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Disclosures
Disclosures about short-term employee benefits
Extract from FRS102: Section 28.39
28.39 This section does not require specific disclosures about short-term employee benefits.
OmniPro comment
These short term benefits will be included within accruals in the creditors note to the financial statements.
Example 26: Extract of notes to the accounting policies for short-term and long term employee benefits
(a) Employee Benefits
The company provides a range of benefits to employees, including annual bonus arrangements, paid holiday arrangements and defined contribution pension plans.
(i) Short term benefits
Short term benefits, including holiday pay and other similar non-monetary benefits, are recognised as an expense in the period in which the service is received.
(i) Annual bonus plans
The company recognises a provision and an expense for bonuses where the company has a legal or constructive obligation as a result of past events and a reliable estimate can be made.
Disclosures – defined contribution plans
Extract from FRS102: Section 28.40-28.40A
28.40 An entity shall disclose the amount recognised in profit or loss as an expense for defined contribution plans.
28.40A If an entity treats a defined benefit multi-employer plan as a defined contribution plan because sufficient information is not available to use defined benefit accounting (see paragraph 28.11) it shall:
(a) disclose the fact that it is a defined benefit plan and the reason why it is being accounted for as a defined contribution plan, along with any available information about the plan’s surplus or deficit and the implications, if any, for the entity;
(b) include a description of the extent to which the entity can be liable to the plan for other entities’ obligations under the terms and conditions of the multi-employer plan; and
(c) disclose how any liability recognised in accordance with paragraph 28.11A has been determined.
OmniPro comment
See below illustration of the above requirements. Company law would require disclosure for both years.
Example 26A: extract of the accounting policy note for pensions which are defined contribution schemes
(b) Employee Benefits
(iii) Defined contribution pension plans
The Company operates a defined contribution plan. A defined contribution plan is a pension plan under which the company pays fixed contributions into a separate fund. Under defined contribution plans, the company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
For defined contribution plans, the company pays contributions to privately administered pension plans on a contractual or voluntary basis. The company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Example 27: Extract from notes to the financial statements
RETIREMENT BENEFITS
| 2015 | 2014 | |
| CU | CU | |
| Retirement Benefit costs | 46,746 | 43,289 |
The company operates an externally funded defined contribution scheme that covers substantially all the employees of the company. The assets of the scheme are vested in independent trustees for the sole benefit of these employees.
[Provide an explanation of any material variation in the pension charge from that of the previous period. Provide also any commitment by the company to make additional contributions for a limited number of years – for example, the pension charge for the year 2015 included CU(AMOUNT) in respect of past service liabilities that are being written off over ten years being the average remaining service less of the current employees.] Contributions outstanding at year end amounted to CU1,000 (2014: CU500).
Applicable for multi-employer defined benefit scheme where it is accounted for as a defined contribution scheme.
The company is a member of a multi-employer defined benefit scheme. The company has accounted for this as defined contribution scheme as allowed under Section 28 of FRS 102 on the basis that the Company’s share of the assets and liabilities of the scheme cannot be determined. Where the group have committed to a plan to fuud the scheme, provision has been made at the year end. The amount recognised in the profit and loss reflects the contributions made to the scheme in the year.
EMPLOYEES
The average number of employees was:
| 2015 | 2014 | ||
| Administration | 4 | 4 | |
| Distribution | 2 | 2 | |
| Construction | 8 | 8 | |
| 14 | 14 | ||
| 2015 | 2014 | ||
| Operating costs | CU | CU | |
| Staff costs: | |||
| – Wages and salaries | 550,567 | 725,805 | |
| – Social welfare costs | 61,133 | 76,189 | |
| – Retirement Benefits – defined contribution plans | 46,746 | 43,289 | |
| – Share based payments | XXXX | XXXX | |
| – Other compensation costs – termination payments | XXXX | XXXXX | |
| Net staff costs included in operating costs | 658,446 | 845,283 |
Disclosures – defined benefit plans
Extract from FRS102: Section 28.41-28.41A
28.41 An entity shall disclose the following information about defined benefit plans (except for any defined multi-employer benefit plans that are accounted for as a defined contribution plan in accordance with paragraphs 28.11 and 28.11A, for which the disclosures in paragraphs 28.40 and 28.40A apply instead). If an entity has more than one defined benefit plan, these disclosures may be made in aggregate, separately for each plan, or in such groupings as are considered to be the most useful:
(a) A general description of the type of plan, including funding policy. This includes the amount and timing of the future payments to be made by the entity under any agreement with the defined benefit plan to fund a deficit (such as a schedule of contributions).
