For WizardKim-VDPR1

Week 5 Video Discussion Post 1st Response:

Instructions: Respond to the post below from your fellow classmate. Any opinions, or anything you would like to add to discuss about their post. Must be three substantial paragraphs, and three references.

When IAS 19 Accounting for retirement benefits in employers' financial statements was originally developed, it was designed to cover traditional defined benefit plans (IAS 19). Now, however, a growing range of plans - many sometimes drawn up as "hybrid" plans - they are met to incorporate features that do not result when IAS 19 was developed. Although "hybrid" plans are different from traditional defined benefit plans, they still meet the classification criteria for defined benefit plans in IAS 19 Employee benefits (EFRAG 2019).

According to International Financial Reporting Standards, defined contribution plans are a "post-employment benefit plan under which an entity pays fixed contributions to a separate entity and will have no legal or constructive obligation to pay more contributions if the fund does not hold enough assets to pay all employee benefits related to employee service in the current and previous periods. ” Therefore, any post-employment benefit plan other than the contribution plan will be defined as a defined benefit plan (IAS 19 ).

For this week I selected the EFRAG (European Financial Reporting Advisory Group) video that talks about Accounting for Pension Plans with an Asset-return Promise, the video talks about the discussion about pension plans that was published in May 2019, less of 19 plans are classified as defined benefits and contribution plan, however there are new types of pension plans that are emerging and this type of binary does not work well for them, one of these hybrid plans are pension plans with a promise of return on assets.

In this type of plan, the beneficiary receives the highest between a guaranteed minimum return and the return on the plan's assets. EFRAG in this discussion considered three alternatives for accounting for pension plans within the project scope: limited asset return approach, fair value based approach and realizable value approach (EFRAG 2019).

When measuring the pension obligation, the expected return on the asset is limited to the rate of high quality corporate bonds. The pension obligation is measured by the sum of the fair value of the plan's assets and the fair value of the minimum return guarantee. The pension obligation is measured based on the estimated outflows necessary to settle the entire pension obligation when it becomes due less the expected future inflows over the life of the pension plan (EFRAG 2019).

 

References

European Financial Reporting Advisory Group (EFRAG). (2019a). EFRAG’s discussion paper: Accounting for Pension Plans with an Asset-return Promise. YouTube. Retrieved from https://www.youtube.com/watch?v=IKFnmBPYmW8

 International Financial Reporting Standards (IFRS). (n.d.). IAS 19 Employee Benefits. Retrieved from https://www.ifrs.org/issued-standards/list-of-standards/ias-19-employee-benefits/

European Financial Reporting Advisory Group (EFRAG). (2019b). DISCUSSION PAPER ACCOUNTING FOR PENSION PLANS WITH AN ASSET-RETURN PROMISE. Retrieved from http://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/SiteAssets/EFRAG%2520Discussion%2520paper%2520on%2520pension%2520plans%2520with%2520an%2520asset%2520return%2520promise.pdf