Executive Memo on Accounting for Pensions and Elimination of Segments Essay

Executive Memo on Accounting for Pensions and Elimination of Segments - testify ExampleAs stated in paragraph 25 of IAS 19, on that point are two kinds of pensions delimitate contribution and defined put on plans. In defined contribution plans, the companys actual obligation is just the amount it agreed to place in the computer memory. With this plan, the employee bears the risk if the total contribution is not teeming to cover the expected benefits. In defined benefit plans, the risk is borne by the employer because they have to pay the amount of the agreed upon benefits and adjust their contributions accordingly to finance these benefits. For defined contribution plans, the accounting and reporting requirements are simple. The company merely recognizes the required amount to be contributed as an disbursal. A liability will be accepted if the actual payment to the fund is less than the required contribution and a prepaid expense will be recognized if the actual payment to t he fund is more than the required contribution. For disclosure or reporting purposes, the company is only required to weaken the expense amount and the contributions pertaining to key management personnel. For defined benefit plans, the accounting processes are much more complex. If the company utilizes defined benefit plans, its expense will be based on calculations using actuarial techniques. This is because there are various assumptions that go into the calculation process. In addition, the companys legal obligation is not the only factor for calculating the pension expense amount, there are also constructive obligations resulting from the companys informal practices, those that could not be changed without incurring severe damage in the relationship amongst the employer and the employee. The reporting for defined benefit plans is more rigorous. In general, the company will need to make adequate disclosures that will provide enough information to the financial statement users about the nature of the pension plan and any impact on the financial statements if there are changes in the plan. Specifically, the company is required to disclose its accounting policy for the recognition of actuarial gains and losses. It also needs to give a general description of the plan. It also needs to show three (3) reconciliations, as applicable, for the opening and closing balances of the present value of the obligatio