An Improvement to Accounting for Employee Benefits
Table of Contents
Introduction1
Discussion3
Issues with IAS 19, Employee Benefits3
Assumptions under IAS 19, Employee Benefits3
Plan assets under IAS 194
Key changes4
Effect of the changes in IAS 19 on the pension scheme6
Affect on some companies8
Governance9
Conclusion9
References11
An Improvement to Accounting for Employee Benefits
Introduction
The objective of International Accounting Standard IAS 19 is to give guidelines on the disclosure of employee benefits by their employers. Employee benefits are anything that the company gives to its employees in consideration of their service. When an employee of an organization renders services in exchange for a benefit paid in the future, it is a liability for the company. Similarly, it becomes an expense when the benefit is consumed by the employee in exchange for the service he provided. It divides the employee benefits into four categories as follows (Hoeven, R. & Hamersma 2011, p. 5):
Post employment benefits - Any benefit that the employee gets after the completion of his service with the company. This can be a formal arrangement or an informal arrangement. Based on the terms and conditions of the post employment benefit, it may be categorized as defined contribution or defined benefit plan.
Short term benefits - Any benefit that is due within the first year or twelve months of employment categorizes as a short term benefit.
Long term benefits - In addition to post employment benefits, any benefit that does not fall within a year of the service rendered by the employee come under this category. Accounting standards for long term benefits require the immediate recognition of past service costs and actuarial gains and losses.
Termination benefits - These include benefits that a company provides its employee at the time of termination. Termination may be either at the company's discretion or the employee may volunteer for acceptance of termination in exchange for the termination benefits provided by the company. These are normally provided when the company wants to encourage voluntary redundancy among employees or wants to terminate an employee, due to any reason, before the actual retirement of that employee.
It was first published in the year 1988, and the present edition is the revised form of several amendments. The current amendments were made in June 2011, to be implemented from January 1, 2013.
There was a need for International Accounting Standards Bureau (IASB) to revise the present IAS 19, Employee Benefit. The purpose of this revision is to improve the accounting standards for post employment accounting standards. The present IAS 19, Employee Benefits fails to provide quality and transparent information about post-employment benefit promises; gives misleading figures and makes it difficult for both users and preparers of financial statements to compare different companies (Grout 2008, p. 2). Post-employment benefit promises disclosed by the company were not understood by the users. For instance, there are multiple options with the company for gains and loss recognition. A lack of clarity in the definition of these options leads to confusion of users. IASB took up the project for amendment in the IAS ...