I got this question wrong on the exam. This is the one where we have to calculate the PBO funded status. The question said it was under US GAAP, so under US GAAP for PBO don’t we include the unrecognized prior period service cost and unrecognized prior period actuarial costs? According to Schweser and Stalla we include these for US PBO but on the exam, your not supposed to include it. Is the answer in the CFAI wrong?
In US GAAP - we do not include those in Funded Status. Funded Status in both US GAAP and IFRS = Ending PBO - Ending Fair Value of Plan assets.
but CP, The question gives you begining PBO, then you calculate ending PBO. The formula for PBO for US GAAP is: PBO at begining of year + service cost +Interest cost +/- actuarial gains and losses +/- prior service cost from plan amendments ------------------------ PBO at end of year so Funded status would be: Ending Fair Value of Plan Assets - Ending PBO
sample 2 Q7 was the Bridgette Langois Case wasn’t it? If so, both beginning and ending PBO and FVPA is provided in the case. so you just need to do 1699 - 443 = 1256 Liab for Funded Status.
It is the Langois case, So what you mean is that in general, when calculating Funded status you do not include the +/- actuarial gains and losses and +/- prior service cost from plan amendments for the PBO regardless of US GAAP or IFRS. If the question asks for ending PBO for US GAAP then we include the +/- actuarial gains and losses and +/- prior service cost from plan amendments to come up with the ending PBO. So this brings up two questions: 1) so if a question gave me the begining PBO and asked for the funded status under US GAAP, we do not include the +/- actuarial gains and losses and +/- prior service cost from plan amendments for calculations. 2) If both IFRS and US GAAP’s funded status calculation does not include these, then when do we include it for IFRS since under IFRS these are added to the funded status.
Funded Status = PBO - FVPA PBO Begin + SC + IC + Plan Amendments - Benefits Paid = PBO End FVPA Begin + ARPA + Empl. Contribs - Benefits Paid = FVPA End. New US GAAP SFAS 158 – in effect from 2006 onwards reports the Funded Status = PBO End - FVPA End on the Balance Sheet directly. Now the 2nd question you have asked is related to what gets reported as a Liability / Asset under old US GAAP and IFRS standards. Here Funded Status + Unamortized Prior Service Cost +/- Unamortized Loss (Gain) +/- Unamortized Transition Asset (Liability) = Pension Asset (Liability).
thank you CP, that clarified it for me.
I’m not trying to nitpick here but isn’t funded status FVPA - PBO, with a positive result meaning overfunded and negative meaning underfunded?