IAS 26 - Accounting and Reporting by Retirement Benefit Plans

The most important Global Accounting Standard is IAS 26. It defines several rules for accounting and reporting by retirement benefit plans. It also outlines the principles for disclosing and measuring the financial performance as well as the status of such plans.

In this article, we will specifically see IAS 26 Accounting and Reporting by Retirement Benefit Plans and its significance.

Types of Retirement Benefit Plans

There are major 3 types of Retirement Benefit Plans such as;

What Is Accounting and Reporting by Retirement Benefit Plans Under IAS 26?

IAS 26 addresses numerous aspects related to Accounting and Reporting by Retirement Benefit Plans. These aspects are discussed in the following;

Financial Statements for Retirement Benefit Plans

Financial statements for retirement benefit plans are very important. These statements help to understand the financial position and performance of these plans. IAS 26 defines the obligations for preparing and presenting these financial statements. Some core components typically of these preparations are;

Statement of Changes in Net Assets Available for Benefits

Statement of Changes shows the variations in the net assets. These variations occur during an explicit period such as a financial year. It shows;

• Contributions from employers and employees
• Investment Income
• Benefits paid out to participants
• Administrative expenses

Statement of Net Assets Available for Benefits

Statement of Net Assets gives a picture of the assets and liabilities of a retirement benefit plan at a given stage. It usually includes cash, investments, and other assets. It also includes liabilities such as unpaid benefits or due accounts.

Notes to the Financial Statements

These financial statements are considered to give investors a clear interpretation of the financial health of retirement benefit plans. It allows us to make informed decisions. Notes to the Financial Statements provide extra context such as;

• Details of accounting policies
• Significant events
• Information that aids in understanding the financial statements

Measurement and Valuation

Precise measurement and valuation are mandatory under IAS 26. It guarantees that financial statements show the true value of retirement benefit plans' assets and liabilities. Some of the important key aspects are;

Actuarial Assumptions

The valuation of liabilities depends on actuarial assumptions for defined benefit plans. These assumptions typically include;

• Discount rates
• Inflation
• Mortality rates

 These actuarial assumptions must be reliable and sensible. Also, in these assumptions, any changes should be disclosed properly.

Fair Value Measurement

Investments held by retirement benefit plans must have fair value measurement. This is the market value of the assets at the date of reporting. Discounted cash flows may be used in cases where market prices are unavailable.

Contributions and Benefits

Measurement also includes tracking contributions from employers and employees. It also includes to keep track of the benefits paid to retirees. These amounts are typically documented in the period they occur.

Disclosure Requirements

IAS 26 aims to offer transparency and extra information about retirement benefit plans in the form of Disclosure requirements. The disclosures are;

Description of the Plan

It comprises information about the plan's structure, accessible benefits, funding strategies, and the number of applicants.

Investment Policies and Risks

It is a disclosure requirement to show the plans. It must disclose its types of assets, investment policies, and associated risks. This disclosed picture helps stakeholders know the level of risk and variation.

Managerial Expenses

Retirement benefit plans must disclose managerial expenses. It also comprises additional costs that is related to with dealing the plan.

Conclusion

IAS 26 gives detailed guidelines for handling accounting and reporting by retirement benefit plans. It focuses on some factors. These factors are clear financial statements, precise measurement, and comprehensive disclosures. This IAS 26 summary highlights the significance of clear accounting practices. If any business needs help with IAS 26 accounting or reporting, Farahat & Co. is one of the best audit firms in the UAE. Their proficient team offers skilled services to help with complex requirements.

FAQs

What Is the Difference Between IAS 26 and IAS 19?

To understand IAS 26 vs IAS 19, here are some points;

• IAS 26 and IAS 19, both are International Accounting Standards dealing with retirement benefits but they focus on different aspects.
• IAS 26 deals with Accounting and Reporting by Retirement Benefit Plans. 
• It addresses the accounting and reporting requirements for retirement plans themselves
• IAS 19 focuses on Employee Benefits. 
• It addresses the accounting and reporting of employee benefits from an employer's perspective.

What Does the IAS 26 Deal With?

• IAS 26 focuses on accounting and reporting through retirement benefit plans. 
• It generally deals with accounting and reporting requirements for retirement benefit plans. 
• It also focuses on the measurement and valuation of assets and liabilities and required disclosures. 
• IAS 26 applies to both defined contribution and defined benefit plans.