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Chapter 13
EMPLOYEE BENEFITS (IAS 19)
SCOPE
This Standard sets out the accounting and disclosure by employers for employee benefits. The Standard identifies four main categories of employee benefit:
1. Short-term employee benefits, such as wages, salaries, vocational holiday benefit, sick pay, profit sharing, or bonus plans paid within 12 months of the end of
the period, and nonmonetary benefits, such as medical care and so on, for current employees.
2. Postemployment benefits, such as pensions, postemployment medical benefits, and postemployment life insurance.
3. Termination benefits, such as severance pay.
4. Other long-term employee benefits including long service leave or sabbatical leave.
Postemployment benefits are categorized as either defined contribution plans or defined benefit plans.
The distinction between short-term and long-term employee benefits is that short-term employee benefits are those that are due to be settled within 12 months of the
end of the period in which the employee renders the related service. The Standard achieves this by using in IAS 19 the term “due to be settled” in the definition of
short-term employee benefits rather than the term “fall due” and by using the term “are not due to be settled” in the definition of other long-term employee benefits
rather than the term “do not fall due.”
CASE STUDY 1
The salaried employees of A are entitled to 25 days paid leave each year. The entitlement accrues evenly over the year and unused leave may be carried
forward for one year. The holiday year is the same as the financial year. At April 30, 20X0, A has 1800 salaried employees and the average unused
holiday entitlement is four days per employee. 10% of employees leave without taking their entitlement and there is no cash payment when an employee
leaves in respect of holiday entitlement. There are 260 working days in the year and the total annual salary cost is $29 million. No adjustment has been
made in the financial statements for the above and there was no opening accrual required for holiday entitlement.
Required
What would be the accrual in the financial statements for holiday pay entitlement?
Solution
An accrual should be made under IAS 19:
1,800 employees × 4 days × 90%= 6,480 days
Number of working days = 260 days × 1,800 = 468,000
Accrual is 6,480/468,000 × $29 million = $401,538
(in accordance with IAS 19)
DEFINITIONS OF KEY TERMS
Multiemployer plan. Either a defined contribution or a defined benefit plan that pools the assets contributed by various companies that are not under
common control and uses those assets to provide benefits to employees of more than one entity.
Present value of a defined benefit obligation. The present value before deducting any plan assets or any expected payments required to settle the
obligation that has occurred as a result of the service of employees in the current and previous periods.
Current service cost. The increase in the present value of the defined benefit obligation that occurs as a result of employee service in the current period.
Interest cost. The increase in the period in the present value of the defined benefit obligation that arises because the benefits payable are one year closer to
the settlement of the scheme.
Plan assets. Those assets held by the employee benefit fund, including any qualifying insurance policies.
Return on plan assets. The interest, dividends, and any other income that is derived from the plan assets together with any realized or unrealized gains or
losses on those assets less the cost of administering the plan and any tax payable by the plan.
Actuarial gains and losses. Experience adjustments and the effects of any changes in actuarial assumptions. Experience adjustments are differences