PAS 19 - Employee Benefits

• PAS 19 prescribes the accounting for employee benefits by employer. It does not include employee benefits within the scope of PFRS 2 share-based payment and reporting by employee benefit plans to which PAS 26 applies
• It is all forms of consideration given by an entity in exchange for services rendered by employees or for the termination of employment

  Employee Benefits
• EB is recognized as an expense when employees have rendered service, except if it takes part of the cost of another asset
• Employee benefits may arise from;

  1. Contractual agreement
  2. Legislation; or
  3. informal practices that create constructive obligations
• What are the four categories of employee benefits under PAS 19?

  1. Short-term employee benefits
  2. Post-employment benefits
  3. Other long-term employee benefits
  4. Termination benefits
• What do you call the benefit that is due to be settled within 12 months after the end of the period in which the employees have rendered the related service?

  short - term employee benefits
• General accounting requirements for short-term employee benefits;

  1. actuarial valuations are not necessary to measure the obligation or the cost
  2. not discounted
  3. recognized as an expense and as an accrued liability
  4. recognized periodically
• Entitlement to paid absences may be either;

  1. accumulating - those that can be carried forward and used in future periods if not used. It may be either;
  2. Vesting - unused are paid in cash when employee leaves the entity
  3. Non-vesting - unused are not monetized
  4. non-accumulating - those that expires if not used and are not paid in cash
• compensated absences are recognized as follows;

  1. accumulating and vesting - all unused are accrued and measured at the expected amount to be paid when those are used or monetized in the future period
  2. accumulating and non-vesting - only the unused entitlements that are expected to be utilized are accrued, taking into account the possibility that employees may leave before they utilize those.
  3. non - accumulating - unused are not accrued but recognized only when the absences occur
• Profit sharing and bonuses are additional incentives for employees to work harder and achieve higher levels of productivity. It is recognized when (a) entity has present obligation to pay (b) cost can be measured reliably
• What do you call to benefit other than termination benefit and short-term employee benefits that are payable after the completion of employment?

  post-employment benefits
• post-employment benefits are provided to employee through post-employment benefits plan which are referred as "retirement plans" and "pension schemes"
• Post employee benefit plans can be;

  1. contributory or non - contributory; and
  2. funded or unfunded
• What do you call to when both the employee and employer contribute to the retirement benefit funds?

  Contributory
• What do you call when only the employer contributes to the retirement benefits fund of the employee?


  non-contributory
• post-employment benefit plans are either;

  1. Defined contribution plans; or
  2. Defined benefit plan
• Under this plan, the employer commits to make a fixed contribution to a fund that will be used to pay for the retirement benefits. The amount of benefits to be received by employees depend on the amount of contributions to the fund together with the investment income therefrom. What post-employment benefit plan is this?

  Defined contribution plan
• The accounting for a defined contribution plan is straightforward since the employer's obligation is limited to the agreed contribution, it simply recognized the contribution as expense and liability if unpaid. If the amount paid exceed the fixed contribution, the excess is treated as prepaid asset. There is no actuarial gains or losses.
• Under defined contribution plan, if it is due within twelve months, the contribution is measured at an undiscounted amount. On the other hand, if it is due beyond twelve months, the contribution is measured at a discounted amount.
• Under this type of plan, the employer pays a definite amount of retirement benefits which can be determined using a plan formula. The amount of promised benefits is independent of any fund balance. Accordingly, under this plan, if the fund proves to be insufficient to pay for the promised benefits, the employer is obligated to make good the deficiency. Thus, under this plan, the risk of fund insufficiency rest with the employer. What plan is this?


  Defined benefit plan
• The first step in accounting for defined benefit plans is to determined the surplus or deficit which is the difference between the PV of the defined benefit obligation and the Fair value of plan assets. If PV exceed FV, there is a deficit and on the other hand, if FV is greater than PV, there is a surplus
• What represents the entity's obligation for the accumulated benefits earned by the employee up to date and is determined using an actuarial valuation called the projected unit method?

  Present Value of Defined Benefit Obligation (PV of DBO)
• What represents the balance of the fund set aside for the payment of the retirement benefits?

  FV of plan assets (FVPA)
• The second ste[p in acounting for defined benefit plan is to determined the Net defined liability or asset that is presented in the SOFP.

  1. IF there is a DEFICIT, the deficit is the net defined benefit liability
  2. IF there is a SURPLUS, the net defined benefit asset is the lower of the
  3. surplus, and
  4. asset ceiling
• It is the present economic value of any economic benefits available in the form of refunds from the plan or reductions in future contributions plan


  asset ceiling
• Other long term benefits are employee benefits (other than post-employment benefits and termination benefits) that are due to be settled beyond 12 months after the end of the period in which the employees have rendered the related service
• Termination benefits are those provided as a result of either;

  1. the entity's decision to terminate the employee before normal retirement date; or
  2. the employee's decision to accept employer's offer of benefits in exchange for termination
• Termination benefits are recognized as a liability and expense at the earlier of the following date;

  1. when the entity can no longer withdraw the offer of those benefits; and
  2. when the entity recognizes restructuring cost under PAS 37 that involves payment of termination benefits
• Termination benefits are accounted for according to the nature of the employee benefits. If the termination benefits are;

  1. payable within 12 months - accounted similar to short-term employee benefits
  2. payable beyond 12 months - other long term benefits
  3. in substance, enhancement to post-employment benefits - post employment benefits