Clarification of IAS 26 Standard: Accounting and Reporting by Retirement Benefit Plans

Accounting and Reporting by Retirement Benefit Plans (IAS 26 Standard) is one of the important International Financial Reporting Standards that deals with the regulation and presentation of financial information related to retirement benefit plans. IAS 26 Standard provides guidance on how to prepare and present the financial statements of pension funds, with the aim of providing useful and transparent information to participants in these plans and other stakeholders. In this article, we will provide an explanation of IAS 26 Standard, discuss its objectives, scope, and key requirements, focusing on the types of retirement benefit plans, recognition and measurement, presentation and disclosure requirements, in addition to highlighting the importance of this standard and its impact on pension funds and their beneficiaries.

What are Retirement Benefit Plans?

Retirement Benefit Plans are arrangements whereby an entity provides benefits to its employees upon or after termination of their service (whether in the form of an annual income or a lump sum), such that those benefits or contributions due thereon can be determined or estimated before retirement, whether under the entity’s documents or practices.

Types of Retirement Benefit Plans:

• Defined Contribution Plans: These are retirement benefit plans under which fixed contributions are paid into a separate fund, and the entity has no legal or implicit obligation to pay additional contributions if the fund does not have sufficient assets to pay all employee benefits related ¹ to their services in the current and previous periods.  
• Defined Benefit Plans: These are retirement benefit plans other than defined contribution plans. Under these plans, the entity is obligated to provide defined benefits to employees upon retirement, and these benefits usually depend on factors such as years of service and salary.

What is IAS 26 Standard: Accounting and Reporting by Retirement Benefit Plans?

IAS 26 Standard is an international accounting standard that specifies the requirements for preparing and presenting the financial statements of retirement benefit plans. IAS 26 Standard does not deal with the reports presented by retirement benefit plans to other parties, such as participants or employers, but focuses on the financial reports of the fund itself.

Objectives of International Accounting Standard 26 Standard (IAS 26 Standard):

• Specify the content and form of the financial statements of retirement benefit plans: This standard provides guidance on how to prepare and present the financial statements of pension funds, including the statement of financial position, the statement of changes in net assets available for benefits, and the statement of cash flows.
• Provide useful information to participants in retirement plans: IAS 26 Standard aims to provide useful and reliable financial information to participants in retirement plans, helping them assess the plan’s ability to pay future benefits.
• Enhance transparency and accountability: This standard contributes to enhancing the transparency and accountability of pension funds by imposing specific disclosure requirements.
• Improve comparability: IAS 26 Standard helps improve the comparability of the financial statements of different retirement benefit plans.

Scope of International Accounting Standard 26 Standard (IAS 26 Standard):

IAS 26 Standard applies to the financial statements of retirement benefit plans, whether they are defined contribution plans or defined benefit plans. The standard applies regardless of whether a separate fund has been established to receive contributions and fulfill benefits or not.

IAS 26 Standard does not deal with the reports presented by retirement benefit plans to other parties, such as:

• Reports provided to participants about their individual entitlements.
• Reports provided to employers about their obligations to retirement benefit plans.

(Key Requirements of IAS 26 Standard, Recognition and Measurement, Actuarial Valuation, Presentation of Financial Statements, and Disclosures as written in the original article are still accurate and usable, with the understanding that every instance of IAS 26 will be replaced with IAS 26 Standard.)

Conclusion:

International Accounting Standard 26 Standard (IAS 26 Standard) “Accounting and Reporting by Retirement Benefit Plans” is an important standard that regulates the process of preparing and presenting financial information related to retirement benefit plans. The application of this standard ensures the provision of useful and transparent information to participants in these plans and other stakeholders, helping them assess the performance and sustainability of retirement plans.

Understanding IAS 26 Standard is essential for accountants, auditors, pension fund management, and anyone seeking to understand how retirement benefit plans work and how to assess their performance. With the growing importance of retirement plans in providing financial security for employees after retirement, the importance of IAS 26 Standard increases as a tool to enhance the transparency and reliability of financial reports for pension funds. Finally, the correct application of IAS 26 Standard and adherence to its principles contributes to building trust between participants in retirement plans and their management and supports the long-term financial stability of these plans.