ACCA Strategic Professional · Strategic Business Reporting (International) · Employee benefits
Hawk plc's finance director proposes to avoid reporting a large actuarial loss on its defined benefit plan in profit or loss by spreading it over the employees' remaining working lives, arguing this gives a smoother earnings trend. Which statement is correct under IAS 19 and professional ethics?
The proposal is unacceptable. IAS 19 requires actuarial losses to be recognised immediately in other comprehensive income, not spread, and the corridor method has been withdrawn. Smoothing to flatter earnings would also threaten the accountant's ethical duty of integrity and objectivity.
- AThe proposal is unacceptable because remeasurements must be recognised immediately in OCI and cannot be deferred or smoothedCorrect
- BThe proposal is acceptable if disclosed in the notes
- CThe loss must be recognised immediately in profit or loss
- DThe proposal is acceptable because the corridor approach remains permitted
Explanation
IAS 19 requires remeasurements, including actuarial gains and losses, to be recognised immediately in OCI and never reclassified to profit or loss. The corridor approach was removed in the 2011 amendments. Deliberate smoothing to flatter earnings also raises an integrity concern for the accountant.
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