Actuarial gains and losses: the determinants of the accounting method

The purpose of this paper is to investigate the determinants of the choice of the accounting method for recognising actuarial gains and losses of defined benefit plans.

In the paper, a logit model is estimated in order to relate the dependent variable (actuarial gains and losses method) with some explanatory variables (size, industry, leverage, profitability, size of pension funds and the existence of actuarial gains or losses).

The results of this study indicate that size, industry, profitability and the existence of actuarial gains or actuarial losses are important determinants in the choice of the accounting method for actuarial gains and losses.

The study only addresses the choice between the equity recognition method and the corridor method due to the small number of companies that adopted the profit or loss method (only eight observations).

This paper examines the recognition of actuarial gains and losses which can have an economically significant impact on companies' financial position and financial performance. This paper contributes to the accounting choice literature by exploiting the determinants of the choice of the accounting method for recognising actuarial gains and losses under IAS 19.