(b) The date of the most recent comprehensive actuarial valuation and, if it was not as of the reporting date, a description of the adjustments that were made to measure the defined benefit obligation at the reporting date.
(c) A reconciliation of opening and closing balances for each of the following:
(i) the defined benefit obligation;
(ii) the fair value of plan assets; and
(iii) any reimbursement right recognised as an asset.
(d) Each of the reconciliations in paragraph 28.41(e) shall show each of the following, if applicable:
(i) the change in the defined benefit liability arising from employee service rendered during the reporting period in profit or loss;
(ii) interest income or expense;
(iii) remeasurement of the defined benefit liability, showing separately actuarial gains and losses and the return on plan assets less amounts included in (ii) above; and
(iv) plan introductions, changes, curtailments and settlements.
(e) The total cost relating to defined benefit plans for the period, disclosing separately the amounts:
(i) recognised in profit or loss as an expense; and
(ii) included in the cost of an asset.
(f) For each major class of plan assets, which shall include, but is not limited to, equity instruments, debt instruments, property, and all other assets, the percentage or amount that each major class constitutes of the fair value of the total plan assets at the reporting date.
(g) The amounts included in the fair value of plan assets for:
(i) each class of the entity’s own financial instruments; and
(ii) any property occupied by, or other assets used by, the entity.
(h) The return on plan assets.
(i) The principal actuarial assumptions used, including, when applicable:
(i) the discount rates;
(iii) the expected rates of salary increases,
(iv) medical cost trend rates; and
(v) any other material actuarial assumptions used.
The reconciliations in (e) and (f) above need not be presented for prior periods.
28.41A If an entity participates in a defined benefit plan that shares risks between entities under common control (see paragraph 28.38) it shall disclose the following information:
(a) The contractual agreement or stated policy for charging the cost of a defined benefit plan or the fact that there is no policy.
(b) The policy for determining the contribution to be paid by the entity.
(c) If the entity accounts for an allocation of the net defined benefit cost, all the information required in paragraph 28.41.
(d) If the entity accounts for the contributions payable for the period, the information about the plan as a whole required by paragraph 28.41(a), (d), (h) and (i).
This information can be disclosed by cross-reference to disclosures in another group entity’s financial statements if:
(i) that group entity’s financial statements separately identify and disclose the information required about the plan; and
(ii) that group entity’s financial statements are available to users of the financial statements on the same terms as the financial statements of the entity and at the same time as, or earlier than, the financial statements of the entity.
OmniPro comment
Under Company law, a defined benefit liability or asset would be shown separately on the face of the balance sheet named ‘Defined benefit obligations’. See below illustration of the requirements above.
Example 28: Extract from the accounting policy notes and notes to the financial statements
Defined benefit obligations
Defined benefit pension scheme assets are measured at fair value. Defined benefit pension scheme liabilities are measured on an actuarial basis using the projected unit credit method. The excess of scheme liabilities over scheme assets is presented on the balance sheet as an asset or liability. Deferred tax is shown separately within deferred tax. The defined benefit pension charge to operating profit comprises the current service cost, past service costs, introductions, curtailments and settlements. The net interest cost on the scheme liabilities is presented in the profit and loss account as other finance expense. Actuarial gains and losses arising from changes in actuarial assumptions and from experience surpluses and deficits are recognised in other comprehensive income for the year in which they occur together with the return on plan assets, less amounts included in net interest.
Critical Accounting Judgements and Estimates
The preparation of these financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
Judgements and estimates are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Pension benefits
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.
The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note X.
Example 29: Extract from the notes to the financial statements
Retirement benefit obligations
The company operates both defined benefit and defined contribution pension schemes.
Defined contribution pension plans
For defined contribution plans, the company pays contributions to trustee administered funds on a mandatory, contractual or voluntary basis. The company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. At the year-end CUXXXX (2014: CUXXXX) was included in other payables in respect of contribution liabilities.
Defined benefit pension plans
Actuarial valuations – funding requirements
For defined benefit plans, the funding requirements are assessed in accordance with the advice of independent and qualified actuaries and valuations are prepared in this regard at triennial intervals. The most recent actuarial valuation was carried out during the year ended 31 December 201X. The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments and the rate of increase in salaries and pensions. It was assumed that the long term investment returns would be XXX% per annum and that salary increase would average XX% per annum. Actuarial valuation reports are available for inspection by plan members but not by the public.
