Question

Which of the following best describes an employer's financial reporting responsibility with respect to an Employee Benefit Plan ? The employer can consolidate the plan into its own financial statements, but may elect to report the plan as a separate entity with its own financial reports The employer includes information about the plan in its financial reports, but is obligated to provide a separate statement of cash flows for the plan itself The employer must prepare a complete and separate set of financial statements for the plan itself The employer is not obligated to report the plan as a separate entity

Answer 1

Correct response: (d) - The employer is not obligated to report the plan as a separate entity.

Reasoning:
Firstly, let us understand the meaning of a defined employee benefit plan: As per IAS 19, Defined benefit plans are post-employment benefit plans other than defined contribution plans. Under defined benefit plan, the employer has the obligation to pay specified amount of benefits according to the plan to the employee and all investment and actuarial risk thus fall on the entity.

Therefore, as per the above understanding of defined benefit plan and also along with reading of IAS 19, the reporting entity is not obligated to treat the plan as a separate entity, but is required to present in its own books, as other comprehensive income, the following points:

• Actuarial gains and losses or the effects of changes in actuarial assumptions
• Return on plan assets
• Any change in the effect of the asset ceiling