The IASB and the FASB jointly undertook a project to enhance the comparability and transparency of accounting for post-employment benefits (IASB 2008). The outcome of that project was a revised version of IAS 19 Employee Benefits.
The sponsoring employer recognizes a net defined benefit liability or asset, representing its exposure to the defined benefit superannuation fund at the end of the reporting period. Contributions paid into the fund by the employer increase the assets of the fund, and thus increase a surplus or reduce any deficit of the fund. The employer accounts for its contributions to the fund as a decrease in the net defined benefit liability, or an increase in the net defined benefit asset.
The employer recognizes expenses in relation to its sponsorship of the defined benefit superannuation fund when service costs and interest costs are incurred, rather than when contributions are paid. This will become clear as we work through the revised requirements of IAS 19 for accounting for defined benefit superannuation funds.
Accounting For Defined Benefit Superannuation Plans:
The key 4 steps involved in accounting for a Defined Benefit Superannuation Plans in accordance with IAS 19; by the Employer:
1st: determining the deficit or surplus of the Superannuation fund
2nd: determining the amount of the net defined benefit liability (asset), which is the amount of the deficit or the surplus, adjusted for any effect of limiting a net-defined benefit asset to the asset ceiling
3rd: determining the amounts to be recognized in profit or loss for current service cost, any past service cost and net interest expense (income) on the net defined benefit liability (asset)
4th: determining the re-measurement of the net defined benefit liability (asset) to be recognized in other comprehensive income, which comprises actuarial gains and losses, return on plan assets (other than amounts included in net interest), and any change in the effect of the asset ceiling (other than amounts included in net interest).