Financial assumptions
The financial assumptions employed in the valuation of the defined benefit liabilities arising on pension plans are as follows:
Plan Liabilities
The major long-term assumptions used by the Company’s actuaries in the computation of plan liabilities as at 31 December 2015 and 31 December 2014 are as follows:
| 2015 | 2014 | |
| Active Retirement Age | 65 years | 65 years |
| Rate of wage inflation | 2.00% | 3.00% |
| Rate of benefit increase – in payment | 2.00% | 4.00% |
| Discount Rate | 4.50% | 4.90% |
| Expected rate of return on Plan Assets | 4.80% | 4.40% |
The mortality assumptions employed in determining the present value of the plan liabilities under Section 28 are in accordance with the underlying funding valuations and have been determined based on actuarial best practice, taking account of mortality experience and industry circumstances. The rates are based on the most up-to-date mortality tables, which in the case of non-pensioners are PNL00 XX% (males) and PNL00 XX% (females) and in the case of pensioners are PNL00 XX% (males) and PNL00 XX% (females). Based on these tables, the assumed life expectations on retirement are:
| 2015 Years | 2014 Years | |||
| Male | Female | Male | Female | |
| Pensioners | 22.4 | 24.1 | 21.4 | 23.1 |
| Non-pensioners | 22.0 | 24.1 | 21.0 | 23.1 |
Plan Assets
Plan assets attributable to the company are as follows:
| 2015 | 2014 | |||
| CU | CU | |||
| Equity instruments | 12,757 | 56.1% | 10,980 | 60.9% |
| Debt instruments | 9,469 | 41.7% | 6,202 | 34.4% |
| Property | 341 | 1.5% | 361 | 2.0% |
| Cash | 169 | 0.7% | 487 | 2.7% |
| 22,736 | 100% | 18,030 | 100% | |
The long-term rates of return expected at 31 December 2015 and 31 December 2014, determined in conjunction with the Company’s actuaries and analysed by class of investment, are as follows:
| 2012 | 2011 | |
| Equity securities | 6.00% | 8.00% |
| Debt securities | 4.00% | 4.00% |
| Real Estate | 3.50% | 6.00% |
| Others | 2.00% | 0.00% |
(a) Impact on Income Statement
The total expense charged to the Income Statement in respect of the defined benefit pension plan is as follows:
| 2015 | 2014 | |
| CU | CU | |
| Current Service cost – recognised in cost of sales | (615) | (689) |
| Interest Cost | (1,325) | (1,270) |
| Expected return on plan assets – interest income | 1,093 | 1,161 |
| Curtailment | 122 | – |
| Pension expense – included in staff costs (note X) | (725) | (798) |
| The company expects to contribute CUXX to its defined benefit pension plan in the year ended 31 December 201X. | ||
(b) Actuarial gains and losses recognised in other comprehensive income
| 2015 | 2014 | |
| CU | CU | |
| Actuarial return on scheme assets | 3,435 | XXX |
| Less: amounts included in net interest on the net defined liability | (1,093) | (XXX) |
| 2,342 | XXX | |
| Other actuarial gains and losses | (10,148) | (513) |
| Total remeasured losses recognised in other comprehensive income | (7,906) | (513) |
(c) Impact on Statement of Financial Position
The net pension liability as at 31 December 2015 and 31 December 2014 is analysed as follows:
| 2015 | 2014 | |
| CU’000 | CU’000 | |
| Present value of defined obligations | (38,711) | (26,724) |
| Fair Value of Plan Assets | 22,736 | 18,030 |
| Net Pension Liability | (15,975) | (8,694) |
Changes in the present value of the defined benefit obligation are as follows:
| 2015 | 2014 | |
| CU | CU | |
| Benefit obligation at start of year | (26,724) | (26,236) |
| Current Service Cost | (615) | (689) |
| Interest Cost | (1,325) | (1,270) |
| Plan participants’ contributions | (334) | (334) |
| Actuarial gain/(loss) | (10,148) | 1,601 |
| Benefits paid | 313 | 204 |
| Curtailment | 122 | 0 |
| Benefit obligation at end of year | (38,711) | (26,724) |
Changes in the fair value of plan assets are as follows:
| 2015 | 2014 | |
| CU | CU | |
| Fair Value of Plan Assets at start of year | 18,030 | 17,318 |
| Expected Return on Plan Assets | 1,093 | 1,161 |
| Employer contribution | 1,250 | 1,535 |
| Plan participants’ contributions | 334 | 334 |
| Benefits paid | (313) | (204) |
| Actuarial gain (Actual less expected) | 2,342 | (2,114) |
| Fair Value of Plan Assets at end of year | 22,736 | 18,030 |
Extract from other comprehensive income showing foreign exchange differences on retranslation
| Statement of Other comprehensive income | 2015 | 2014 |
| CU | CU | |
| Profit for the year | xxxxx | xxxx |
| Exchange differences on retranslation of subsidiary undertakings | xxxxx | xxxx |
| Actuarial loss in respect of the pension scheme | (xxx) | (xxx) |
| Deferred tax on actuarial loss | xxxx | xxxx |
| Total other comprehensive income for the year | xxxx | xxxx |
Disclosures about other long-term benefits
Extract from FRS102: Section 28.42-28.44
28.42 For each category of other long-term benefits that an entity provides to its employees, the entity shall disclose the nature of the benefit, the amount of its obligation and the extent of funding at the reporting date.
