Question

Do actuarial gains and losses arise from changes in discount rate?

Do actuarial gains and losses arise from changes in discount rate?

Homework Answers

Answer #1

Actuarial gain or loss refers to changes in actuarial assumptions used to value a company;s defined benefit pension plan obligations, a change in value of pension plan obligations due to change in discount rate used to find the present value of benefit payments and the expected rate of return on plan assets. Financial Accounting Standards Board (FASB) requires present value of bebefit payments to be reported on the plan sponsor’s balance sheet and accounting rules require pension assets and liabilities to be recorded to mark to market on an entity’s balance sheet, so due to mark to market assumption any change in discount rate creates actuarial gains and losses, or changes to actuarial assumptions, and these gains or losses are amortized through comprehensive income in shareholders' equity rather than flowing directly through the income statement.

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