Employee benefits ias 19

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Employee benefits ias 19

  1. 1. 0322-3385752 0336-8099762R-1173, AL-NOOR SOCIETY, BLOCK 19, F.B.AREA, KARACHI.
  2. 2.  PIPFA STUDENTS INTERMEDIATE FINANCIAL ACCOUNTING PERFORMANCE MEASUREMENT COMPLETION OF SYLLABUS IN 1 MONTH JOIN KHALID AZIZ 0322*3385752 R1173-ALNOOR SOCIETY BLOCK 19 F.B.AREA-KARACHI.
  3. 3.  ICAP STUDENTS MODULE B FINANCIAL ACCOUNTING BUSINESS ECONOMICS MODULE D COST ACCOUNTING COMPLETION OF SYLLABUS IN 3 MONTHS JOIN KHALID AZIZ 0322*3385752 R1173, ALNOOR SOCIETY, BLOCK 19. F.B.AREA, KARACHI.
  4. 4.  PREVIOUS MICRO ECONOMICS & STATISTICS FINAL MACRO ECONOMICS
  5. 5.  PART 1 ACCOUNTING, STATISTICS & ECONOMICS. PART 2 ADVANCED & COST ACCOUNTING, BUSINESS LAW, AUDITING & TAX.
  6. 6. 1 STYEAR ACCOUNTING, BUSINESS MATHS & ECONOMICS.2 ND YEAR ACCOUNTING & STATISTICS.
  7. 7. ACCOUNTING,ECONOMICS,BUSINESS STUDIES,URDU & PAKSTUDIES.
  8. 8.  COMMERCE COACH 0322-3385752 0336-8099762 R-1173, AL-NOOR SOCIETY, BLOCK 19, F.B.AREA, KARACHI.
  9. 9.  Related standards IAS 19 Current GAAP comparisons Looking ahead End-of-chapter practice 12
  10. 10.  IFRS 2 Share-based payment IAS 24 Related party disclosures 13
  11. 11.  Objective and scope Short-term employee benefits Post-employment benefit plans Post-employment benefits: defined contribution plans Post-employment benefits: defined benefit plans Other long-term employee benefits Termination benefits 14
  12. 12. Accounting and disclosure requirements foremployee benefits: all forms of considerationgiven by an entity in exchange for employeeservices rendered ◦ Short-term employee benefits ◦ Post-employment benefits ◦ Other long-term employee benefits ◦ Termination benefits 15
  13. 13.  Short-term employee benefits – benefits other thantermination benefits that are due to be settled within12 months after the end of the period in which therelated service is rendered Example: ◦ Salaries, wages, social security contributions ◦ Short-term compensated absences such as paid annual and sickness leaves ◦ Profit-sharing and bonuses ◦ Non-monetary benefits such as medical care, housing, etc. 16
  14. 14.  Short-term compensated absences: ◦ Recognize a cost and liability = the undiscounted amount of benefits expected to be paid Some benefits accumulate ◦ Accrue as employee provides services (e.g., paid vacation leave) Some do not accrue (e.g., parental leave) ◦ Recognize cost and liability when event occurs that obligates the entity to provide the benefit 17
  15. 15.  Profit-sharing and bonus plans: ◦ Recognize cost and liability only when  a legal or constructive obligation exists, and  amount can be reasonably estimated To reasonably estimate, must have one of thefollowing: ◦ plan has formal terms including a formula ◦ amount is known before F/S are authorized for release ◦ past practice provides clear evidence of amount 18
  16. 16.  Post-employment benefit plans – formal orinformal arrangements to provide benefits afteremployment, such as pension benefits and post-employment medical care Two types of plan: ◦ defined contribution plan: employer makes specific contributions, employee benefits = whatever has accumulated ◦ defined benefit plan: employer promises to pay a post-employment benefit, if not enough funds have accumulated, employer is responsible for the difference 19
  17. 17. 20
  18. 18.  - Relatively straightforward - Liability is recognized only for contributionsunpaid at the end of the period - Expense recognized in same period asservices are rendered 21
  19. 19.  - Complex - Accounting measures depend on actuarialassumptions far into the future - Obligations are settled many years afterservice is provided by employees – need to taketime value of money into account - Many plans are funded and rely oninvestment returns to grow - Employer underwrites actuarial andinvestment risks 22
  20. 20.  Accounting building blocks ◦ Present value of a defined benefit obligation – the discounted present value of the expected future payments required to settle an entity’s obligation resulting from employee service accumulated to date ◦ Plan assets – assets held by the long-term employee benefit fund that exists solely to pay employee benefits as they fall due. 23
  21. 21.  Changes in the PV of the defined benefit obligation (DBO) – based onprojected salaries: Present value of the obligation, beginning of period + Current period’s service cost + Interest cost on the outstanding obligation for theperiod +/- Past service costs from plan amendments in the period- - Benefits paid under the plan in the period+/- +/- Actuarial gains (-) and losses (+) in theperiod_______________= = Present value of the obligation, end ofperiod________________ 24
