For IFRS, and excluding the Prior/Past Service component, it’s correct to say actuarial gains and losses is expected return on assets - actual return correct?
If yes, we place this actuarial gain/loss into OCI and do not amortize it?
Why isn’t this amount expensed in the current period? Just not sure why they put this amount into OCI and record an interest cost as the spread between the (begin PBO - begin fair-value of the plan’s asset) * the discount rate? Wouldn’t it make more sense to do (begin obligation * discount rate) - (actual return)? I understand that’s closer to the Periodic Pension Cost, just not sure I understand the purpose of the entry to OCI. Is this an attempt to isolate the plan’s cumulative return in excess/below predicted return? Actuarial return/loss is driving me insane!
Actuarial gains and losses is its own concept and is basically the actaurial assumptions used to estimate future benefits (future compensation, life expectancy, etc).
Id argure no one really knows the purpose of any OCI entry…but the basic idea is to circumvent the earnings to give a cleaner picture of the “true” earnings of the company for items that are non recurring, unrealized, subject to measurement uncertainty, or outside management control for example.
No. Actuarial gains and losses also increases the change in PBO due to the change in actuarial assumptions, like higher life expectancy after retirement. An actuarial gain reduces the PBO and an actuarial loss increases the PBO. Remember PBO is a liability and hence the above.
Hi Galli, We need to be really careful here. The idea of “expected return” only applies to USGAAP and NOT IFRS. Therefore I don’t agree with that component of your statement. Thanks
okay, it’s becoming more clear as I continue to review (again and again) this terrible section of the book.
Actuarial Gain/losses = (Expected return - Actual return) + (changes in assumptions)
US GAAP: Actuarial Gains/Losses to OCI. Amortized using corridor approach (G/L in excess of 10%).
IFRS: Actuarial gains/losses to OCI. Not amortized < - (remeasurement)
Prior Service Costs = Are we able to calculate this figure or do we have to back into it? it seems pretty complicated, guessing this will always be provided or we can simply back into it.
US GAAP: OCI and Amortized over the life of the affected employees