A case study on IAS 19- Employee Benefits

Jim and Della have to do a class presentation on the pension pronouncement “Employee Benefits.” In developing the class presentation, they decided to provide the class with a series of questions related to pensions and then discuss the answers in the class. Given that all of the students in the class have read IAS 19-Employee Benefits very well, and they felt this approach would ensure a lively discussion.

Here are the situations: (1) In an article prior to the recent amendments to IAS 19, it was reported that the discount rates used by the largest 200 companies for pension reporting ranged from 5% to 11%. How can such a situation exist, and does the pension pronouncement alleviate this problem?

(2) An article indicated that when IAS 19 was issued, it caused an increase in the liability for pensions for a significant number of companies. Why might this situation occur?

(3) A recent article noted that most gains and losses are recognized in net income. However, pension accounting has long been recognized as an exception—an area of accounting in which at least some dampening of market swings is appropriate. This is because pension funds are managed so that their performance is insulated from the extremes of short-term market swings. A pension expense that reflects the volatility of market swings might, for that reason, convey information of little relevance. Are these statements true?

Instructions: What answers do you believe Jim and Della gave to each of these questions?

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