IAS 26 Accounting and Reporting by Retirement Benefit Plans

IAS 26 Accounting and Reporting by Retirement BenefitPlans


This Standard is effective for financial statementscovering periods beginning on or after 1 January 1988.
International Accounting Standard 26 Accounting andReporting by Retirement Benefit Plans (IAS 26) is set out in paragraphs 1-37.All the paragraphs have equal authority but retain the IASC format of theStandard when it was adopted by the IASB. IAS 26 should be read in the contextof the Preface to International Financial Reporting Standards and the Frameworkfor the Preparation and Presentation of Financial Statements. These provide abasis for selecting and applying accounting policies in the absence of explicitguidance.


Scope


1. This Standard should be applied inthe reports of retirement benefit plans where such reports are prepared.
2. Retirement benefit plans are sometimesreferred to by various other names, such as 'pension schemes', 'superannuationschemes' or 'retirement benefit schemes'. This Standard regards a retirementbenefit plan as a reporting entity separate from the employers of theparticipants in the plan. All other International Accounting Standards apply tothe reports of retirement benefit plans to the extent that they are notsuperseded by this Standard.
3. This Standard deals with accounting andreporting by the plan to all participants as a group. It does not deal withreports to individual participants about their retirement benefit rights.
4. IAS 19, Employee Benefits,is concerned with the determination of the cost of retirement benefits in thefinancial statements of employers having plans. Hence this Standard complementsIAS 19.
5. Retirement benefit plans may be definedcontribution plans or defined benefit plans. Many require the creation ofseparate funds, which may or may not have separate legal identity and may ormay not have trustees, to which contributions are made and from whichretirement benefits are paid. This Standard applies regardless of whether sucha fund is created and regardless of whether there are trustees.
6. Retirement benefit plans with assetsinvested with insurance companies are subject to the same accounting andfunding requirements as privately invested arrangements. Accordingly, they arewithin the scope of this Standard unless the contract with the insurancecompany is in the name of a specified participant or a group of participantsand the retirement benefit obligation is solely the responsibility of theinsurance company.
7. This Standard does not deal with otherforms of employment benefits such as employment termination indemnities,deferred compensation arrangements, long-service leave benefits, special earlyretirement or redundancy plans, health and welfare plans or bonus plans.Government social security type arrangements are also excluded from the scopeof this Standard.

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Effective Date
37. This International Accounting Standard becomes operative for financial statements of retirement benefit plans covering periods beginning on or after 1 January 1988.

36. The report of a retirement benefit plan contains a description of the plan, either as part of the financial information or in a separate report. It may contain the following:
(a) the names of the employers and the employee groups covered;
(b) the number of participants receiving benefits and the number of other participants, classified as appropriate;
(c) the type of plan - defined contribution or defined benefit;
(d) a note as to whether participants contribute to the plan;
(e) a description of the retirement benefits promised to participants;
(f) a description of any plan termination terms; and
(g) changes in items (a) to (f) during the period covered by the report.
It is not uncommon to refer to other documents that are readily available to users and in which the plan is described, and to include only information on subsequent changes in the report.

Disclosure
34. The report of a retirement benefit plan, whether defined benefit or defined contribution, should also contain the following information:
(a) a statement of changes in net assets available for benefits;
(b) a summary of significant accounting policies; and
(c) a description of the plan and the effect of any changes in the plan during the period.
35. Reports provided by retirement benefit plans include the following, if applicable:
(a) a statement of net assets available for benefits disclosing:
(i) assets at the end of the period suitably classified;
(ii) the basis of valuation of assets;
(iii) details of any single investment exceeding either 5% of the net assets available for benefits or 5% of any class or type of security;
(iv) details of any investment in the employer; and
(v) liabilities other than the actuarial present value of promised retirement benefits;
(b) a statement of changes in net assets available for benefits showing the following:
(i) employer contributions;
(ii) employee contributions;
(iii) investment income such as interest and dividends;
(iv) other income;
(v) benefits paid or payable (analysed, for example, as retirement, death and disability benefits, and lump sum payments);
(vi) administrative expenses;
(vii) other expenses;
(viii) taxes on income;
(ix) profits and losses on disposal of investments and changes in value of investments; and
(x) transfers from and to other plans;
(c) a description of the funding policy;
(d) for defined benefit plans, the actuarial present value of promised retirement benefits (which may distinguish between vested benefits and non-vested benefits) based on the benefits promised under the terms of the plan, on service rendered to date and using either current salary levels or projected salary levels; this information may be included in an accompanying actuarial report to be read in conjunction with the related financial information; and
(e) for defined benefit plans, a description of the significant actuarial assumptions made and the method used to calculate the actuarial present value of promised retirement benefits.

