1. Chapter 3 IAS 19 Employee benefits

2. 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

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

4. 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)

5. 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

6. 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

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

8. 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

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

10. 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

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

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

13. 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

14. 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

15. 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)

16. 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)

17. 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

18. 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)

19. 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

20. 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

21. 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

22. 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 (bal.)
DBO——c/f

23. 2013年6月份考题第一题 PA——b/f 28 Benefit paid (3) Contribution 2
Return ×5%=1.4
Actuarial gain 0.6(bal.)
PA——c/f
Net pension liability: =6
Net pension expense: =1.1
OCI: =4.9

24. 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
Contribution accrued (45) current liability
Pension surplus (62)
Restrict of asset amount（I/S） 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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