Scope
This Standard shall be applied in the financial statements of retirement benefit plans where such financial statements are prepared.
Definitions
Retirement benefit plans are arrangements whereby an entity provides benefits for employees on or after termination of service (either in the form of an annual income or as a lump sum) when such benefits, or the contributions towards them, can be determined or estimated in advance of retirement from the provisions of a document or from the entityβs practices.
Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon.
Defined benefit plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by reference to a formula usually based on employeesβ earnings and/or years of service.
Funding is the transfer of assets to an entity (the fund) separate from the employerβs entity to meet future obligations for the payment of retirement benefits.
For the purposes of this Standard the following terms are also used: Participants are the members of a retirement benefit plan and others who are entitled to benefits under the plan.
Net assets available for benefits are the assets of a plan less liabilities other than the actuarial present value of promised retirement benefits.
Actuarial present value of promised retirement benefits is the present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already rendered.
Vested benefits are benefits, the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.
Some retirement benefit plans have sponsors other than employers; this Standard also applies to the financial statements of such plans.
Most retirement benefit plans are based on formal agreements. Some plans are informal but have acquired a degree of obligation as a result of employersβ established practices. While some plans permit employers to limit their obligations under the plans, it is usually difficult for an employer to cancel a plan if employees are to be retained. The same basis of accounting and reporting applies to an informal plan as to a formal plan.
Many retirement benefit plans provide for the establishment of separate funds into which contributions are made and out of which benefits are paid. Such funds may be administered by parties who act independently in managing fund assets. Those parties are called trustees in some countries. The term trustee is used in this Standard to describe such parties regardless of whether a trust has been formed.
Retirement benefit plans are normally described as either defined contribution plans or defined benefit plans, each having their own distinctive characteristics. Occasionally plans exist that contain characteristics of both. Such hybrid plans are considered to be defined benefit plans for the purposes of this Standard.
Disclosure
The financial statements of a retirement benefit plan, whether defined benefit or defined contribution, shall also contain the following information:
- a statement of changes in net assets available for benefits;
- material accounting policy information; and
- a description of the plan and the effect of any changes in the plan during the period.