IFRS Pension Liability - Confused

Hey guys,

I thought I had a grasp on this concept but it’s confusing me all over again. In my notes I have the IFRS pension liability as

Funded Status

+Unrecognized prior service cost

+Unrecognized agL

-Unrecognized agG

However, I’m looking at an example in the CFA textbook, V II, page 197. They’re subtracting the agL.

Which ons is correct?

I thought you were right as well. Now I am a little confused that tha CFA textbook would switch it the other way around.

Probably just a difference of signs. This area can get very unnecessarily confusing because some sources (including the offcial text book) will sometimes use a - in front of the funded status (to indicate a liability) while others will call the funded status a liability with no minus sign.

Just remember whats really going on so the signs don’t confuse you. IFRS does not report the economic funded status due to the adjustments for Unrecognized PSC and AGLs.

On page 197, there is an economic funded status that is a liability, so you could think of it as a negative number then subtracting the loss would be like adding it back to the loss to make the liabilty smaller.

Thanks for reply but the more I think into this, the less I understand it…

GAAP will recognize the AGL…so PBO will be decreased for any gains, and increased for any losses. If that’s correct then in order to take that out of the calculation, I will need to add back the gain and subtract for losses. What am I missing ?

allright im gonna share with you a life changing discovery.

alright so you think that Actuarial loss would increase PBO. well you are right.

so you think past service cost would increase PBO. welll… again… you are right.

why everyone is so freakin messed up?

that’s the reaons : under IFRS we take PBO we substract any Actuarial loss from it, substract any past service cost, then value of asset, and here you go you have you B/S liability.

so everyone is loss. god , god! why do i substract it, i read my note and i see INCREASE PBO. god god im so lost i think im gonna cry.

well don’t cry just yet.

PBO include unrecognized past service cost AND unreccognized actuarial loss.

IFRS give you the oportunity to take it back from it to report a smaller liability.

yes actuarial loss increase PBO, past service cost increase PBO. but since it’s already included in PBO, you have to substract it under IFRS

I have it like this:

Fully recgonize: Net PBO= PV PBO-FVPA-Unrcg PSC

Defer: Net PBO=PV PBO-FVPA-Unrcg PSC+Unrcg Ag-Unrcg Al

Do a few problems and see if it works

I find it helpful to think in terms of the funded status (difference between fair value of plan assets and PBO). It’s with this funded status figure that we can play around to make the adjustments for unrecognized PSC and AGLs.

As you stated, US GAAP would report this funded status on the balance sheet and it includes the unrecognized AGLs and PSCs. Here’s how I like to remember what to do:

  • PSCs are bad. They are costs and will always contribute towards making the liability larger. Therefore, if we have an economic funded status that is an asset, we add back the PSC (makes the asset larger) and if we have funded status that is a liability we reduce this liability by subtracting the PSC.

  • AGLs can either be good or bad depending on if its a G or L. The goal here is to remove the effects of these gains and losses. It would be very time consuming to list all scenarios, I’ll provide one example and the logic should work for the rest. If we had a funded status that was an asset that incorporated an actuarial gain, we would subtract this gain from the funded status. If it was a loss instead, we would add it back.

I guess to sum it up, when it comes to IFRS and unrecognized PSCs and AGLs, we want to smooth out (reverse) the effects which are already included in the economic funded status calculation (difference between Plan Assets and PBO).

ah I think I follow now, thank you!