IAS19 Standard Characteristics - Report Example

Running Head: IAS19 EMPLOYEEE BENFITS IAS19 – Employee Benefits Submitted by: XXXXXXX Number: XXXXXX XXXXXXX of XXXXXXX Introduction: Before the introduction of International Financial Reporting Standards (IFRS), the International Accounting Standards were used. The IFRS mainly refers to the entire body of the International Accounting Standards Board, which has developed the IAS 19 which mainly deals with the Employee Benefits. This report aims at discussing details of the standards and to discuss the details like measurement, presentation, and disclosure details of the standard. The paper will also include a comparison with the US GAAP and will provide a complete discussion on the history, objective and underlying rationales of the introduction of the standard. IAS19: History: Date Events April 1, 1980 Draft of E16 Accounting for Retirement Benefits in Financial Statements of Employers was exposed January 1, 1983 IAS 19 was introduced - Accounting for Retirements Benefits in Financial Statements of Employers January 1, 1985 IAS19 came into effect December 1, 1992 Retirement Benefit Costs, i.e. E47 was introduced December 1, 1993 The IAS19 was revised as a part of the project of comparison of the financial statements and the retirement benefit cost was included January 1, 1995 The Retirement Benefits Costs were put into effect on this date October 1, 1996 Employee Benefits E54 was introduced February 1, 1998 The Employee Benefits was introduced January 1, 1999 The Employee Benefits came into effect October 1, 2000 Limited number of revisions were made to the IAS19 January 1, 2001 The revisions made in October 2000 were put into effect May 1, 2002 Amendments of Asset Ceiling to IAS 19 for employee Benefits was introduced May 31, 2002 The amendments of May 2002 were put into effect December 5, 2002 The amendments to IAS 19 were proposed to be a part of the IASBs project for the Share Based Payment February 1, 2004 The share based payment replaced the equity compensation benefits April 29, 2004 Recognition of the actuarial gains and losses and the draft of the proposed amendments to IAS 19 was introduced December 16, 2004 IAS19 amendments were adopted May 22, 2008 Improvements were made to the IAS19 based on the negative past services and the costs in the past January 1, 2009 The amendments of May 2008 were put into effect August 20, 2009 The draft for the discount rate amendments were introduced October 1, 2009 The draft for the discount rate amendments was not finalised History of IAS 19 (Deolitte, 2010) Objective of IAS 19: The main objective of the IAS19 was to provide the accounting and disclosure for the benefits for employees. The benefits for employees refer to all kinds of considerations that are given to the employees by the company for the services that are rendered to the company. The main aim of this standard is to account for the expenses for the employee benefits in the period that it was earned rather than in the period when it is paid or payable. This allows the finances to be in place and to ensure that the expenses are recorded in the actual period rather than in any other payable period. IASB and IAS 19: IASB plays a major role in the development of the amendments for the IAS 19. There are a number of amendments that the IASB has brought into the IAS 19 and Sir David Tweedie, IASB Chairman had mentioned, ‘Pension costs are one of the most complex and obscure areas of accounting. The amendment issued today allows entities to choose a simpler, more transparent method of accounting than is commonly adopted at present. I hope that many entities will take the opportunity of improving their financial reporting in this way’ (International Accounting Standards Board, 2004). Basic Principles of IAS 19: As mentioned earlier, the basic principle of IAS 19 is, ‘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’ (Deolitte, 2010). Considering the standards there are a few differences that need to be considered and understood. These are as discussed below: a) Short term Benefits: There refer to the employee benefits that are required to be settled within the twelve months that the employee renders services. The benefits that classify under this heading include salaries, wages and other benefits like sick leave, bonuses and non monetary benefits as well. This does not require any actuarial valuation hence there is no need and possibility to calculate the actuarial gains or losses. Also here the obligations are more of undiscounted basis (Rodgers, 2007). b) Post Employment Benefits: These include the various benefits like retirement benefits, pension benefits and also the life insurances, death benefits and medical benefits. The benefits can be of two types, i.e. defined benefit or the defined contribution. c) Other long term benefit benefits: The other long term benefits like the long term leave, jubilee, profit sharing etc, need to be paid within the twelve months after the end of the time that the employee renders their services to the company. Here the actuarial gains and losses are recognized and there are no corridor that is to be applied here (Gopalakrishnan, 2009). There is no need for any specific disclosures about the long term employee benefits. Scope of IAS19: The