IAS 19 – EMPLOYEES BENEFITS

Introduction
IAS 19 Employee Benefits (amended 2011) outlines the accounting requirements for
employee benefits, including short-term benefits (e.g., wages and salaries, annual leave),
post-employment benefits such as retirement benefits, other long-term benefits (e.g. long
service leave) and termination benefits. The standard establishes the principle that the
cost of providing employee benefits should be recognised in the period in which the
benefit is earned by the employee, rather than when it is paid or payable, and outlines how
each category of employee benefits are measured, providing detailed guidance in
particular about post-employment benefits.
IAS 19 (2011) was issued in 2011, supersedes IAS 19 Employee Benefits (1998), and is
applicable to annual periods beginning on or after 1 January 2013.

Scope of the standard

IAS 19 applies to (among other kinds of employee benefits):
 wages and salaries
 compensated absences (paid vacation and sick leave)
 profit sharing and bonuses
 medical and life insurance benefits during employment
 non-monetary benefits such as houses, cars, and free or subsidised goods or
services
 retirement benefits, including pensions and lump sum payments post-employment
medical and life insurance benefits
 long-service or sabbatical leave
 deferred compensation programmes
 termination benefits.
The following are however outside the scope of IAS 19
 Share based Payment arrangement (IFRS 2)
 Retirement Benefit plan (IAS 26)
CATEGORIES OF EMPLOYEES BENEFITS
1. SHORT TERM EMPLOYEES BENEFITS
2. POST EMPLOYMENT BENEFIT
3. OTHER LONG-TERM BENEFIT
 4. TERMINATION BENEFITS
SHORT TERM EMPLOYEES’ BENEFIT
These are employee benefit (other than termination benefits) which are payable within
twelve months after the end of the reporting period in which the employees render the
related service. It includes (but not limited to) the following:

 Wages and salaries

 Paid annual and sick leave
 Profit shares and bonuses paid within 12 months from the year end
 Housing allowance
 Transport allowance
 Non-monetary benefits like medical care, cars, free goods, or subsidized goods
and services
RECOGNITION OF SHORT-TERM EMPLOYEES BENEFITS
All short-term employee benefit should be recognized as an expense in the period in the
related service was rendered. That is in the period in the period when the expense was
incurred.
While any unpaid amount should be recognized as an accrued expensed (liability) in the
statement of financial position while the amount paid advance is recognized as prepaid
expense (current asset).

ACCT ENTRIES
DR: Staff expenses
CR: Cash (or current liability; accrued expenses if amount is unpaid)

MEASUREMENT OF SHORT-TERM EMPLOYEES BENEFIT

Short-term employees benefit should be measured based on the expected undiscounted
amount to be paid to employees for the service rendered.

SPEACIAL TREAMENT OF SOME SHORT-TERM EMPLOYEES BENEFITS

 Short term paid absence or paid leave
 Accumulating paid absence or paid leave
 Non-accumulating paid absence or paid leave
 Profit sharing and Bonus plan
POST EMPLOYMENT BENEFIT
These are employee benefits (other than termination benefits and short term employee
benefit) that are payable after the completion of employment. In a simple term, the post
employment benefits can be seen as the portion of what was due to the employee during
service that is kept till after the completion of service.
The accrual concept is key in the recognition of the post employment benefits, expenses are
recognized when in the period in which the service was render, and not necessarily when the
payment was made
Examples of post employment benefits

 Pension Funds
 Severance allowance
 Lump sum payment on retirement
 Medical care and other health care benefits after employment
Note: the most significant one treated by the standard is the retirement pension

POST EMPLOYMEMENT BENEFITS PLAN

These are the arrangement or plan (which may be formal or informal) put in place by the
employer to enable it provide for the employees after employment or retirement. The
standard identified two types of post employment benefits plan:
1. Define Contribution Plan
2. Define Benefit Plan
DEFNE CONTRIBUTION PLAN
This is a post employment benefit plan where the employer agrees or promises to pay or
contributes a specified amount in a plan each year. Under this plan the employer pays a
regular contribution into the plan of a given or defined amount each year. These
contributions are invested and the size of the post employment benefits payable to the
employee depends on the performance of the plan asset.
In other word, what the employee get after employment depends on how favourable or
unfavourable the investment or asset bought with the contribution performance. The
employee therefore bears the actuarial and investment risk of the plan. In summary the
employer is only under the obligation to pay or fulfil the promise made which is to pay the
periodic contribution
RECOGNITION OF DEFINE CONTRIBUTION PLAN
 Contribution to the plan should be recognized as expensed in the period they are
payable (except to the extent that employee cost or labour cost are included in the
cost of asset)
 Any liability for unpaid contribution that are due as at the end of the period should
be recognized as a liability (i.e., accrued expenses)
  Any excess contribution paid should be recognized as an asset (prepaid expenses
under current asset), but only to the extent the prepayment will lead to a reduction
in the future payment or cash refund
ACCT ENTRIES:
DR: SOPL (expenses)
CR: Cash (or current liability for amount due but unpaid)

MEASUREMENT OF POST EMPLOYEMENT DEFINE CONTRIBUTION PLANS

Post-employment define contribution plans should be measured based on the expected
amount to be contributed by the employer at end of the reporting period.

DEFINE BENEFIT PENSION PLANS

These are post employment benefits plans other than define contribution plan. Under
these this plan the employer guarantees the amount of pension that its employees will
receive after they retire. A company might save cash into a separate fund (just as the
define contribution plan) in order to build up an asset that can be used to pay the pension
of employees when they retire. This would be known as a funded plan. If the employer
does not save up in this way the plan is describe as being unfunded.
The latter is usual the case because the employer will not usually specify the actual benefit
to the paid but rather link the benefit to some future item. The amount that an employee
will receive will be usually linked to the number of years that he or she works for the
company, and the size of the annual salary at the retirement (or on leaving the company).
Therefore, if there are insufficient funds in the plan to provide employees with the
guaranteed pension the employer must make up the shortfall. The risk remains with the
employer.
DEFINE BENEFIT PLAN AND THE ROLE OF AN ACTURARY
The main problem with a define benefit plan is that the entity has promised post
employment benefit to the employees which is majorly based on consideration or items
that the entity can’t determine with certainty on the day the promise was made. This is
because the amount of actual benefits payable is influences by variables (such as final
salaries, employee turnover, mortality rate, employer contribution and medical costs trend).
This means the employer has a lot of risk attached to this arrangement; hence, the need
for a professional risk assessor, the ACTUARY. An actuary is a highly qualified specialist in
the financial impact of risk and uncertainty. They advise companies on the conduct of their
pension plans. An actuary will advise the company how much to pay in contributions into
the pension plan each year, in order to ensure there are sufficient funds to cover the
company’s obligation to make the pension payments.
ACCOUNTING FOR DEFINED BENEFIT PENSION PLANS.