Chapter 3 IAS 19 Employee benefits

Objective of IAS 19 Accounting and disclosure for employee benefits Costs of providing employee benefits should be recognised in the period in which benefit is earned by employees

Categories of employee benefits Short term employee benefits Post-employment benefits Other long term employee benefits Termination benefits

Short-term employee benefits employee benefits (other than termination benefits) that are due to be settled within twelve months after the end of the period in which the employees render the service Examples could be wages, salaries and social security contributions, paid annual / sick leave, bonuses, non-monetary benefits (housing, cars)

Short-term employee benefits No actuarial valuation is required and hence there would no possibility of any actuarial loss or (gain) Obligation is measured on undiscounted basis

Post-employment benefits Post-employment benefits (whether funded or not) include Retirement benefits such as pension benefit Post-employment life insurance, death benefit, medical benefit

Post-employment benefits Post-employment benefits can be of two types Defined Benefit (DB) Defined Contribution (DC)

Defined Contribution Plan (DCP) pays contributions pays benefits Co. Fund employees Company pays fixed contributions into the fund Investment risk is borne by employees No further risk for Co./employer Co. has no legal or constructive obligation to make further payment if the fund suffers under-performance

Defined Contribution Plan (DCP) Accounting treatment Recognise contribution payable in IS as incurred Normally base on employees’ compensation level

Defined Benefit Plan (DBP) pays contributions pays benefits Co. Fund employees Co. creates a constructive obligation to provide the agreed amount of benefits to current and retired employees at retirement Ultimate benefits/pension are defined and contribution payable is variable (link to final salary) Investment risk is borne by employer and no risk for employees

Defined Benefit Plan (DBP) Accounting treatment Scheme assets—FV with investment return Scheme liabilities—PV with interest cost

Defined Benefit Plan (DBP) Actuarial assumptions Unbiased and mutually compatible Based on market expectations over the projection period Employer to decide on the assumptions

Defined Benefit Plan (DBP) Actuarial assumptions Demographic Mortality Employee turnover, disability and early retirement Claim rates under medical plans Financial Discount Rate Salary escalation rate Average working life Expected return on plan assets

Defined Benefit Plan (DBP) Actuarial assumptions The rate used to discount post-employment benefit obligations shall be determined by reference to market yields at the balance sheet date on high quality corporate bonds In countries where there is no deep market in such bonds, the market yields (at the balance sheet date) on government bonds shall be used

Defined Benefit Plan (DBP) Recognition of Actuarial gains and losses Arises on the revaluation of the pension fund’s assets and liabilities (effects of changes in actuarial assumption)

Defined Benefit Plan (DBP) IAS 19 provides the following options to recognize actuarial gains and losses: Immediate recognition in IS Immediate recognition in other comprehensive income item (OCI) Corridor approach (concelled)

Defined Benefit Plan (DBP) Immediate recognition in IS results in volatility in profits or losses of company Immediate recognition in OCI enables to control the volatility of profits or losses

Defined Benefit Plan (DBP) Statement of financial position Defined Benefit Obligation (DBO) Less: Fair value of plan assets Less: Unrecognized past service cost Less: Unrecognized actuarial losses / (gains)

Defined Benefit Plan (DBP) Statement of comprehensive income Current service cost + Past service cost + Interest cost – Expected return on assets + Actuarial losses / (gains) + Effect of any curtailments or settlements

Termination Benefits Termination benefits are employee benefits payable as a result of Employer’s decision to terminate an employee’s employment Employee’s decision to accept voluntary redundancy in exchange for those benefits

Termination Benefits An entity is demonstrably committed to a termination when, and only when, the entity has a detailed formal plan (with specified minimum contents) for the termination and is without realistic possibility of withdrawal. Where termination benefits fall due more than 12 months after the balance sheet date, they should be discounted. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits should be based on the number of employees expected to accept the offer

2013年6月份考题第一题 Working : DBO DBO——b/f 30 Current cost 1 Benefit paid (3) Interest cost 30×5%=1.5 Actuarial loss 5.5(bal.) DBO——c/f 35

2013年6月份考题第一题 PA——b/f 28 Benefit paid (3) Contribution 2 Return 28×5%=1.4 Actuarial gain 0.6(bal.) PA——c/f 29 Net pension liability: 35-29=6 Net pension expense: 1+1.5-1.4=1.1 OCI: 5.5-0.6=4.9

2011年12月份考题第一题 Working : DBO Present value of DBO 200 Fair value of PA (250) Re measurement (22) Pension surplus——b/f (72) Pension cost，net 55 Contribution accrued (45) current liability Pension surplus (62) Restrict of asset amount（I/S） 24 bal.（impairment） Pension surplus——c/f (38＊) ＊ (Present value of DBO-Fair value of PA)——c/f (18) Re measurement (20) Pension surplus——c/f (38)

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