This article is prepared to create general awareness about requirement of Actuarial Services for Accounting for Defined Benefit Plans & Components of Actuarial Valuation Reports amongst Professionals/Company Personnel involved in Finalization of Financial Statements.
In Indian context, Companies needs to comply with Section 133 of Companies Act 2013 to prepare the Financial Statements at the closure of Financial Statements. The Section 133 of Companies Act 2013 is as under :-
"133. Central Government to prescribe accounting standards.- The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by the National Financial Reporting Authority."
The National Financial Reporting Authority monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed . The proper compliance and provisions of these Accounting Standards lies on the shoulders of Director/Auditors of the Company. There are some service which can not be rendered by the Auditors are listed in Section 144 (Auditor not to render certain services). The list of these services are as under :-
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
Actuarial Services provided by the Actuary are needed by the company for compliance of following Accounting Standards :-
1. Accounting Standard 15 (Revised 2005) - AS 15 (Revised 2005)
2. Indian Accounting Standard 19 - IndAS 19
The Above Accounting Standards give Accounting and Disclosure guidelines for following defined benefit plans :-
A. Gratuity
B. Earned Leave
C. Pension
D. Post Retirement Medical Plans
E. Any type of Long Term Benefit plan where Actuarial Inputs are required.
As per Para 49 of AS 15 (Revised 2005) - Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses. Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service. While the Statement requires that it is the responsibility of the reporting enterprise to measure the obligations under the defined benefit plans, it is recognized that for doing so the enterprise would normally use the services of a qualified actuary.
The most frequently Terminologies and Disclosures used in the Actuarial Valuation Reports/Certificates of Actuaries in compliance of AS 15 (Revised 2005) & IndAS 19 are as under :-
Few Disclosure Components in compliance of AS 15 (Revised 2005)
Changes in present value of obligations during the period
Present Value of Obligation as at the beginning of the period
Acquisition adjustment
Interest Cost
Past Service Cost
Current Service Cost
Curtailment Cost
Settlement Cost
Benefit Paid
Actuarial (gain)/ loss on obligations
Present Value of Obligation as at the end of the period
Changes in the fair value of plan assets during the period
Fair Value of Plan Assets at the beginning of the period
Acquisition Adjustments
Expected Return on Plan Assets
Contributions
Benefits Paid
Actuarial Gain /(loss) on Plan Assets
Fair Value of Plan Assets at the end of the period
Expense recognized in the statement of profit and loss for the period
Current Service Cost
Past Service Cost
Interest Cost
Expected Return on Plan Assets
Curtailment Cost / (Credit)
Settlement Cost / (Credit)
Net actuarial (gain)/ loss recognized in the period
Expenses Recognized in the statement of Profit & Loss
Amount for the current period
Present Value of Obligation
Plan Assets
Surplus (Deficit)
Experience adjustments on plan liabilities - (Loss)/Gain
Experience adjustments on plan assets - (Loss)/Gain
Few Disclosure Components in compliance of IndAS 19
Movements in the present value of the Defined Benefit Obligations
Opening defined benefit obligation
Current Service Cost
Interest Cost
Remeasurement (gains)/losses:
Actuarial (gains)/losses arising from changes in demographic assumptions
Actuarial (gains)/losses arising from changes in financial assumptions
Actuarial (gains)/losses arising from experience adjustments
Past service cost, including losses/(gains) on curtailments
Liabilities extinguished on settlements
Liabilities assumed in a business combination
Exchange differences on foreign plans
Benefit Paid
Closing defined benefit obligation
Movements in the fair value of the Plan Assets
Opening fair value of plan assets
Interest Income
Remeasurement gain/(loss):
Return on plan assets (excluding amounts included in net interest expense)
Others (describe)
Contributions from the employer
Benefits paid
Closing fair value of plan assets
Service Cost
Current Service Cost
Past Service Cost including curtailment gains/losses
Gains or Losses on non routine settlements
Total
Net Interest Cost (Income)
Interest Cost on Defined Benefit Obligation
Interest Income on Plan Assets
Net Interest Cost (Income)
Remeasurements of the net defined benefit liability (asset) (see paragraphs 127-130) in other comprehensive income.
Return on plan assets (excluding amounts included in net interest expense)
Actuarial (gains)/losses arising from changes in demographic assumptions
Actuarial (gains)/losses arising from changes in financial assumptions
Actuarial (gains)/losses arising from experience adjustments
Other (describe)
Adjustments for restrictions on the defined benefit asset
Components of defined benefit costs recognised in other comprehensive income
Amount recognised in the Statement of Profit or Loss
Service Cost
Net Interest Cost (Income)
Defined Benefit Cost recognized in statement of Profit or Loss
The amount included in the Balance Sheet
Present value of defined benefit obligation
Fair value of plan assets
Funded status
Restrictions on asset recognised
Other [describe]
Net liability arising from defined benefit obligation
Components of Net Defined Benefit Obligation
Net defined benefit liability at the start of the period
Service Cost
Net Interest Cost (Income)
Remeasurements
Contribution paid to the Fund
Benefits paid directly by the enterprise
Net defined benefit liability at the end of the period
I have included few components of the Actuarial Reports prepared in compliance of the AS 15 (Revised 2005) & IndAS 19. In my next articles, I will more details about actuarial reports
The author can also be reached at tikaramchaudhary@gmail.com
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