  22. 22.  PV of the defined benefit obligation depends on: ◦ actuarial assumptions (mortality rates, employee turnover, dependants) ◦ financial assumptions (discount rate, future salary levels, future medical costs) Discount/interest rate = end-of-period market yield on high-quality corporate bonds with terms that correspond to obligation 25
  23. 23.  Current service cost = PV of benefits earned forservice in current period Past service cost (PSC) = change in PV of DBO fromintroducing plan that includes benefits for pastservice or from a change in the benefits payablerelated to past service under existing plan Actuarial gains/losses = effects of changes inactuarial assumptions and experience adjustmentsfor difference between previous estimates and whatactually occurred. 26
  24. 24.  Changes in the FV of plan assets: Fair value of plan assets, beginning of period + Contributions from employer/employees in the period +/- Actual return on plan assets in the period - Benefits paid under the plan in the period__________ = Fair value of plan assets, end of period____________ 27
  25. 25.  Actual return on plan assets = interest,dividends, other income and realized andunrealized gains and losses on assets held inplan Expected return on plan assets = return usedby actuary in determining funding requirements 28
  26. 26.  Benefit cost to recognize each period Current service cost for the period + Interest cost for the period - Expected return on plan assets for the period +/- Actuarial gain (-) or loss(+) amortized in the period +/- Past service cost recognized in the period = Post-employment benefit cost to profit or loss 29
  27. 27.  Benefit cost variables taken from ◦ PV of PBO, and ◦ Fund assets ◦ Information in working papers for actuarial gain/loss and PSC  Amortization of actuarial gain/loss – use corridor method  PSC  for vested benefits, expense in period  for unvested benefits, amortize to expense on straight- line basis over average period until vested 30
  28. 28.  Actuarial gains/losses: 2 options 1. recognize all actuarial gains/losses in OCI when they occur, and then directly to retained earnings – not through P&L 2. do not recognize/amortize unless accumulated net actuarial gain/loss is significant*; if significant, amortize excess amount to expense over average working lives of employees in plan *significant: if at the first of the period, it is more than 10% of the larger of the beginning of the period PV of PBO and the fund assets 31
  29. 29.  Entries: Dr. Employee benefit expense $X Cr. Defined benefit liability $X To record expense and recognize liability. Dr. Defined benefit liability $Y Cr. Cash $Y To record contribution to plan assets. 32
  30. 30.  Balance in Defined Benefit Liability on balance sheet can bereconciled to building blocks: Present value of the defined benefit obligation - Fair value of the plan assets = Funded status of the plan +/- Net unrecognized actuarial gains (+) or losses (-) - Unrecognized past service costs = Defined benefit liability 33
  31. 31.  Extensive disclosures required ◦ Description of plans and accounting policies ◦ Reconciliation of changes in PV of PBO and fund assets ◦ Reconciliation of B/S account to funded status ◦ Components of and total expense ◦ Information about plan assets and actuarial assumptions, sensitivity analysis, historical data ◦ Best estimate of expected contribution to plan in year after B/S date 34
  32. 32.  Examples: ◦ long-term disability benefits, long-service or sabbatical leaves, deferred compensation (>12 months) ◦ similar to post-employment benefits, but with less measurement uncertainty ◦ all aspects recognized in expense in year; no defer and amortize 35
  33. 33. 36
  34. 34.  Termination benefits – benefits payable as a result of: ◦ ending an employee’s employment before normal retirement date, or ◦ employee accepts voluntary termination in exchange for benefits Recognize liability and expense only when entity isdemonstrably committed to plan. Plan sets out: a) location, function and approximate number of employees being terminated; b) termination benefits to be provided for each job classification or function; and c) when the plan will be implemented Entire cost is expensed when entity is committed to plan 37
  35. 35. IAS 19 on IASB current agendaGoal - issue interim standard with significantimprovements by 2011March 2008 Discussion Paper (DP) issued –limited scopeExposure Draft expected in late 2009After DP issues resolved, second phase ofproject will begin 38
  36. 36.  Tentative decisions made by IAS Board ◦ All changes in plan assets and benefit obligation should be recognized when incurred ◦ No need to separately recognize expected return on plan assets ◦ All past service cost should be recognized in expense when plan amended ◦ Variety of presentation approaches for components of defined benefit expense – IASB seeking input ◦ New definitions needed for post-employment benefits and defined benefit plans 39

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