Disclosures about termination benefits
28.43 For each category of termination benefits that an entity provides to its employees, the entity shall disclose the nature of the benefit, its accounting policy, and the amount of its obligation and the extent of funding at the reporting date.
28.44 When there is uncertainty about the number of employees who will accept an offer of termination benefits, a contingent liability exists. Section 21 Provisions and Contingencies requires an entity to disclose information about its contingent liabilities unless the possibility of an outflow in settlement is remote.
OmniPro comment
Example 30: Extract of notes to the accounting policies for short-term and long term employee benefits
(c) Employee Benefits
The company provides a range of benefits to employees, including annual bonus arrangements, paid holiday arrangements and defined contribution pension plans.
(i) Short term benefits
Short term benefits, including holiday pay and other similar non-monetary benefits, are recognised as an expense in the period in which the service is received.
(ii) Annual bonus plans
The company recognises a provision and an expense for bonuses where the company has a legal or constructive obligation as a result of past events and a reliable estimate can be made.
Example 31: Extract from notes to the financial statements
| Provisions for liabilities | Warranty Provision | Redundancy provision | Onerous lease provision |
| CU | CU | CU | |
| At 1 January | XXXXX | XXXXX | XXXXX |
| Utilised during the year | (XXXXX) | (XXXXX) | (XXXXX) |
| Additions in the year | XXXXX | XXXXX | XXXXX |
| Unused amounts reversed to profit and loss | (XXXXX) | (XXXXX) | (XXXXX) |
| Capitalised in cost of asset | (XXXXX) | (XXXXX) | (XXXXX) |
| Exchange adjustment | XXXXX | XXXXX | XXXXX |
| Unwinding of the discount (not required) | (XXXX) | (XXXXX) | (XXXXX) |
| XXXXXX | XXXXXX | XXXXXXX |
(i) Maintenance warranty provision
A provision is recognised on warranty claims on products sold during the last 2 years. It is expected the majority of these will be settled in the next year and all will have settled within two years.
(ii) Redundancy provision
During the year the company announced a detailed restructuring plan to cease the production of certain raw materials for its finished product and instead outsource this from the supplier. As a result of this decision XX staff will have to be made redundant. It is expected these staff will be made redundant in the next financial year.
(iii) Onerous lease
As a result of the decision to cease production, the premises in which this production was carried out is no longer required however the company is contractually committed to continue to lease the premises from the landlord for a further 5 years for which a tenant cannot be secured. As a result an onerous lease provision has been created.
Note to be included where the costs are considered exceptional in nature
| Exceptional item | 2015 | 2014 |
| CU | CU | |
| Employee termination costs | XXXXX | – |
| Inventory write down | XXXXX | – |
| Fixed asset impairment | XXXXX | – |
| XXXXXX | – |
(i) The exceptional item arises from a fundamental restructuring of the company as a result of a decision to cease trading at one of the companys factories. As a result of the decision to cease certain employees are to be made redundant.
Extract from notes to the financial statements – employee benefits
EMPLOYEES
The average monthly number of employees was:
| 2015 | 2014 | |
| Administration | 4 | 4 |
| Distribution | 2 | 2 |
| Construction | 8 | 8 |
| 14 | 14 | |
| 2015 | 2014 | |
| Operating costs | CU | CU |
| Staff costs: | ||
| – Wages and salaries | 550,567 | 725,805 |
| – Social welfare costs | 61,133 | 76,189 |
| – Redundancy costs | 61,133 | 76,189 |
| – Retirement Benefits – defined contribution/benefit plan | 46,746 | 43,289 |
| Net staff costs included in operating costs | 658,446 | 845,283 |
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