This chapter covers the accounting and reporting for pension, postretirement medical plans, and other postemployment benefits, such as long-term disability. Defined contribution plans are treated identically under IFRS and US GAAP, so these will not be covered.
This first section covers the differences between US GAAP and IAS 19 (2003), which is currently effective. The second section will cover IAS 19 (2011), which will be effective January 1, 2013. The revised IAS 19 is substantially different than the currently effective version.
The crucial accounting attribute of postretirement benefits plans (PRBs) are that the employer assumes the risk of the cost of the benefits to the employees after retirement or employment, as applicable. This assumption of risk creates the need to recognize a liability for the future cost. In broad strokes, the employer recognizes expense in the current period equal to an amount that is attributed to the service an employee performs in that period. So, essentially, it is accrual accounting (as might be expected).
The complexity with determining how much expense to recognize to profit and loss for PRBs is due to the inclusion of the time value of money, inflation, expected years of benefits used (mortality), and, for plans that are funded by assets in a trust, the amount and return on investment of those assets. Inflation and the time value of money are included in the calculation since the payment of ...