16.7 Presentation and Disclosure

The complexities and estimations involved in pension plans have resulted in fairly significant disclosure requirements. Pension plans can create a significant liability to companies, so it is important that financial statement readers have a good understanding of the timing and risks related to future pension plan payments. Below is a summary of the presentation and disclosure requirements of IAS 19.

Balance Sheet

The standard doesn’t specify whether the net defined benefit liability or asset should be disclosed as current or non-current. In the absence of specific guidance, reasonable judgment would suggest that these balances should usually be disclosed as non-current. This is because it is normally unlikely that the entire amount of a pension plan obligation would be settled within the next fiscal year, as the payments will be made for many years in the future.

IAS 19 does not allow the netting of a defined benefit asset and a defined benefit liability when the company has more than one pension plan, except in limited circumstances. This is because the assets of each plan are usually protected by legislation in such a way that they cannot be used to settle other obligations. Multiple plans may be presented as a single line item if they are all assets or all liabilities. However, further details will be required in the note disclosures to identify the risks of each plan.

Comprehensive Income Statement

IAS 19 does not specify how the annual pension cost should be reported on the income statement. Although a company could disclose the various components that make up the pension expense separately, it is common practice to simply include a single line item described as pension expense or similar. This amount, however, may be split between various functions consistent with reporting of other employee expenses. Remeasurement gains and losses included in other comprehensive income should be identified as such.

Note Disclosures

The three main disclosure categories identified in IAS 19 are:

• Explanations of the characteristics and risks of the plans
• Explanations of amounts in the financial statements
• Descriptions of how the defined benefit plans will affect the amount, timing, and uncertainty of future cash flow

Although these categories appear fairly simple, IAS provides a significant amount of guidance on how to meet these disclosure objectives. Some of the requirements include:

• The nature of the benefits payable under the plan
• Details of the regulatory environment under which the plan operates
• Disaggregation of financial statement amounts where risk profiles differ
• Reconciliations of opening and closing balances of plan assets and the DBO
• Disaggregation of plan assets where the risks and investment types differ
• Details of significant actuarial assumptions
• A sensitivity analysis showing the effect of changes in the actuarial assumptions
• Information about the timing of future maturities of the plan obligation

There are many other specific disclosure requirements in IAS 19 designed to help the reader understand the possible effects of these plans on future cash flow.