32. Retirement benefit plan investments should be carried at fair value. In the case of marketable securities fair value is market value. Where plan investments are held for which an estimate of fair value is not possible disclosure should be made of the reason why fair value is not used.
33 In the case of marketable securities fair value is usually market value because this is considered the most useful measure of the securities at the report date and of the investment performance for the period. Those securities that have a fixed redemption value and that have been acquired to match the obligations of the plan, or specific parts thereof, may be carried at amounts based on their ultimate redemption value assuming a constant rate of return to maturity. Where plan investments are held for which an estimate of fair value is not possible, such as total ownership of an enterprise, disclosure is made of the reason why fair value is not used. To the extent that investments are carried at amounts other than market value or fair value, fair value is generally also disclosed. Assets used in the operations of the fund are accounted for in accordance with the applicable International Accounting Standards.

31. This Standard accepts the views in favour of permitting disclosure of the information concerning promised retirement benefits in a separate actuarial report. It rejects arguments against the quantification of the actuarial present value of promised retirement benefits. Accordingly, the formats described in paragraphs 28 (a) and 28 (b) are considered acceptable under this Standard, as is the format described in paragraph 28 (c) so long as the financial information contains a reference to, and is accompanied by, an actuarial report that includes the actuarial present value of promised retirement benefits.
All Plans
Valuation of Plan Assets

30. Those who favour the format described in paragraph 28 (c) believe that the actuarial present value of promised retirement benefits should not be included in a statement of net assets available for benefits as in the format described in paragraph 28 (a) or even be disclosed in a note as in 28 (b), because it will be compared directly with plan assets and such a comparison may not be valid. They contend that actuaries do not necessarily compare actuarial present value of promised retirement benefits with market values of investments but may instead assess the present value of cash flows expected from the investments. Therefore, those in favour of this format believe that such a comparison is unlikely to reflect the actuary's overall assessment of the plan and that it may be misunderstood. Also, some believe that, regardless of whether quantified, the information about promised retirement benefits should be contained solely in the separate actuarial report where a proper explanation can be provided.

29. Those in favour of the formats described in paragraphs 28 (a) and 28 (b) believe that the quantification of promised retirement benefits and other information provided under those approaches help users to assess the current status of the plan and the likelihood of the plan's obligations being met. They also believe that financial reports should be complete in themselves and not rely on accompanying statements. However, some believe that the format described in paragraph 28 (a) could give the impression that a liability exists, whereas the actuarial present value of promised retirement benefits does not in their opinion have all the characteristics of a liability.

27. In many countries, actuarial valuations are not obtained more frequently than every three years. If an actuarial valuation has not been prepared at the date of the report, the most recent valuation is used as a base and the date of the valuation disclosed.
Report Content
28. For defined benefit plans, information is presented in one of the following formats which reflect different practices in the disclosure and presentation of actuarial information:
(a) a statement is included in the report that shows the net assets available for benefits, the actuarial present value of promised retirement benefits, and the resulting excess or deficit. The report of the plan also contains statements of changes in net assets available for benefits and changes in the actuarial present value of promised retirement benefits. The report may include a separate actuary's report supporting the actuarial present value of promised retirement benefits;
(b) a report that includes a statement of net assets available for benefits and a statement of changes in net assets available for benefits. The actuarial present value of promised retirement benefits is disclosed in a note to the statements. The report may also include a report from an actuary supporting the actuarial present value of promised retirement benefits; and
(c) a report that includes a statement of net assets available for benefits and a statement of changes in net assets available for benefits with the actuarial present value of promised retirement benefits contained in a separate actuarial report.
In each format a trustees' report in the nature of a management or directors' report and an investment report may also accompany the statements.