reading the text, it says actuarial losses would decrease your defined benefit obligation. can anyone explain the reasoning behind this? i would have thought a loss would further increase your obligation not dec it, so alittle confused on this one. Appreciate any help. Thanks
Under IFRS standard 19 - The UNRECOGNIZED actuarial losses deacrease the DB obligation whereares the RECOGNIZED actuarial losses increase it. hope that clarifies
not sure i understand it, but thanks anyway.
I think it is just that you don’t know that there is an actuarial loss and is unrecognized, so it will decrease the DB obligation. On the other hand, if there is an actuarial loss and recognized, it is an increase in DB obligation. Hope this helps!
actuarial losses are the increase in the present value of estimated pension obligation that results from changes of assumptions (e.g., employment turnover, mortality rates, retirement ages, compensation increases, etc.) unrecognized actuarial losses might be a result of company’s “smoothing” their financial statements, which means, although there’s a change in assumptions, the results of the changes are not recognized yet. In this case, *unrecognized* actuarial losses does not increase DB pension obligation, in other words, it decreases DB pension obligation. Hope this helps…
Thanks everyone. It all makes sense now… Realised actuarial losses increases your obligation but unrealised actuarial losses decreases it because its an accounting treatment which allows you to not report these lossesnot in the current period, but rather to postpone it to sometime in the future. This gives rise to the differences between economic pension expense vs reported economic expense… same concept for past service costs (can recog it all as a cost in the current period of postpone it until the future)…