IAS 26 – Accounting and Reporting by Retirement Benefit Plans​ ( summary with examples )

Objective

IAS 26 prescribes the accounting and financial reporting requirements for retirement benefit plans (pension funds and other post-employment benefit plans) to ensure their financial statements present fairly the net assets available for benefits and changes in those assets.

Note: IAS 26 applies only to the financial statements of the plan itself, not the sponsoring employer (which uses IAS 19).

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🧾 1. Scope

Applies to retirement benefit plans that provide benefits:

• Defined contribution plans, or

• Defined benefit plans, including funded and unfunded plans.

Financial statements are intended for plan members, employers, and regulators.

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💡 2. Key Definitions

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⚙️ 3. Measurement and Reporting

A. Fund Assets

• Measured at fair value at the reporting date.

• Include:

  • Cash and cash equivalents

  • Investments (shares, bonds, property)

  • Contributions receivable

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B. Liabilities

• Include benefits payable to members and expenses of the plan.

• Actuarial assumptions used to calculate obligations (for defined benefit plans).

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C. Net Assets Available for Benefits

$$\text{Net Assets Available for Benefits}=\text{Fund Assets}-\text{Liabilities}$$

Example 1:

• Fund assets = $10,000,000

• Liabilities = $7,500,000

$$\text{Net assets available for benefits}=10,000,000-7,500,000=2,500,000$$

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D. Contributions and Benefits

• Contributions received from employers or members → increase assets

• Benefits paid to members → decrease assets

Example 2:

• Contributions during year = $1,000,000

• Benefits paid = $800,000

Net increase in assets = $200,000

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E. Investment Income

• Recognized in the period in which it arises.

• Can be interest, dividends, or capital gains/losses.

Example 3:

• Investment income during year = $150,000

• Included in total fund assets

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🔄 4. Statement of Changes in Net Assets Available for Benefits

IAS 26 requires a statement showing changes in net assets:

Example Format:

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📊 5. Statement of Net Assets Available for Benefits (Balance Sheet)

Example Format:

Net Assets Available for Benefits = $2,300,000

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⚖️ 6. Accounting Policies and Disclosures

IAS 26 requires disclosure of:

1. Basis of valuation of assets (fair value or cost)

2. Description of plan types (defined contribution or defined benefit)

3. Funding policy and how contributions are determined

4. Actuarial assumptions (for defined benefit plans)

5. Expenses of plan administration

6. Investments held, including concentration risks

Example Disclosure:

“Investments are measured at fair value based on quoted market prices. The plan is a defined benefit plan funded by employer and employee contributions. Benefits payable are calculated using actuarial assumptions including discount rate 5% and mortality rate based on XYZ table.”

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🧩 7. Key Points

• IAS 26 focuses on the plan, not the employer.

• Main goal = net assets available for benefits.

• Requires two main statements:

  1. Statement of net assets available for benefits (like a balance sheet)

  2. Statement of changes in net assets available for benefits (like P/L + contributions/benefits)

• Fair value measurement of investments is preferred.

• Disclose assumptions, investment policies, and plan type.

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✅ 8. Quick Summary Table