Here is my take on this. Unrecognized actuarial gains/losses as well as unrecognized prior service costs/benefits are adjustments to the DBO due to various reasons, e.g., changing average emploee life, loss/gain on actual assets, salary increase rate, you name it. However, when these numbers are assessed they are not expnsed immediately as that would make the DBO volatile, same reason why we capitalize costs instead of expensing them.
So, you take these losses/gains and book them in a small account under equity, and just leave them there. Don't amortize them yet. Just pile them up there. When they exceed 10% of your beginning DBO or your beginning plan assets value, then any excess above 10% gets amortized and that that's what goes on your pension expense.
IFRS says if you really want to show the status of your pension plan, don't hide those gains/losses in equity, get them out of there. You then add/subtract them to/from funded status.
The PBO gets the full hit of the item, whether it be an actuarial gain, a prior service cost, or whatever. What you're confused about is the contra-account.
So for example, if we're talking about prior service cost, the PBO is credited for 100% of the liability in year 1. It doesn't matter if this is GAAP or IFRS.
However, since we're not expensing the prior service cost once, the deferred expense (a debit) has to go somewhere on the balance sheet. With GAAP, it hits equity (as a reduction). With IFRS, it gets netted up against the PBO and the plan assets.
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There are certain events that affect PBO and Assets:
These are>
(1) Deffered Gains and Losses
which has further 2 parts
(a) Changes in acturial assumptions affecting PBO
(b) Difference between actual and expected return on PA (As only Expected return goes to pension expense, you will have to take care of actual return)
You Net (a) and (b)
Now you compare this "NET" amount to either Opening balance of PBO or PA and if this "NET" amount exceeds 10% of PBO or PA, you can amortize it over the remaining life of the employee. (This 10% limit is called corridor method)
You have the choice to amortize only the EXCESS amount over PBO/PA or you can amortize the whole amount.
(2) Prior Service Adjustments
(3) Transition Assets / Liability
(There is no corridor method for 2 & 3 so they are simply amortized by the remaining life)
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Under US GAAP these elements are in Balance Sheet and Amortized over time
Under IFRS these are kept Off Balance Sheet and Amortized over time
Hope it made sense, Please correct me if you find any mistake
Pension expense under GAAP and IFRS is the same. Items that cover more than one period are amortized over time under both methods.
What's different is the balance sheet presentation. Under GAAP, the unamortized portion is stuffed into stockholders' equity. With IFRS, it's netted against the liability or asset.
ov25 Wrote:
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> Let me try....
> GAAP requires that ' events' be expensed
> immediately.
Thanks, I think I follow you guys and I don't have a disagreement with the above. Dreary, I follow your sign terminology too. We are saying the same thing, I assumed liability as positive number and subtracted the gains (again a positive number) - ie. you end up with lower liability.
However, my question is something totally different.
a) What is an unrecognized past service cost? - Book says that its a cost that should have occurred in the past, but we didn't recognize it so lets do it now. So effectively unrecognized past service cost is now added to your total PBO.
b) What is unrecognized actuarial losses? books says that due to change in some of actuarial assumptions we've increased our PBO liability.
Now go to pg #200. You'll notice that in solution to 1st problem, they've taken PBO = 5485
and instead of increasing the PBO liability by unrecognized actuarial losses & past service costs, they've reduced PBO by that much. <--------- THIS IS THE PART I NEED HELP WITH UNDERSTANDING.
发表于 2011-7-13 13:37
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