Basic guidelines for improving the accounting of pension funds in today's market conditions
1. Introduction ; 2. Exposition: Advantages of Supplementary Compulsory and Voluntary Pension Funds; Advantages of Supplementary Compulsory and Voluntary Pension Funds; Specific Accounting Items of Pension Funds; Basic Guidelines for Improving the Accounting of Pension Funds;3. Conclusion
Abstract
Abstract: Social insurance activity carried out by pension funds is extremely necessary and important for the public. It refers to attracting cash from insurers/ employers and insured persons under supplementary compulsory or voluntary pension insurance of insured persons. Funds collected from compulsory or voluntary insurance contributions are managed, invested and paid in the form of supplementary pensions by the pension funds to insured persons or to their heirs upon the occurrence of the insurance events as set out by the law, in the pension fund’s regulations and in the social insurance agreement.
Pension funds carry out their social insurance activity in highly risky environment. Therefore, the government needs to supervise their activity and accounting for the purposes of ensuring the security of the persons insured therein and maintaining the public trust in pension funds. The organisation, methodology, methods and techniques of the accounting process of social insurance activity carried out by the pension funds need to meet the requirements for application of the principles, concepts, rules, statutory provisions and customs determined by both the International accounting framework – International Accounting Standards/ International Financial Reporting Standards (IAS/ IFRS) and the European Union Directives, as well as by the National (local) accounting and social insurance legislation, and the provisions and guidelines of the governmental social insurance supervision authority. The specific internal organisation of pension funds’ accounting is practically determined with the regulations, reporting and disclosures of the social insurance activity they carry out, upon defining the rules for preparation of their specific financial statements.
The specific features of the social insurance activity determine the organisational and methodological specificities of the accounting and define the specific items of reporting, preparation and disclosure in the pension funds, such as:
1) Specificities of contractual relations with insured persons;
2) Specific assets;
3) Specific liabilities;
4) Specificities of their equity;
5) Specificities of their revenue and expenses;
6) Specificities of their financial performance;
7) Specific financial statements;
8) Specific cash flows;
9) Specific accounting policy;
10) Specific financial indicators;
11) Specific risks that occur during they carry out their social insurance activity.
These specific items of accounting in pension funds predetermine the requirement for a continuous analysis by the managing pension insurance company with regard to the structure of resources (assets) and obligations (liabilities) of the pension funds. This is why, their accounting is organised on the basis of the requirement to apply ex-ante, ongoing and ex-post control over the pension funds’ ability to fulfil in timely manner their obligations to their insured persons or to their heirs upon occurrence of the insurance events or upon expiration of the term of validity of the social insurance agreement.
The object of this study is the activity of pension funds in Bulgaria.
The subject of this study covers the accounting of the social insurance activity of pension funds in Bulgaria.
This publication is aimed at providing basic guidelines for improving the accounting of pension funds’ activity in Bulgaria in today’s market conditions, which would to a great extent contribute to the proper management, investing and spending of funds raised under individual accounts of their insured persons.
References
2. Commission Regulation (EC) No 1126/2008 of 3 November 2008, IAS 26 Accounting and Reporting of Retirement Benefit Plans, amended and supplemented in 11/2011
3. Ordinance No 56 of the Financial Supervision Commission of 4 January 2018 on the minimum content of investment policies of supplementary pension insurance funds, promulgated in SG no. 6 of 16.01.2018;
4. Ordinance No 10 of 26.11.2003 on the requirements to composition and structure of the equity (capital base) of the pension insurance company and of the funds for supplementary pension insurance managed thereby, effective from 17.03.2004, promulgated in SG no. 109 of 16.12.2003, last amendment SG no. 94/2009
5. Ordinance No 9 of 2003 on the terms and conditions for measurement of the assets and liabilities of the supplementary pension insurance funds and of the pension insurance company, of the value of the fund’s net assets, for calculation and declaring the value per share, and on the requirements for maintaining individual accounts, promulgated in SG no. 109 of 16.12.2003, last amendment and supplement SG no. 74 of 2009
6. Accounting Act, (2019), promulgated in SG no. 95 of 8.12.2015, effective from 01.01.2016, last amendment SG no. 96 of 06.12.2019;
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9. Ivanova, R., Information Provision of the Financial and Business Analysis, chapter in the textbook of Chukov, Kr., Ivanova, R., Financial and Business Analysis, page 32, 2019, Publishing House UNSS, Sofia/;
10. Natchkova, M., Milanova, Em., Petrova, D., Natchkova M., Ivanova, R., Todorov, L., Financial and Accounting Management, Publishing House UNSS, 2018, page 185/, ISBN 978-619-232-073-7;
11. Milanova-Tsoncheva, Em., Natchkova, M., Mavrudiev, Hr., Accounting of Underwriters and Insurers, Publishing House UNSS, 2018, page 413/, ISBN 978-619-232-116-13.
12. International Financial Reporting Standards (IFRS), EU Official Journal, Commission Regulation (EC) 2016/2067 of 22 November 2016, L323.
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