IFRIC 14 interprets the LIMIT on a defined benefit asset, minimum funding requirements and their interaction.
Table of Contents
IFRIC 14 – Background
IAS 19 limits the measurement of a net defined benefit asset to the LOWER of:
- the Surplus in the defined benefit plan; AND
- the Asset Ceiling (the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan).
However, IAS 19 does not give guidance on when refunds or reductions in future contributions should be regarded as available, particularly when a minimum funding requirement exists.
IFRIC 14 – Minimum Funding Requirement
The LAW in a jurisdiction might result in a minimum funding requirement. This is a requirement for a company to make contributions to fund a defined benefit plan.
The existence of Minimum Funding Requirement:
- Might restrict the economic benefits available as a reduction in future contributions;
- May give rise to liability if the contributions required under the minimum requirement will not be available to the entity once they have been paid (either as a refund or as a reduction in future contributions).
1. Impact of Minimum Funding Requirement and Future Benefits Available in the Form of Refunds
|(a) A ‘Minimum Funding Requirement’ might result in cash being owed to a plan.|
|(b) Whether a liability should be recognized depends on the recover-ability of the amounts that are to be paid.|
|(c) A liability is recognized for any amount NOT available after they are paid into the plan. |
Any such liability would:
– Reduce the net defined benefit asset; OR
– Increase the net defined benefit liability.
IFRIC 14: IAS 19 [The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction] PUBLISHED in 2011 interprets the limit on a defined benefit asset, minimum funding requirements and their interaction.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)