FACT SHEET February 2011 IAS 19 Employee Benefits (This fact sheet is based on the standard as at 1 January 2011.) Important note: This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety, in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the most recent changes made to the standard. IASB application date (non-jurisdiction specific) IAS 19 is applicable for annual reporting periods commencing on or after 1 January 2009. Objective The objective of IAS 19 is to prescribe the accounting and disclosure for employee benefits. The standard requires an entity to recognise: a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and b) an expense when the entity consumes the economic benefits arising from service provided by an employee in exchange for employee benefits. SCOPE IAS 19 is applied by an employer in accounting for all employee benefits, except those to which AASB 2 Share-based Payment applies. Prescribed accounting treatment Types of employee benefits IAS 19 deals with the following employee benefits short-term benefits (e.g. wages) post-employment benefits (e.g. post-employment medical care) other long term benefits (e.g. long service leave) termination benefits. Short-term employee benefits All short-term employee benefits, and termination benefits payable within 12 months of reporting period, are recognised at undiscounted amounts. The measurement takes account of legal and constructive obligations to employees, and uses the amounts expected to be paid in respect of the service; i.e. includes known pay-rises. Post-employment benefit plans Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. The accounting for defined contribution plans is straight-forward with the amounts payable recognised as an expense in the statement of comprehensive income with any associated unpaid liability shown in the statement of financial position.
Defined benefit plan accounting is complex and is likely to require the use of an actuary refer to detailed guidance in IAS 19. Other long-term employee benefits The amount recognised as a liability for other long-term employee benefits shall be the net total of the following amounts: a) the present value of the defined benefit obligation at the reporting period; minus b) the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly. The amount recognised as an expense shall be the net total of the following: a) current service cost; b) interest cost; and c) the expected return on any plan assets and on any reimbursement right recognised as an asset. Termination benefits Termination benefits are recognised as a liability and an expense when, and only when, the entity is demonstrably committed to either: a) terminate the employment of an employee or group of employees before the normal retirement date; or b) provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. An entity is demonstrably committed to a termination when, and only when, the entity has a detailed formal plan for the termination and is without realistic possibility of withdrawal. Where termination benefits fall due more than 12 months after the end of the reporting period, they shall be discounted. Disclosures Refer Appendix 1 for a checklist to assist with IAS 19 disclosure requirements. Important definitions Defined benefit plans Defined contribution plans Employee benefits Other long-term employee benefits Post-employment benefit plans Post-employment benefits Short-term employee benefits Termination benefits post-employment benefit plans other than defined contribution plans. post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. all forms of consideration given by an entity in exchange for service rendered by employees. employee benefits (other than post-employment benefits and termination benefits) that are not due to be settled within twelve months after the end of the period in which the employees render the related service. formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. employee benefits (other than termination benefits) which are payable after the completion of employment. employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. employee benefits payable as a result of either: an entity s decision to terminate an employee s employment before the normal retirement date, or an employee s decision to accept voluntary redundancy in exchange for those benefits Vested employee benefits employee benefits that are not conditional on future employment. Australian specific requirements The Australian equivalent standard is AASB 119 which is applicable for annual reporting periods beginning on or after 1 January 2011. 2
Appendix 1 Disclosure checklist This checklist can be used to review your financial statements you should complete the column about whether the requirement is included and provide an explanation for No answers to ensure the completeness of disclosures. IAS 19: Employee Benefits Applicable for financial statement periods beginning on or after 1 January 2009. Multi-employer plans IAS 19.29 IAS 19.30 If a multi-employer plan is a defined-benefit plan and the entity has sufficient information available to account for the plan as a defined-benefit plan, then the disclosures for defined-benefit plans should be made accordingly (see below). When sufficient information is not available to use defined-benefit accounting for a multi-employer plan that is a defined-benefit plan, does the entity disclose: a) the fact that the plan is a defined-benefit plan (under paragraphs 44 46); b) the reason why sufficient information is not available to enable the entity to account for the plan as a defined-benefit plan; and c) to the extent that a surplus or deficit in the plan may affect the amount of future contributions, disclose in addition: any available information about that surplus or deficit; the basis used to determine that surplus or deficit; and the implications, if any, for the entity. Defined-contribution plans IAS 19.46 IAS 19.47 Does the entity disclose the amount recognised as an expense for definedcontribution plans? Does the entity disclose contributions to defined-contribution plans for key management personnel when required by IAS 24 Related Party Disclosures? Note this disclosure is encouraged but not mandatory. Defined-benefit plans IAS 19.116 IAS 19.120 IAS 19.120A Does the entity offset an asset relating to one plan against a liability relating to another plan when and only when the entity: a) has a legally enforceable right to use a surplus in one plan to settle obligations under the other plan ; and b) intends either to settle the obligations on a net basis, or realise the surplus in one plan and settle the obligation under the other plan simultaneously. Does the entity disclose the following information about defined-benefit plans: a) the accounting policy for recognising actuarial gains and losses; b) a general description of the type of plan; c) a reconciliation of opening and closing balances of the present value of the defined benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: current service cost; interest cost; contributions by plan participants; 3
