Accounting Standards and Guidance

FRC Financial Reporting Standards (FRSs)

UK/Irish accounting framework (effective for periods beginning on or after 1 Jan 2015)

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland

Section 28 Employee Benefits

Post-employment benefits: Defined benefit plans

Actuarial valuation method

An entity shall use the projected unit credit method to measure its defined benefit obligation and the related expense. If defined benefits are based on future salaries, the projected unit credit method requires an entity to measure its defined benefit obligations on a basis that reflects estimated future salary increases. Additionally, the projected unit credit method requires an entity to make various actuarial assumptions in measuring the defined benefit obligation, including discount rates, employee turnover, mortality, and (for defined benefit medical plans) medical cost trend rates. ^{[AMD 50]}

This FRS does not require an entity to engage an independent actuary to perform the comprehensive actuarial valuation needed to calculate its defined benefit obligation. Nor does it require that a comprehensive actuarial valuation must be done annually. In the periods between comprehensive actuarial valuations, if the principal actuarial assumptions have not changed significantly the defined benefit obligation can be measured by adjusting the prior period measurement for changes in employee demographics such as number of employees and salary levels.

^{AMD 50}

Amendment

Paragraph 28.18 amended by Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland - Pension obligations (issued February 2015)

Effective date

01/01/2015

Previous text

28.18 An entity shall use the projected unit credit method to measure its defined benefit obligation and the related expense. If defined benefits are based on future salaries, the projected unit credit method requires an entity to measure its defined benefit obligations on a basis that reflects estimated future salary increases. Additionally, the projected unit credit method requires an entity to make various actuarial assumptions in measuring the defined benefit obligation, including discount rates, employee turnover, mortality, and (for defined benefit medical plans) medical cost trend rates.

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