Learn about the new Section , issued by the Accounting Standards Board in September to replace Section Employee Future Benefits, which will replace Section in Part II of the CICA Handbook. The final version is consistent with the Exposure. Does anyone have an example similar to the illustrative examples of that actually use immediate recognition? The examples continue to.
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Welcome to the Author Corner.
Section 3462, Employee future benefits: September 2013 update: Financial reporting alert
Here our authors will speak to you directly and provide you with updates on current accounting issues, changes in the discipline, teaching trends, tips on using the book. Link to previous articles: Young Existing Standards or New? The release of new CICA Handbook Sectionsent to subscribers in March,significantly changes the accounting for and reporting of employee future benefits in Canada.
It is effective for fiscal years beginning on or after January 1,however, earlier adoption is being encouraged.
CICA Immediate recognition – Actuarial Outpost
As expected, there are few changes of any significance. The final standard looks different from the Exposure Draft — it is much better organized, is internally consistent, is easier to read, and has a useful glossary of defined terms before the appendices of examples.
One major difference exists between the Exposure Draft and new Section that affects Chapter 20 — recommendations relating to disclosure. This section has been reorganized, now starting with a reminder about Section requirements to disclose the methods used when choices are provided. Unlike the Exposure Draftthe final standard provides for two levels of disclosure for defined benefit plans: The basic set includes:. The total plan obligation, the fair value of plan assets, and the resulting surplus or deficit.
The amount recognized on the balance sheet as an accrued benefit liability or asset, the expense for the period, the employer and employee contributions during the period, and the amount of benefits paid. Major assumptions underlying various measurements such as the discount rate, the expected long-term rate of return on plan assets, the rate of compensation increase, and information about the assumed health care cost trend rates for health care benefits.
The nature and effect of each significant non-routine event occurring during the period such as a plan amendment, curtailment or settlement, or business combination or divestiture. Information about securities of the entity and related parties included in plan assets, and about transactions between the plan and the entity during the period.
A reconciliation of the beginning and ending balances of the accrued benefit obligation and the fair value of plan assets for the period.
The unamortized amounts remaining, separately disclosing the unamortized past service costs, the unamortized net actuarial gain or loss, and the unamortized transitional obligation or asset, as well as the amount of amortization for the period for each.
The nature and effect of each significant change during the period affecting the comparability of the expense reported, such as a change in the rate of employer contributions, a business combination or divestiture.
New Section permits either prospective or retroactive treatment for the new recommendations, but requires that the same basis be applied by a company to all benefit plans for which a change in accounting is required.
Transitional changes were not addressed in Chapter More discussion about the treatment of sabbaticals. Those that grant unrestricted time off for past service are classified as service-related future benefits, with the liability and expense accrued over the service period. Those that require cjca or public service to be performed to benefit the entity during the sabbatical period do not require accrual.
EARSL, or the expected average remaining service life of the employee group is no longer used, nor is it a defined term. This may differ depending on the circumstance. This does not materially change 361 coverage in Chapter A change in the use of the terms “fair value” and “market-related value. This does not change the calculations in Chapter 20 because fair value and market-related value were assumed to be equal.
In Section as before, fair value is used to determine the plan surplus or deficit. In calculating the expected return on plan assets and in determining the minimum amount of amortization under the corridor approach, either fair value or market-related value is acceptable.
Sectionunlike the Exposure Draft and old Sectionrecognizes the existence of employee contributions. The final standard includes a recommendation that interest earned on xica unallocated plan surplus which might arise if a defined benefit plan is converted to a defined contribution plan should reduce the benefit expense for the period.
Section includes more detail and discussion on entities with two or more plans, not discussed in Chapter Section clarifies that when the costs of special or contractual termination benefits, or gains or losses from settlements and curtailments relate directly to a discontinued operation or a disposal of a portion of a business segment, they should be included in the gain or loss from discontinued operations or the gain or loss on disposal of that portion of a business segment, as appropriate.
This note explains a specific requirement that was changed in the final standard, affecting the text material in Chapter 23, and describes areas where the final document provides for additional information or clarification. The CICA Exposure Draft and Chapter 23 both indicate that cash flows from interest and dividends received and paid should “be classified in a consistent manner from period to period as either operating, investing or financing 341.
The final revisions to Handbook Section recommend the following: Dividends and interest paid and charged to retained earnings should be presented separately as cash flows used in financing activities.
These requirements remove the choice of classification because choice reduces 361 comparability of financial statements. The impact on the cash flow statements presented in Chapter 23 and the solutions material provided vica the text is limited to the treatment of dividends paid. Dividend payments are classified in this material as operating outflows, whereas revised Section requires that they be financing outflows.
Additional information or 361 provided Finalized Section goes into more detail than the Exposure Cca in its discussion of cash and cash equivalents. The inclusion of bank overdrafts as a part of cash cicx cash equivalents has been restricted to situations “when the bank balance fluctuates frequently from being positive to overdrawn” and in some ciac, investments that meet the definition of cash equivalents may be classified instead as trading assets or investments.
Because companies have a choice, the guidance to disclose the policy adopted in determining the composition of cash and cash equivalents has been elevated to a required disclosure. Securities and loans “held for trading purposes,” terminology based originally on U. While the Exposure Draft also required the separate disclosure of cash flows associated with 346 items classified as operating, investing or financing as appropriate, the final Handbook section further specifies that they must be “presented on a before tax basis.
Not effective until the year ? Still in the Exposure Cida stage? Is this what I should be teaching my students? These are legitimate questions for professors to ask and ones that the authors had to deal with in determining some of the content of the 5th edition!
The decision was made to incorporate the Income Tax Exposure Draft recommendations subsequently rewritten for minor changes between the ED and the final Handbook section in Chapter 19 and the Exposure Draft recommendations for Employees’ Future Benefits in Chapter As it now stands, the new income tax standards are effective for fiscal years beginning inand the revisions to the pensions and new pronouncements for other benefits won’t be finalized by the Accounting Standards Board until later in with a likely effective date of cixa Is this what we should be teaching now?
Many intermediate accounting students are one to two years from graduation We should equip them with standards that are as current as possible. Many large Canadian companies, fica those with reporting requirements in the U. While the Exposure Draft material related to pensions and other employee future benefits is not finalized, it is anticipated that in all major respects, the ED changes will be made to bring the standard in line with the U. The climate in the existing Accounting Standards Board is to eliminate major differences between the Canadian and FASB standards wherever there is not a convincing reason for a difference.
Based on risk and return criteria, we must move forward.