actuarial gains and losses; foreign currency exchange rate changes on plans measured in a currency different from the entity s presentation currency; benefits paid; past service cost; business combinations; curtailments; and settlements; d) an analysis of the defined benefit obligation into amounts arising from plans that are wholly unfunded and amounts arising from plans that are wholly or partly funded; e) a reconciliation of the opening and closing balances of the fair value of plan assets and of the opening and closing balances of any reimbursement right recognised as an asset in accordance with paragraph 104A showing separately, if applicable, the effects during the period attributable to each of the following: expected return on plan assets; actuarial gains and losses; foreign currency exchange rate changes on plans measured in a currency different from the entity s presentation currency; contributions by the employer; contributions by plan participants; benefits paid; business combinations; and settlements; f) a reconciliation of the present value of the defined benefit obligation in (c) and the fair value of the plan assets in (e) to the assets and liabilities recognised in the statement of financial position, showing at least: the net actuarial gains or losses not recognised in the statement of financial position (see paragraph 92); the past service cost not recognised in the statement of financial position (see paragraph 96); any amount not recognised as an asset, because of the limit in paragraph 58(b); the fair value at the end of the reporting period of any reimbursement right recognised as an asset in accordance with paragraph 104A (with a brief description of the link between the reimbursement right and the related obligation); and the other amounts recognised in the statement of financial position; 4
g) the total expense recognised in profit or loss for each of the following, and the line item(s) in which they are included: current service cost; interest cost; expected return on plan assets; expected return on any reimbursement right recognised as an asset in accordance with paragraph 104A; actuarial gains and losses; past service cost; the effect of any curtailment or settlement; and the effect of the limit in paragraph 58(b); h) the total amount recognised in other comprehensive income for each of the following: actuarial gains and losses; and the effect of the limit in paragraph 58(b); i) for entities that recognise actuarial gains and losses in other comprehensive income and expense in accordance with paragraph 93A, the cumulative amount of the actuarial gains and losses recognised in the other comprehensive income; j) for each major category of plan assets, which shall include, but is not limited to, equity instruments, debt instruments, property, and all other assets, the percentage or amount that each major category constitutes of the fair value of the total plan assets; k) the amounts included in the fair value of plan assets for: each category of the entity s own financial instruments; and any property occupied by, or other assets used by, the entity; l) a narrative description of the basis used to determine the overall expected rate of return on assets, including the effect of the major categories of plan assets; m) the actual return on plan assets, as well as the actual return on any reimbursement right recognised as an asset in accordance with paragraph 104A; n) the principal actuarial assumptions used as at the end of the reporting period, including, when applicable: the discount rates; the expected rates of return on any plan assets for the periods presented in the financial statements; the expected rates of return for the periods presented in the financial statements on any reimbursement right recognised as an asset in accordance with paragraph 104A the expected rates of salary increases (and of changes in an index or other variable specified in the formal or constructive terms of a plan as the basis for future benefit increases) 5
medical cost trend rates and any other material actuarial assumptions used. Has the entity disclosed each actuarial assumptions in absolute terms and not just as a margin between different percentages or other variables. o) the effect of an increase of one percentage point and the effect of a decrease of one percentage point in the assumed medical cost trend rates on: the aggregate of the current service cost and interest cost components of net periodic post-employment medical costs; and the accumulated post-employment benefit obligation for medical costs. For the purpose of this disclosure, all other assumptions shall be held constant. For plans operating in a high inflation environment, the disclosure shall be the effect of a percentage increase or decrease in the assumed medical cost trend rate of a significance similar to one percentage point in a low inflation environment; p) the amounts for the current annual reporting period and previous four annual reporting periods of: the present value of the defined benefit obligation, the fair value of the plan assets and the surplus or deficit in the plan; and the experience adjustments arising on: (A) the plan liabilities expressed either as (1) an amount or (2) a percentage of the plan liabilities at the end of the reporting period; and (B) the plan assets expressed either as (1) an amount or (2) a percentage of the plan assets at the end of the reporting period; q) the employer s best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the annual reporting period beginning after the reporting period. IAS 19.122 IAS 19.122 When the entity has more than one defined-benefit plan, disclosures may be made in total, separately for each plan, or in such groupings as are considered to be the most useful. It may be useful to distinguish groupings by criteria such as the following: a) the geographical location of the plans, for example, by distinguishing domestic plans from foreign plans; or b) whether plans are subject to materially different risks, for example, by distinguishing flat salary pension plans from final salary pension plans and from post-employment medical plans. When the entity provides disclosures in total for a grouping of defined-benefit plans, are such disclosures provided in the form of weighted averages or of relatively narrow ranges. Note that this disclosure is encouraged but not mandatory. 6
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