ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Fjord Co's finance director asks you to delay recognising a $3 million past service cost from a plan amendment agreed on 15 December 20X5 until the next year, so that this year's profit meets a bonus target. The amendment is effective and communicated to employees before the year end of 31 December 20X5. What is the appropriate response under IAS 19 and professional ethics?
The accountant should refuse, because the $3 million past service cost must be recognised in profit or loss in 20X5 when the amendment occurred. Delaying or splitting it to meet a bonus target is not allowed by IAS 19 and breaches integrity and objectivity.
- ARefuse: the cost must be recognised in 20X5, and deferring it to achieve a bonus target would breach integrity and objectivityCorrect
- BAgree, because past service cost may be recognised in the period benefits are first paid
- CAgree, provided the $3 million is disclosed as a contingent liability
- DRecognise half in 20X5 and half in 20X6 to smooth the earnings impact
Explanation
Past service cost is recognised in profit or loss when the plan amendment occurs, here December 20X5. Deferral or smoothing is not permitted and doing it to hit a bonus target is earnings manipulation, threatening the accountant's integrity and objectivity. A contingent liability disclosure is inappropriate for an obligation that has arisen.
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