Pension accounting

CFA Level II
#1

In pension accounting, in IAS, if we amortize the amount over and above the corridor, is the corridor amount expensed immediately? Thank you

#2

anybody please…

#3

First thing is that the ‘Corridor Amount’ itself still remains unrecognized or unamortized or unexpensed. It is the excess OVER the ‘Corridor Amount’ that is amortized. And the amortization is not expensed immediately, but it is amortized over the average working life of employees in that plan.

#4

Let me ask the question differently… Under the corridor method, the net cumulative unrecognized actuarial gains and loses at the beginning of the reporting period are compared against the PBO and the fair value of the plan assets at the beginning of the reporting period. If the net cumulative unrecognized actuarial gains and losses exceed 10 of the greater of PBO or the fair value of the plan assets at the beginning of the reporting period, the excess amount is amortized over the expected average working life of the employees. My question is what happens to corridor amount? When are we recognizing corridor amount in the income statement and balance sheet? Do we bring it to the income statement during the current account period?

#5

Corridor amount is just a comparison number. It is an imaginative figure. You have PBO, Plan Assets reported. Now you (being the standards setter for the Accounting stuff) need to determine on a figurative basis - as to when the company needs to amortize something. If that number is not specified - then everyone would just simply keep deferring the payments as an asset or a liability. When this number is present - it would be amortized slowly into income. Of course that number could be changing from period to period - but by and of itself it would not come to the income statement, ever. Portion above that 10% of greater of PBO, Plan Assets at beginning of period makes it into the Income statement, slowly.

#6

The excess over Corridor Amount is amortized, but the Corridor Amount itself remains untouched as Unrecognized Gains/Losses. Under US GAAP, all of these Unrecognized gains/losses are already part of PBO and are reflected in the B/S as part of Funded Status Liability or Asset. (as Fair Value of Plan Asset - PBO) Under IFRS, it is not part of B/S Funded Status, and is reported in the footnotes. (I am not sure if this remaining Unrecognized gain/loss is also reported directly to equity as ‘Other Comprehensive Income’). I will let someone else confirm the IFRS Comprehensive Income reporting part.

#7

Thanks a lot guys… I believe the remaining net unrecognized gains and loses are recognized in OCI (Actually split between deferred tax asset and OCI) Please correct me if I am wrong.