- dEFINED bENEFIT OBLIGATION - Pressnet value of amount owed to employees for future pension benefits earned to date
- -Service cost present value of benefits earned by employees during current period. Service cost increases benefit obligation
- -Expected return on plan assets reduces pension expense.
- -Actuarial gains and losser - based on assumptions the actuary must make about the benefits to be paid in the future. Changes in assumptions about retirmement ages or rate of salary growth, for exapmple produce gains and losses that affect pension expense.
If value of plan assets exceeds present present value of benefit obligation, plan is said to be ovefunded. If benfit obligation exceeds plan assets, pplan is undefunded. Funded status represents economic reality of lplan.
Under GAAP, funded status is reported on balance Sheet. Overfunded is asset, underfunded liability.
Under IFRS, firms remove actuarial gains and loses, and unregonized prio service costs. Result is balsance sheet amount does not represe4nt economic reality.
Under IFRS AND GAAP, firms seperatly disclose componets of benefit obligation, plan assets, and pension expense.