More recent pension standards have moved steadily closer to a balance sheet focus. IAS19 was reissued in 1993 as following the IASC’s Retirement Benefit Costs, project (Ernst & Young 2004: 4), but substantial ‘comparability/improvements’ revisions to this document were made in the current version of IAS19 Employee issued in 1998. This is not a pure sheet’ standard, as elements of more Benefits, ‘balance traditional pension accounting survive. For example, various gains and losses’ ‘actuarial that are small in relation to the size of the pension assets and obligations need not be recognized (IAS19: para. 92 this is referred to as the and will be discussed – ‘corridor’ below), while service costs’, arising from changes in the benefits due in respect of ‘past service in years before the current period, may in some circumstances be spread over several future periods (IAS19: para. 96). In 2000, the Accounting Standards Board published Financial Reporting Standard ’s (FRS) 17 This standard comes closest to a fully-fledged balance Retirement Benefits. sheet approach for pension accounting. The standard defines a pension surplus as the excess of plan assets over the present value of plan obligations and a pension deficit as any shortfall of plan assets below plan obligations. Deficits are recognized as liabilities on the employer’s balance sheet and surpluses as assets, to the extent that the employer can recover the surplus through future reduced contributions or refunds (FRS17: para. 37). There is no deferral or spreading of costs arising from actuarial gains and losses, though these items are not reflected in the income statement but rather in the statement of total recognized gains and losses (FRS17: para. 57). Plan assets are measured at fair value, while plan obligations are measured using an actuarial approach.
More recent pension standards have moved steadily closer to a balance sheet focus. IAS19 was reissued in 1993 as Retirement Benefit Costs, following the IASC’s ‘comparability/improvements’ project (Ernst & Young 2004: 4), but substantial revisions to this document were made in the current version of IAS19 Employee Benefits, issued in 1998. This is not a pure ‘balance sheet’ standard, as elements of more traditional pension accounting survive. For example, various ‘actuarial gains and losses’ that are small in relation to the size of the pension assets and obligations need not be recognized (IAS19: para. 92 – this is referred to as the ‘corridor’ and will be discussed below), while ‘past service costs’, arising from changes in the benefits due in respect of service in years before the current period, may in some circumstances be spread over several future periods (IAS19: para. 96). In 2000, the ’s Accounting Standards Board published Financial Reporting Standard (FRS) 17 Retirement Benefits. This standard comes closest to a fully-fledged balance sheet approach for pension accounting. The standard defines a pension surplus as the excess of plan assets over the present value of plan obligations and a pension deficit as any shortfall of plan assets below plan obligations. Deficits are recognized as liabilities on the employer’s balance sheet and surpluses as assets, to the extent that the employer can recover the surplus through future reduced contributions or refunds (FRS17: para. 37). There is no deferral or spreading of costs arising from actuarial gains and losses, though these items are not reflected in the income statement but rather in the statement of total recognized gains and losses (FRS17: para. 57). Plan assets are measured at fair value, while plan obligations are measured using an actuarial approach.
Napier_Pension_Accounting_and_Fair_Value_2007_final_version.docx