standards of IAS19 relates to a number of different employee benefits, including wages and salaries, the paid leaves and sick leave, bonuses, insurances, benefits relating housing, free or subsidised goods, pensions, medical post employment, sabbatical leave, jubilee benefits, and also termination benefits. The standard provides several benefits which include the ‘short – term employee benefits’, ‘Profit Sharing and Bonus Payments’, ‘Post Employment Benefits plans’, and other long term benefits (IASC Foundation, 2010). Disclosures: There are two main aspects that need to be considered for the disclosures, a) Defined Contribution: There is a need for the accounting and the disclosure of the defined contribution plans to be straightforward. There is no actuarial assumption which is required for the measurement of the obligation or the expense also there is no possibility for any actuarial gains or losses. Also the obligations are measured on an undiscounted basis except in the cases where the employee’ rendered services is wholly after twelve months. b) Defined Benefits: Here the amount that is shown in the balance sheet needs to be the present value of the obligation of the defined benefits. This simply means that the funds need to be adjusted to the unrecognised actuarial gains and losses and also the costs and service costs that are unrecognised. In simple terms as explained by Gopalakrishnan, the balance sheet needs to include: “DBO (Defined Benefit Obligation) Less: Fair value of plan assets Less: Unrecognized past service cost Less: Unrecognized actuarial losses / (gains) (in case of corridor approach)” (Gopalakrishnan, 2009). The other part of the defined benefits plan includes the obligation which needs to be determined using the ‘Projected Unit Credit Method’ (Deolitte, 2010). Gopalakrishnan explains this in a simple and straightforward manner which is easier to understand: ‘Profit & Loss Statement: Current service cost + Past service cost + Interest cost – Expected return on assets + Actuarial losses / (gains) + Effect of any curtailments or settlements’ (Gopalakrishnan, 2009). Comparison to US GAAP: US GAAP IAS19 Termination Benefits US GAAP recognises the one time termination or the special benefits. Also it recognises the contractual termination benefits and is very reasonable in the dealing with the benefits. This standard does not distinguish between the social and normal termination benefits and the benefits are only recognised when the employer is committed to pay. Recognition of gains on restricted benefit plans The loss is recognised only when the curtailment is actually occurs and the effect is estimable. The gain however is only recognised when the employee terminates the plan or when the plan is announced Here the losses and gains are recognised only when the entity is committed and the curtailment is announced Benefits relating past services Amortised over the rest of the service period or the life expectancy Immediately recognised Multi – Employer Plan Always accounted as a contribution plan. Counts it into the defined benefits if all the information is available, otherwise is defined contribution plan. Minimum Liability Recognition Only the minimum level includes the accumulated benefit obligation is recognised There is no minimum liability required Actuarial Gains and Losses recognition Does not permit Permitted Comparison of IAS19 and US GAAP (Deolitte - IAS Plus, 2006) Conclusions: The IAS 19 is one of the most up to date standards that have been set. This will likely face a few more amendments which include, ‘The International Accenting Standards Board is discussing changes to the disclosures required and expect to come up with an exposure draft in the fourth quarter of 2009’ (Gopalakrishnan, 2009). The changes that have been expected include a) recognition of all the changes in terms of the assets and the post employment benefits in the period where it occurs, b) replacement of the term deep market with active market. However to be more clear about the requirements of the IAS 19, it would be necessary for the exposure draft to be realised (Turner, 2007). References Deolitte - IAS Plus. (2006). Some Key Differences Between IFRSs and US GAAP As Of August 2005 . Deolitte. Deolitte. (2010). IAS 19 Employee Benefits. Retrieved March 17, 2010, from Summaries of International Finacial Reporting Standards: http://www.iasplus.com/standard/ias19.htm Gopalakrishnan, A. (2009). Actuarial Valuation of Employee Benefits under IFRS. Bangalore: Mercer Retirement Consulting. IASC Foundation. (2010). Technical Summary. Retrieved March 18, 2010, from http://www.iasb.org/NR/rdonlyres/C561FAFB-2E4E-41B8-A6D7-FB7E92070ED8/0/ias19sum.pdf International Accounting Standards Board. (2004, December 16). IASB issues amendments to pension cost standard. Retrieved March 18, 2010, from http://www.iasplus.com/pressrel/0412ias19.pdf Rodgers, P. (2007). International Accounting Standards: from UK standards to IAS, an accelerated route to understanding the key principles of international accounting rules. CIMA Publishing . Turner, P. (2007, April 20). International Accounting Standards 19 (IAS 19) - Accounting for Employee Benefits. Retrieved March 18, 2010, from http://www.mercer.com/referencecontent.htm?idContent=1264000#Top Read More