FRA: employee compensation

Question 1

Projected benefit obligation’s (PBO) change components

Answer 1

+ Service cost (increase due to increase in years of service of plan’s beneficiary)
+ Interest cost (interest accruals)
+ Past service cost (plan amendments)
+/- Actuarial losses / gains (change in actuarial assumptions)
- Benefits paid

Question 2

Plan assets’ change components

Answer 2

+ Contributions
+ Actual returns
- Benefits paid

Question 3

Pension-related elements that are reflected on OCI

Answer 3

1) Past service costs (only GAAP)
2) Actuarial gains / losses:
- IFRS - expensed
- GAAP - amortized under the corridor (10%) approach

Question 4

IFRS specific of reflecting pension-related elements in PnL

Answer 4

1) IR on plan assets equals the discount rate on PBO, so net interest gains / losses are reported
2) Period pension costs are not reported as a single line in PnL

Question 5

Periodic pension cost (in PnL)

Answer 5

Current service cost + Interest cost - Expected returns

Question 6

Total periodic pension costs

Answer 6

Contributions - dFunding status

Question 7

Reporting of pension costs on cash flows

Answer 7

If total periodic costs seriously exceed contribution they should be counted as a source of borrowing
dFunding status * (1 - tax) move from CFO to CFF

Question 8

Main principle of expensing compensation in form of stocks and options

Answer 8

Compensation expense recorded is spread over the period of time from grant day to the day when employee is able to sell / exercise the benefit