IAS 26
Active
Accounting and Reporting by Retirement Benefit Plans
Prescribes the accounting and reporting principles for retirement benefit plans, including the presentation and disclosure of plan assets, liabilities and funding status.
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Conceptual Framework Linkage
Why the PLAN itself needs its own financial statements
IAS 19 tells the sponsoring EMPLOYER how to account for its obligation. IAS 26 answers a different question entirely: how should the retirement benefit PLAN – often a separate legal/trust entity – report to ITS users, principally plan members and beneficiaries who need to assess the plan's ability to pay benefits?
HOW IAS 26 MAPS TO THE FRAMEWORK
Distinct reporting entity – the plan is treated as its OWN reporting entity, separate from the sponsoring employer, with its own users and information needs Relevance – plan members need information about the plan's ability to meet its obligations, which is best served by CURRENT VALUE measurement of plan assets, not historical cost Decision-usefulness – periodic actuarial valuation of promised benefits allows members to assess funding adequacy over time
IAS 26 is a genuinely NICHE standard within the IFRS suite – it exists specifically for entities that ARE retirement benefit plans (pension funds, trusts), not for the SPONSORING employers who use IAS 19 instead. The two standards look at the SAME underlying arrangement from opposite sides.
Measurement principles applied by IAS 26
IAS 26 deliberately departs from historical cost for plan investments – reflecting that a retirement plan's users care about CURRENT ability to pay benefits, not historical acquisition cost.
Framework basisUsed by IAS 26 for…
Fair valuePlan investments (the plan's assets) – REQUIRED, not just permitted
Actuarial present valuePromised retirement benefits under defined benefit plans, where disclosed
Qualitative characteristics in action: mandating fair value for plan investments prioritises relevance for plan members assessing current funding adequacy – a far more decision-useful figure than what the fund originally paid for its investments years or decades ago.
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Scope & Applicability
What IAS 26 covers
IAS 26 applies to the financial statements of RETIREMENT BENEFIT PLANS where such financial statements are prepared. It complements IAS 19, which is concerned with the determination of the cost of retirement benefits in the financial statements of EMPLOYERS having plans.
TWO STANDARDS, TWO PERSPECTIVES
IAS 19
The EMPLOYER's obligation and expense – used by every entity with employee benefit plans
IAS 26
The PLAN's own financial statements – used only by the retirement fund/trust itself, when it prepares its own reports
Some jurisdictions do not require standalone plan financial statements at all, in which case IAS 26 simply has no application there – its use is contingent on whether the plan itself prepares reports.
Key definitions you must know
Retirement benefit plans
Arrangements whereby an entity provides benefits for employees on or after termination of service (either in the form of an annual income or as a lump sum), when such benefits, or the employer's contributions towards them, can be determined or estimated in advance of retirement from the provisions of a document or from the entity's practices.
Net assets available for benefits
The assets of a plan LESS liabilities other than the actuarial present value of promised retirement benefits.
Actuarial present value of promised retirement benefits
The present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already rendered.
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Defined Contribution Plans – Reporting Requirements
Simplified reporting – mirrors IAS 26's overall theme of simplicity for DC plans
The financial statements of a defined contribution plan contain a statement of NET ASSETS AVAILABLE FOR BENEFITS and a description of the funding policy – because benefits ultimately depend directly on contributions and investment performance, no actuarial estimate of future obligation is needed.
Example 1: Defined contribution plan statement
A defined contribution retirement plan holds investments with a fair value of $45,000,000 at year end, cash of $500,000, and has $200,000 of accrued expenses payable.
Net assets available for benefits = (45,000,000 + 500,000) − 200,000 = $45,300,000
No actuarial valuation of future obligations is required or presented – the plan simply reports the pool of assets available, since each member's ultimate benefit is determined by their accumulated account balance, not a promised formula.
No actuarial valuation of future obligations is required or presented – the plan simply reports the pool of assets available, since each member's ultimate benefit is determined by their accumulated account balance, not a promised formula.
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Defined Benefit Plans – Reporting Requirements
More extensive reporting given actuarial risk
A defined benefit plan's financial statements contain EITHER: (a) a statement showing net assets available for benefits, the actuarial present value of promised retirement benefits (distinguishing vested and non-vested benefits), and the resulting excess or deficit; OR (b) a statement of net assets available for benefits INCLUDING EITHER a note disclosing the actuarial present value of promised benefits, or a reference to this information in an accompanying actuarial report.
