• 20 Marks

CR – Nov 2022 – L3 – Q4 – Employee Benefits (IAS 19)

Discuss pension contributions under IAS 19 and the principles and content of CSR reporting.

a. DOVE-TAIL (Nigeria) Limited is into production of Cashew Nuts for global consumption. The entity has 3,000 employees on the payroll who are qualified for an approved defined contribution plan being operated. The company makes an annual pension contribution of N28,000 per employee. In 2016, the company paid a total contribution amounting to N150 million, as well as N119 million and N54 million in 2017 and 2018, respectively.

Required:
In accordance with IAS 19, how should the pension contribution be treated and accounted for in the financial statements of the company?
(10 Marks)

b. There are no international standards on Corporate Social Responsibility (CSR) reporting. However, there is a strong trend toward the provision of more information on a statutory or voluntary basis, and this trend in corporate reporting is likely to continue in the future. Therefore, companies are encouraged to provide disclosures and report on environmental, social, and corporate governance issues. To this effect, voluntary guidelines for the content of and principles to be applied for social and environmental reports are given.

Required:
i. Explain the principles of corporate social responsibility. (5 Marks)
ii. Discuss the suggested contents of social and environmental reports. (5 Marks)

(Total 20 Marks)

a. Treatment of Pension Contributions in Accordance with IAS 19

In accordance with IAS 19, the treatment of pension contributions is as follows:

  1. Unpaid (Unremitted) Pension Contributions:
    These should be recognized as an accrued expense under current liabilities on the statement of financial position.
  2. Proportion Paid During the Reporting Period:
    This should be treated as an expense in the profit or loss account.

The effects of these transactions are shown below for Dove-Tail (Nigeria) Limited:

Year Amount Due (N’000) Cash Paid (N’000) Difference (N’000) Statement of Financial Position (Prepaid Pension Contribution)
2016 84,000 150,000 (66,000) (66,000)
2017 84,000 119,000 (35,000) (101,000)
2018 84,000 54,000 30,000 (71,000)

b. Corporate Social Responsibility (CSR)

i. Principles of Corporate Social Responsibility (CSR):

The principles of CSR are as follows:

  • Human Rights Protection: Support and respect the protection of internationally proclaimed human rights.
  • Avoiding Complicity: Ensure they are not complicit in human rights abuses.
  • Labor Standards: Uphold freedom of association and the right to collective bargaining, eliminate all forms of forced labor, abolish child labor, and eliminate employment discrimination.
  • Environmental Protection: Take a precautionary approach to environmental challenges, promote greater environmental responsibility, and encourage environmentally friendly technologies.
  • Anti-Corruption: Work against corruption, including extortion and bribery.

ii. Suggested Contents of Social and Environmental Reports:

The typical contents of social and environmental reports include:

  • Environmental Policies: Outlining the company’s policies regarding environmental issues.
  • Yearly Improvements: Detailing improvements made compared to previous years.
  • Risk Assessment and Response: Identifying key risks and the company’s response strategies.
  • Compliance with Legislation: Describing how the company complies with relevant environmental legislation.
  • Significant Initiatives: Highlighting significant steps taken to improve environmental issues.
  • Performance Indicators: Reporting key environmental performance indicators and industry targets.
  • Financial Information: Providing details on environmental costs, including the entity’s accounting policies.

In a combined social report, additional sections might include:

  • Employee Statistics and Involvement: Data on employee numbers, health and safety, and recruitment diversity.
  • Community Involvement: Details on the company’s involvement with local charities and communities.
  • Stakeholder Communication: Information on working groups or committees set up to engage with stakeholders.
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