1 IAS 19 – Slides questions solution

Question 01 – Solution

Question 02 – Solution
2 IAS 19 – Slides questions solution

Question 03 – Solution

IAS 19 Employee Benefits requires all gains and losses on a defined benefit pension scheme
to be recognised in profit or loss except for the remeasurement component relating to the
assets and liabilities of the plan, which must be recognised in other comprehensive income.
So, current service cost, past service cost and the net interest cost on the net defined benefit
liability must all be recognised in profit or loss. There is no alternative treatment available
to the directors, which, under IAS 8, a change in accounting policy might be applied to move
ABC plc. The directors' proposals cannot be justified on the grounds of fair presentation. The
directors have an ethical responsibility to prepare financial statements which are a true
representation of the entity's performance and comply with all accounting standards.
There is a clear self-interest threat arising from the bonus scheme. The directors' change in
policy appears to be motivated by an intention to overstate operating profit to maximise
their bonus potential. The amendment to the pension scheme is a past service cost which
must be expensed to profit or loss during the period the plan amendment has occurred, i.e.,
immediately. This would therefore be detrimental to the operating profits of ABC plc and
depress any potential bonus.
Additionally, it appears that the directors wish to manipulate other aspects of the pension
scheme such as the current service cost and, since the scheme is in deficit, the net finance
cost. The directors are deliberately manipulating the presentation of these items by
recording them in equity rather than in profit or loss. The financial statements would not be
compliant with IFRS, would not give a reliable picture of the true costs to the company of
operating a pension scheme and this treatment would make the financial statements less
comparable with other entities correctly applying IAS 19. Such treatment is against Code of
Ethics and Conduct fundamental principles of objectivity, integrity, and professional
behavior. The directors should be reminded of their ethical responsibilities and must be
dissuaded from implementing the proposed change in policy. The directors should be
encouraged to utilize other tools within the financial statements to explain the company's
results such as drawing users’ attention towards the cash flow where the cash generated
from operations measure will exclude the non-cash pension expense and if necessary
alternative performance measures.
3 IAS 19 – Slides questions solution

Question 04 – Solution
4 IAS 19 – Slides questions solution
5 IAS 19 – Slides questions solution