Insight glossary

Sackers Insight glossary is a collection of notes to help you further increase your awareness of pensions law.

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Accounting Standards: IAS 19 - Basics

International Accounting Standard (IAS) 19 (Employee Benefits) prescribes the accounting and disclosure requirements in relation to employee benefits (including pensions) for EU listed companies.

Broadly, under IAS 19, the cost of providing employee benefits should be recognised in the accounting period in which the benefit is earned by the employee, rather than when it is paid or payable. There are different requirements for defined contribution and defined benefit pension schemes.

Changes

In June 2011, the International Accounting Standards Board issued an amended version of IAS 19.  This version of IAS 19 will come into effect for financial years beginning on or after 1 January 2013, although earlier application is permitted. The changes include:

• removal of an option to defer the recognition of gains and losses (known as the "corridor method"). This aims to improve comparability and faithfulness of presentation.
• streamlining of the presentation of changes in assets and liabilities arising from defined benefit (DB) plans, including requiring remeasurements to be presented in other comprehensive income, thereby separating those changes from changes that many perceive to be the result of an entity's day to day operations.
• enhancements to the disclosure requirements for DB plans, to provide better information about the characteristics of DB plans and the risks that entities are exposed to through participation in those plans .

The amendments are intended to provide investors and other users of financial statements with a much clearer picture of an entity's obligations resulting from the provision of DB plans and how those obligations will affect its financial position, financial performance and cash flow.

The elimination also further aligns International Financial Reporting Standards and US generally accepted accounting principles.

Author: Georgina Jones