Pension posers

In 2011, the IASB issued amendments to IAS 19 Employee Benefits and at the time, it indicated that there were further matters that needed a more fundamental review of pensions and related benefits. These matters included the issues relating to contribution based promises(CBPs). Which of the following pension plans would be categorised as a CDP?

Where the employee receives a pension based on final salary

Where the employee receives a pension based on the performance of the assets in the plan

Where the employee receives a pension based on life time average salary

Where the employee receives a pension based on the performance of the assets in the plan and the employer provides a guarantee of the minimum performance of the assets in the plan

The Interpretations Committee tried to develop a solution to address accounting for contribution based promises(CBPs), but removed the project from its agenda in May 2014. What is the accounting issue regarding CDP that the Interpretations Committee tried to address?

Full defined benefit accounting for such schemes does not seem appropriate

The projected unit credit method is seldom used for such schemes

Such schemes are similar to defined benefit schemes but tend to use fair value measurement for both assets and liabilities

All such schemes are generally accounted for as defined contribution schemes

IAS 19 requires an entity to classify post-employment benefits as defined contribution plans or defined benefit schemes. What is the definition of a defined contribution scheme?

Where the entity pays specified contributions into a separate fund and has no obligation to pay further contributions

Where the employee receives a pension based on life time average salary

Where the employee receives a pension based on the performance of the assets in the plan and the employer provides a guarantee of the minimum performance of the assets in the plan

Where the employee receives a pension based on final salary

By definition, if a scheme is not defined contribution then it is a defined benefit scheme. Which of the following accounting policies is not used in accounting for defined benefit schemes?

The entity determines the deficit or surplus as the difference between the fair value of defined benefit obligation and the fair value of its related plan assets

The discount rate used is determined by reference to market yields at the end of the reporting period on high quality corporate bonds

Using an actuarial technique with this method, the entity calculates the present value of defined benefit obligation which has been discounted by bond rates

The entity must use the projected unit credit method to account for the scheme

The deficit or surplus on a defined benefit scheme is recognised as a net defined benefit liability (asset) in the statement of financial position, subject to an asset ceiling test. It is argued that the IAS 19 measurement process does not properly reflect differences amongst plans. Why is it thought that the IAS 19 measurement process does not properly reflect differences amongst plans?

Because the fair value of the plan assets does not utilise the principles of IFRS 13 Fair Value Measurement

Because the fair value of the plan assets does not reflect the value of risk relating to future cash flows from the plan assets

Because the present value of the DBO does not fully reflect the value of risk relating to future cash flows from the DBO

Because the discount rate used to calculate the present value of the DBO is based upon corporate bond rates

The accounting for defined benefit plans is covered by IAS 19 but the accounting for hybrid plans such as CBP, under IAS 19, often results in counterintuitive measurement. Many of these hybrid plans are classified as defined benefit schemes but their risks are quite different. In what way can the risks of CBP schemes be different from those of defined benefit schemes?

Investment risk falls entirely on the entity but not on the employees

Investment risk does not fall entirely on the entity but partially, often, on the employees

Investment risk is always shared equally between the entity and the employees

Investment risk does not fall on the entity but totally on the employees

The nature of the risk in CBP schemes is not dealt with by IAS 19 and as a result the entity could show an excessive plan deficit because the present value of DBO is much higher than the fair value of the plan assets. What is the main reason why this deficit occurs?

This results because of the fact that the discount rate is lower than the projected higher return on plan assets

This results because of the fact that the projected return on plan assets is lower than the discount rate

This results because of the fact that the same rate is used for estimating than the present value of the DBO and the fair value of the plan assets

This results because of the fact that the discount rate is higher than the projected return on plan assets

IAS 19 has been questioned from various conceptual viewpoints as IAS 19 measurement basis is quite different from other IFRSs. For example it is difficult to reconcile a pension liability with the definition of a liability in the Conceptual Framework. Which of the following accounting policies, relating to pension accounting,is also inconsistent with the Conceptual Framework?

Fair valuing assets is not consistent with the measurement concepts of the Conceptual Framework

Discounting is not allowed by the Conceptual Framework

The requirement to reflect unvested benefits and future salary increases in the obligations of the entity

The plan assets recorded are not based upon the definition of an asset

The main scope of the IASB current research project is accounting for new pension plans that incorporate features that were not envisaged when IAS 19 was issued. They are proposing to undertake a fundamental review of the principles of measurement, and classification in IAS 19. Which of the following areas is not likely to be the subject of the IASB research project?

Contribution based promises (CBPs)

The discount rate for employee benefits

The definition of a defined benefit scheme

Exemptions for entities participating in multi-employer defined benefit plans

Another topic under debate concerns whether a pension surplus could be recorded as an asset on the statement of financial position in certain circumstances. IFRIC 14 provides an interpretation of the requirements in IAS 19, addressing when refunds or reductions in future contributions should be regarded as available. What is the purpose of the IASB project in regards to the accounting for such an assets?

To clarify whether there is an unconditional right for the entity to use the assets in the fund for its own benefit

To clarify whether an entity would be able to get economic benefit from the fair valuation of the plan assets without taking into account the defined benefit obligation

To clarify whether trustee power affects the unconditional right of the employer to a refund and thus restricts recognition of an asset

To clarify whether trustee power affects the unconditional right of the employer to a refund and thus restricts recognition of a liability

The Interpretations Committee tried to develop a solution to address accounting for contribution based promises(CBPs), but removed the project from its agenda in May 2014. What is the accounting issue regarding CDP that the Interpretations Committee tried to address?

IAS 19 requires an entity to classify post-employment benefits as defined contribution plans or defined benefit schemes. What is the definition of a defined contribution scheme?

By definition, if a scheme is not defined contribution then it is a defined benefit scheme. Which of the following accounting policies is not used in accounting for defined benefit schemes?

The nature of the risk in CBP schemes is not dealt with by IAS 19 and as a result the entity could show an excessive plan deficit because the present value of DBO is much higher than the fair value of the plan assets. What is the main reason why this deficit occurs?

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