SECTION I—IAS 19 (2003)

The crucial accounting attribute of postretirement benefits plans (PRBs) are that the employer assumes the risk of the cost of the benefits to the employees after retirement or employment, as applicable. This assumption of risk creates the need to recognize a liability for the future cost. In broad strokes, the employer recognizes expense in the current period equal to an amount that is attributed to the service an employee performs in that period. So, essentially, it is accrual accounting (as might be expected).

The complexity with determining how much expense to recognize to profit and loss for PRBs is due to the inclusion of the time value of money, inflation, expected years of benefits used (mortality), and, for plans that are funded by assets in a trust, the amount and return on investment of those assets. Inflation and the time value of money are included in the calculation since the payment of the obligations will occur many years in the future. Mortality is included since the ultimate cost of the benefits provided is largely dependent on the number of years a person will draw on benefits. The return on assets is important since this will pay for some of the costs. Ideally, the entity contributes the present value of those obligations in the....