Example 2: Defined benefit plan surplus/deficit disclosure
A defined benefit plan reports net assets available for benefits of $80,000,000. The actuarial present value of promised retirement benefits is $92,000,000, of which $85,000,000 relates to vested benefits.
Excess/(deficit) of net assets over the actuarial present value of promised benefits = 80,000,000 − 92,000,000 = $(12,000,000) deficit
The plan's financial statements disclose the $92,000,000 figure split into VESTED ($85,000,000) and non-vested ($7,000,000) components – a distinction not required at all for defined contribution plans.
The plan's financial statements disclose the $92,000,000 figure split into VESTED ($85,000,000) and non-vested ($7,000,000) components – a distinction not required at all for defined contribution plans.
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Actuarial Present Value of Promised Benefits
Basis of calculation
The present value of expected payments may be calculated and reported on the basis of CURRENT salary levels, or PROJECTED salary levels up to the time of retirement – either basis is permitted, but the entity must disclose which is used and, if relevant, the effect of any change.
IAS 26 EXPLICITLY does not require the reasons for actuarial changes to be explained in the same depth demanded of the employer under IAS 19's more granular reconciliation approach – the plan's own reporting is comparatively higher-level.
Vested vs non-vested distinction
Distinguishing VESTED benefits (not conditional on continued employment – the entitlement is secured) from NON-VESTED benefits (still conditional on future service) is important because it shows plan members and other users how much of the promised obligation would still be payable even if the plan were to be discontinued today.
This vested/non-vested split is a distinctly IAS 26 concept for PLAN reporting – it does not have a direct parallel presentation requirement in IAS 19's employer-side reconciliation.
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Valuation of Plan Assets
Fair value is mandatory, not optional
Retirement benefit plan investments should be carried at FAIR VALUE. In the case of marketable securities, fair value is market value. Where plan investments are held for which an estimate of fair value is not possible (rare), disclosure should be made of the reason why fair value is not used.
Historical cost is NOT an acceptable measurement basis for plan investments under IAS 26 – this is a firm departure from the general IFRS default and should not be confused with the optional fair value elections available elsewhere (e.g. IAS 16's revaluation model, which IS optional).
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Frequency of Actuarial Valuations
Not necessarily annual
For defined benefit plans, information is normally provided by an actuarial valuation performed either at the reporting date, or as of a date NOT MORE than 3 years prior to that date – the valuation date should be disclosed. Unlike IAS 19's requirement for the EMPLOYER (which effectively necessitates regular, often annual, updates for its own financial reporting), IAS 26 permits the PLAN'S own reporting to rely on a somewhat older valuation, reflecting the plan's typically longer reporting horizon and different user needs.
This is a specific, frequently tested numerical detail: the 3-year outer limit for the age of an actuarial valuation used in a retirement benefit plan's own financial statements.
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All Plans – Common Requirements
Requirements applicable to both DC and DB plans
Financial statements of a retirement benefit plan (whether defined contribution or defined benefit) also contain a statement of CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Investment income and other income, employer/employee contributions, benefits paid or payable, administrative expenses, other expenses, taxes, gains/losses on disposal of investments and changes in value of investments, and transfers to/from other plans Financial statements should also contain a description of the funding policy
Worked example – statement of changes in net assets
Example 3: Movement in net assets available for benefits
Opening net assets: $60,000,000. Employer contributions: $4,000,000. Employee contributions: $1,500,000. Investment income: $3,200,000. Net realised/unrealised gains on investments: $2,800,000. Benefits paid: $5,100,000. Administrative expenses: $400,000.
Closing net assets = 60,000,000 + 4,000,000 + 1,500,000 + 3,200,000 + 2,800,000 − 5,100,000 − 400,000 = $66,000,000
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Disclosure Requirements
Required disclosures
GENERAL DISCLOSURES
A statement of the significant accounting policies used, including the basis for determining fair value of plan investments A description of the plan and the effect of any changes in the plan during the period Details of any significant matters affecting comparability with the previous period
SPECIFIC TO DEFINED BENEFIT PLANS
The date of the most recent actuarial valuation, and, if not carried out at the reporting date, the date of the valuation relied upon The significant actuarial assumptions made, and the method used to calculate the actuarial present value of promised retirement benefits
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Choosing between current and projected salary levels for actuarial present value calculation, and disclosing the basis chosen Determining whether a plan investment genuinely lacks a reliable fair value estimate (a very rare circumstance)
SIGNIFICANT ESTIMATES
Actuarial assumptions underlying the promised benefits calculation (mortality, discount rate, turnover) Fair value of plan investments without an active/observable market price
Because the plan's actuarial valuation may be UP TO 3 YEARS OLD, users must interpret the disclosed actuarial present value figure with awareness it may not perfectly reflect current-date conditions – a structural limitation unique to IAS 26 reporting versus the more current-dated IAS 19 employer obligation.
