Question

Aggregation of Pension Plans - present the provisions of this concept provided by GAAP (GENERALLY ACCEPTED ACCOUNTING STANDARD) present provisions provided by IFRS (INTERNATIONAL FINANCIAL REPORTING STANDARD) are presented

Answer 1

PENSON PLAN – Defined Benefit plan – As per US GAAP and IFRS.

Let me brief you about Defined Benefit as well as contribution plan under IFRS . We need to follow 4 step of accounting for defined benefit plan as per IFRS .

Step 1 relates to determine the present value of the defined benefit obligation by applying an actuarial valuation method . Here is the difference between USGAAP and IFRS . As per IFRS , mandates a specific actuarial method for measuring the defined benefit obligation where as US GAAP does not .

Step 2- As per IFRS , we need to derived present value as well as fair value of plan asset . After adjusted fair value and present value obligation, balance amount would be treated as deficit / Surplus

Step 3- Adjust deficit or surplus for any effect of limiting a net defined benefit plan to asset ceiling

Step 4- To recognised in to Profit /loss account – current service cost as well as pas service cost .

Current service cost represents any change in present value of the defined benefit obligation resulting from employee service in the current period .

Past service cost represents – any change in plan amendment and impact of the change in present value of the defined benefit obligation .

Under IFRS , we noticed that certin part of defined benefit plan / obligation amount transferred to “ OCI” Like actuarial gain / loss ,the return on plan assets , change in asset ceiling ,

Discount rate used under IFRS and US GAAP – As per IFRS discount rate considered as yield on high quality corporate bond. In certain case , high quality corporate binds are not available , then yield on government bonds used in defined benefit plan/ obligation .

Where as under GAAP, does not include to use market yield from government bonds .

As discussed above there is concept difference in Asset ceiling in IFRS and US GAAP . As per IFRS, there is restriction the amount recognised surplus or plan deficit .

Another major change to highlight Interest Income on plan asset ... As per IFRS Difference between the net Interest and actual interest are included in remeasurement gain / losses , which are recognised under OCI and not reconciled to net Income in subsequent year . This amount may be part of Equity

Where as under GAAP , expected return on plan assets is based on the fair value of plan assets and difference between expected and actual return are recognised immediately in net income . Or they can be recognised initially under OCI and later transfer to net income

As per IFRS , actuarial gain / losses are recognised only under OCI and are never recycle to net income in subsequent period . No Such restriction in GAAP . under US GAAP , road is always open to transfer OCI to net Income Subsequently .

Defined benefit plan – Settlement – While settlement under IFRS, measurement of settlement gain or loss represents – difference between the present value of the defined obligation being settled and the settlement amount .

Under US GAAP , we used to follow same calculation as per IFRS + Pro rate proportionate of previous unrecognised actuarial gain / losses