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Dear Mike,
There is a question on IAS 37 as follows:
A company ahs failed to set up a Pension Fund scheme for its employees as required by the law during the financial year ended 31 December 2011. Under the law, for a company failing to comply with these statutory requirements, it will be subject to a fine, the amount of which is to be determined by the court judgment. If so determined by the court, it may also be necessary to pay back the scheme contributions that would have been in arrears as if the scheme had been set up before.
In such a case, for both penalty charge and scheme contributions, would these be contingent liabilities or provisions at the y/e?
Are there any reference materials available in regard to accounting treatment for breach of statutory requirements under IAS 37?
Would you kindly help?
Hi
I find it strange that a company should be required BY LAW to create a pension scheme. However, and that’s the situation you have propsed, then a provision would be appropriate using best estimate for reliable measurement. The only bit not capable of reliable measurement would seem to be the fine imposed by the Court, but I assume we could place a pretty good estimate on that, based on earlier Court decisions.
But a more basic question raises itself – why is the company NOT complying with the legal requirement? If it’s a question of finance – aren’t they making matters worse by incurring not only the cost of the contributions but also legal fees, Court costs and the fines?
Someone needs to talk with the directors in the very near future!
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