Executive Memo on Accounting for Pensions and Elimination of Segments Essay

Executive Memo on Accounting for Pensions and Elimination of Segments - Essay fontAs stated in paragraph 25 of IAS 19, in that respect ar two kinds of pensions defined portion and defined benefit plans. In defined contribution plans, the companionships genuine obligation is fairish the amount it hold to place in the fund. With this plan, the employee bears the risk if the total contribution is not enough to ski binding 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 report and reporting requirements are simple. The attach to further recognizes the required amount to be contributed as an expense. A liability will be recognized 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 the fund is more than the required contribution. For disclosure or reporting purposes, the confederation is only required to disclose 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 base 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 stark(a) damage in the relationship between 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 disceptation 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 involve to give a general description of the plan. It also needs to show three (3) reconciliations, as applicable, for the open up and closing balances of the present value of the obligatio