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.
There are major 3 types of Retirement Benefit Plans such as;
| Type | Details |
| Defined Contribution Plans | Defined Contribution Plans are a type of IAS 26. It includes contributions from employees or employers, with benefits dependent on the investment returns and collected contributions. In this case, employees bear the investment risk. |
| Defined Benefit Plans | Defined Benefit Plans is also a type of IAS 26. In this, employees receive a determined benefit upon retirement. It is usually calculated based on some factors such as salary, years of service, or other factors. Here, employers bear the risk of giving these benefits. |
| Hybrid Plans | Hybrid Plans are a combination of both Defined Benefits and Defined Contributions. Under IAS 26, they offer defined benefits. They allow for employee contributions that stabilize risk between employees and employers. |
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 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 shows the variations in the net assets. These variations occur during an explicit period such as a financial year. It shows;
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.
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;
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;
The valuation of liabilities depends on actuarial assumptions for defined benefit plans. These assumptions typically include;
These actuarial assumptions must be reliable and sensible. Also, in these assumptions, any changes should be disclosed properly.
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.
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.
IAS 26 aims to offer transparency and extra information about retirement benefit plans in the form of Disclosure requirements. The disclosures are;
It comprises information about the plan's structure, accessible benefits, funding strategies, and the number of applicants.
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.
Retirement benefit plans must disclose managerial expenses. It also comprises additional costs that is related to with dealing the plan.
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.
To understand IAS 26 vs IAS 19, here are some points;
Umapathy Anuruthan, is a Senior Auditor at the firm, holds a Business Management Degree and carries with him an experience of 6+ Years, having worked in two of the Big 4 audit firms. He has a ‘hands-on’ understanding of external audits and financial reporting and is well-known for his approach to ensuring the highest quality and accuracy in audits for clients of numerous industries.