contribution plan - Amount of contribution is specified. Defined benefit plan - Amount of benefit to be received is specified or estimated.
What is the formula used to calculate the ending projected benefit obligation (PBO)?
Beginning PBO + Service Cost + Interest Cost + Prior service cost from current period amendments + Actuarial losses incurred in the current period - Actuarial gains incurred in the current period - Benefits paid to retirees = ENDING PBO
What is the formula used to calculate the ending fair value of plan assets?
Beginning FV of plan assets + Contributions + Actual return on plan assets - Benefit payments = Ending FV of plan assets
Name the components of net periodic pension cost (net pension expense) under US GAAP. SIR AGE
Service cost, interest cost, return on plan assets, amortization of prior service costs, gains and losses, amortization of existing unrecognized net obligations or unrecognized net asset at implementation.
How are unrecognized gains and losses amortized to pension expenses under US GAAP?
Using the corridor approach. The formula is: Unrecognized gain or loss = EXCESS / Average remaining service life / amortization of unrecognized gain or loss.
How is the funded status calculated and reported under US GAAP?
Companies with defined benefit obligation plans must report funded status on the BS. FV of Plan assets = funded status. Overfunded: Report as noncurrent asset Underfunded: Report as a current liability to the extent that benefits payable in the next 12 months exceed the FV of plan assets. A non current liability or both.
How is funded status calculated and reported under IFRS?
Defined Benefit Obligation = Funded status
Under IFRS - Overfunded: (DBO FV of plan assets) Report as a net defined benefit liability. IFRS does not spevify where the asset liability should be current or noncurrent.
How are changes in the funded status from pension gains and losses and prior service costs reported on the financial statements under US GAAP & IFRS?
US GAAP - Both are recognized as components of OCI in the period incurred, with the related tax effect. Then reclassified to net periodic pension cost as amortized.
IFRS - Prior (past) service costs is reported as a component of service costs on the IS in the period incurred. Pension G/L are reported in OCI in period incurred and are not reclassified (amortized) to IS.
Define pension settlements and pension curtailments.
Settlements - A transaction that is an irrevocable action relieves the employer of primary responsibility for a pension BO, and eliminates significant risks related to the obligation and the asssets used to effect the settlement.
Curtailments - an event that significantly reduces the expected years of future service or present employees or eliminates for a sig # of emlpoyees the accrual of defined benefits for some or all of their future services.
What are some of the required disclosures for a defined benefit plan? I dread having to disclose this stuff.
Description: Funding policies and types of assets held. Reconciling Items: a schedule of reconciling funded status of the plan including all items (FVPA, PBO, etc) Expenses and OCI Component: Components of net periodic pension cost (pension expense and accumulated OCI) Actuarial Assumptions, and discount rate ( the weighted average discount rate)
What are the components of net periodic postretirement benefit cost postretirement expense under US GAAP?
Service cost, interest cost, return on plan assets, amortization of prior service costs, gains and losses, expense/amortization of transition obligations.
How do we account for postretirement benefits on the balance sheet under US GAAP?
The funded status of the postretirement benefit plan must be shown as a noncurrent asset/liab (over/under funded), or both. Changes in funded status due to net gains and losses prior service costs or net transition assets or obligations should be shown in accumulated OCI until amortized to net periodic post retirement benefit cost.
What are some of the required disclosures for postretirement benefit plans? I dread having to disclose this stuff.
Description: A description of the plan. Reconciling items: A schedule reconciling funded status of all the plan including all reconciling items (FVPA, APBO, EPBO, etc) Expenses and OCI components - Components of net periodic postretirement benefit costs including all components and accumulated OCI. Actuarial assumptions and discount rate. WA Discounted rate.
List the four criteria for recognizing postemployment benefits and compensation for future absences.
Employees services already rendered. Rights vest or accumulate, payment of the compensation is probable, amounts can be reasonably estimated