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IAS 26 vs IAS 19 – Two Perspectives on the Same Arrangement
Side-by-side comparison
FeatureIAS 19 (Employer)IAS 26 (The Plan Itself)
Reporting entityThe sponsoring employerThe retirement benefit plan/fund/trust itself
Primary usersEmployer's shareholders, creditors, general usersPlan members, beneficiaries, trustees
Key outputNet defined benefit liability/asset on the EMPLOYER's SOFPStatement of net assets available for benefits, and actuarial present value of promised benefits
Plan asset measurementFair value (feeds into the employer's net liability calculation)Fair value (mandatory, presented in the PLAN's own statements)
Actuarial valuation currencyEffectively updated each reporting period for employer accounting purposesMay be up to 3 years old
Since IAS 26 is rarely tested in isolation, the most valuable exam preparation is understanding it as the MIRROR IMAGE of IAS 19 – the same pension arrangement, viewed from the plan's own perspective rather than the sponsoring employer's.
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Statement Mapping – Where Every Plan-Level Event Lands
Comprehensive event-to-statement mapping table (the plan's own financial statements)
Event / transactionStatement(s) affectedNotes
Employer/employee contributions receivedNet Assets StatementIncreases net assets available for benefits
Investment income (dividends, interest)Net Assets StatementIncreases net assets available for benefits
Fair value gains/losses on plan investmentsNet Assets StatementDirect movement in net assets, since investments are carried at fair value throughout
Benefits paid to membersNet Assets StatementReduces net assets available for benefits
Administrative expenses of the planNet Assets StatementReduces net assets available for benefits
Actuarial present value of promised benefits (DB plans)Notes / separate statementPresented as a note or separate statement, not as a formal liability on a SOFP in the conventional sense
Funding policy descriptionNotesMandatory qualitative disclosure for all plan types
Actuarial valuation date and assumptions (DB plans)NotesDisclosed even if valuation is up to 3 years old
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Related Standards – Cross-Reference Map
How IAS 26 connects across the IFRS body of literature
StandardNature of the connection
IAS 19The direct counterpart standard, viewed from the SPONSORING EMPLOYER's perspective rather than the plan's own – the two standards address the same underlying arrangement from opposite sides
IFRS 13Supplies the fair value measurement framework mandated for plan investments
IFRS 10 / IFRS 12Determine whether a sponsoring employer must CONSOLIDATE the retirement benefit plan (usually not, where the plan is a genuinely separate trust/legal entity administered independently)
IAS 24A retirement benefit plan is explicitly identified as a related party of the sponsoring employer and other related entities under IAS 24's definition
IFRS 9Governs the classification and measurement principles underlying the plan's investment portfolio, complementing IAS 26's mandatory fair value requirement
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Quick-Reference Glossary
Participants
The members of a retirement benefit plan and others who are entitled to benefits under the plan.
Funding
The transfer of assets to an entity (the fund) separate from the employer's own entity, to meet future obligations for the payment of retirement benefits.
Vested benefits
Benefits, the rights to which, under the conditions of a retirement benefit plan, are NOT conditional on continued employment.
Non-vested benefits
Benefits still conditional on the employee remaining in service until a future date/event.
Statement of net assets available for benefits
The primary statement prepared by a retirement benefit plan, showing plan assets less liabilities (excluding the actuarial obligation itself).
Insured benefits
Benefits secured by contracts issued by an insurer – the obligation may fall outside the scope of IAS 26's plan-level reporting requirements where genuinely insured.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Jul-1985
Exposure Draft E27 Accounting and Reporting by Retirement Benefit Plans
Jan-1987
IAS 26 Accounting and Reporting by Retirement Benefit Plans
01-Jan-1988
Effective date of IAS 26 (1987)
1994
IAS 26 was reformatted