IAS 19

Employee Benefit
 Learning Objectives

 At the completion of this training session, you will be able

to:
• Understand the various forms of benefits that employees can

receive from their employers

• Be able to account for the various forms
of employee benefits
• Understand how particular employee benefit obligations should

be recognized, measured, and reported in the companies

financial statements
• Be able to provide the necessary disclosures in conformity with

IAS 19 ‘Employee Benefit

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AAU. Permission must be obtained from the Department prior to reproduction
 List of Related IFRSs

Topic List Standard

Employee Benefit IAS 19
The Limit on a Defined Benefit Asset, IFRIC 14
Minimum Funding Requirements
and their Interaction

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Permission must be obtained from the Department prior to reproduction
 IAS 19: Bird’s Eye View
Objective The objective of this Standard is to prescribe the
accounting and disclosure for employee benefits.

Employee benefits are all forms of consideration given by

an entity in exchange for service rendered by employees or
for the termination of employment.
Core The Standard requires an entity to recognise:
principle 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 benefit
arising from service provided by an employee in exchange
for employee benefits.

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Permission must be obtained from the Department prior to reproduction
 IAS 19: Bird’s Eye View
Scope This Standard sets out the accounting and
disclosure by employers for employee
benefits.

It is applied by an employer in accounting for

all employee benefits, except those to which
IFRS 2 Share-based Payment applies.

IFRS 2 specifies accounting and disclosure

for employee benefits based on, or in the
form of, the entity’s equity instruments.
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Permission must be obtained from the Department prior to reproduction
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

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 retirement benefits, including pensions
and lump sum payments
  post-employment medical and life
insurance benefits
  long-service or sabbatical leave
  'jubilee' benefits
  deferred compensation programmes
  termination benefits.

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8
 Short-term benefits
Are to be settled wholly before twelve
months after the end of the annual
Short-term reporting period
benefits
Include:
• Wages, salaries and social insurance
• Short-term compensated absences
• Profit sharing/bonuses (payable within
12 months of year end)
• Sick pay
• Non-monetary benefits
Accounted for on an accruals basis

• Obligations measure at undiscounted

amounts.
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Permission must be obtained from the Department prior to reproduction
 Recognition and measurement
 The rules for short-term benefits are essentially an application of
basic accounting principles and practice.

 (a) Unpaid short-term employee benefits as at the end of an

accounting period should be recognised as an accrued expense. Any
short-term benefits paid in advance should be recognised as a
repayment (to the extent that it will lead to, eg a reduction in future
payments or a cash refund).

 (b) The cost of short-term employee benefits should be recognised

as an expense in the period when the economic benefit is given, as
employment costs

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Permission must be obtained from the Department prior to reproduction
 Short-term paid absences
 Accumulating compensated absences: These are absences for which an
employee is paid, and if the employee's entitlement has not been used
up at the end of the period, they are carried forward to the next period.
 An employee is owed 5 days’ holiday at the year end, but is only

allowed to carry forward 3 days - accrue 3 days’ holiday at the

average daily rate of pay

 Non-accumulating compensated absences: These are absences for which

an employee is paid when they occur, but an entitlement to the
absences does not accumulate. The employee can be absent, and be
paid, but only if and when the circumstances arise.
 An entity offers paid maternity leave - only accrue for paid leave

where absence has occurred that is unpaid at the year end

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Permission must be obtained from the Department prior to reproduction
 Example: Unused holiday leave

• A company gives its employees an annual entitlement to paid

holiday leave. If there is any unused leave at the end of the year,
employees are entitled to carry forward the unused leave for up to
12 months. At the end of 20X9, the company's employees carried
forward in total 50 days of unused holiday leave. Employees are
paid birr100 per day.
• Required State the required accounting for the unused holiday
carried forward.
• Answer
• The short-term accumulating paid absences should be recognized as
a cost in the year when the entitlement arises, ie in 20X9.

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 Profit sharing or bonus plans

 Profit shares or bonuses payable within 12 months after the end of

the accounting period should be recognized as an expected cost
when the entity has a present obligation to pay it. i.e when the
employer has no real option but to pay it.

 This will usually be when the employer recognizes the profit or

other performance achievement to which the profit share or bonus
relates.

 The measurement of the constructive obligation reflects the

possibility that some employees may leave without receiving a
bonus.

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 Example: Profit sharing plan
• XYZ Co runs a profit sharing plan under which it pays 3% of its net
profit for the year to its employees if none have left during the year.
XYZ Co estimates that this will be reduced by staff turnover to 2.5%
in20X9.

Required
• Which costs should be recognized by XYZ Co for the profit share?

Solution
• XYZ Co should recognize a liability and an expense of 2.5% of net

profit
 
 
Post-employment benefits

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 Other long-term benefits
Include:
• Long-term compensated absences
Other • Long-service benefits or sabbatical
long-term leave
benefits • Profit sharing/bonuses (payable 12
months or more after year end)
• Deferred compensation

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Permission must be obtained from the Department prior to reproduction
 Termination benefits

• Termination benefits arise only on termination of

employees before the normal retirement date or Provide
Termination termination benefits as a result of an offer made in order to
benefits encourage voluntary redundancy, rather than during
employment.
• Principle—the event that gives rise to an obligation is
the termination of employment rather than employee
service
• Severance pay is good example

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Permission must be obtained from the Department prior to reproduction
 Disclosure
 Short-term employee benefits:
 There are no specific disclosure requirements for short-term
employee benefits in the standard.
 Other long-term employee benefits
 Although this Standard does not require specific disclosures
about other long-term employee benefits, other IFRSs may
require disclosures.
 For example, IAS 24 requires disclosures about employee
benefits for key management personnel. IAS 1 requires
disclosure of employee benefits expense.

This material is the property of Department of Accounting and Finance, CoBE, AAU.
Permission must be obtained from the Department prior to reproduction
 Disclosure
 Termination Benefits
 Although this Standard does not require specific
disclosures about termination benefits, other IFRSs may
require disclosures. For example, IAS 24 requires
disclosures about employee benefits for key
management personnel. IAS 1 requires disclosure of
employee benefits expense.
 Defined contribution plan
 An entity shall disclose the amount recognized as an expense for
defined contribution plans.
 Where required by IAS 24 an entity discloses information about
contributions to defined contribution plans for key management
personnel.
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Permission must be obtained from the Department prior to reproduction
 Disclosure
 Defined benefit plans

 An entity shall disclose information that:

 explains the characteristics of its defined benefit plans and risk

associated with them

 identifies and explains the amounts in its financial statements

arising from its defined benefit plans

 describes how its defined benefit plans may affect the amount,

timing and uncertainty of the entity’s future cash flows

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Permission must be obtained from the Department prior to reproduction