Valuations in accordance with International Accounting Standard 19 (IAS 19) on employee benefits
With reference to the recognition and measurement of the present value of the obligations concerning post-employment benefits on the reporting date on the balance sheet relating to the reporting entity’s different plans, the fair value of the plan assets, net interest, current service costs, past service costs, expected return on assets, actuarial gains and losses and the expense of post-employment benefit plan in accordance with International Accounting Standard 19 (IAS 19) issued by the International Accounting Standards Board (IASB) and the Annexes to Commission Regulation (EC) No. 1725/2003 of 29 September, under which certain International Accounting Standards have been adopted in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council.
In particular, in relation to the recognition and measurement of post-employment benefit plans, for defined benefits, IAS 19 specifically states in paragraph 57:
Accounting by an entity for defined benefit plans involves the following steps:
- (a) determining the deficit or surplus. This involves:
- (i) Using an actuarial technique, the projected unit credit method, to make a reliable estimate of the ultimate cost to the entity of the benefit that employees have earned in return for their service in the current and prior periods (see paragraphs 67–69). This requires an entity to determine how much benefit is attributable to the current and prior periods (see paragraphs 70–74) and to make estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs) that will affect the cost of the benefit (see paragraphs 75–98).
- (ii) Discounting that benefit in order to determine the present value of the defined benefit obligation and the current service cost (see paragraphs 67–69 and 83–86).
- (iii) Deducting the fair value of any plan assets (see paragraphs 113–115) from the present value of the defined benefit obligation.
- (b) Determining the amount of the net defined benefit liability (asset) as the amount of the deficit or surplus determined in (a), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling (see paragraph 64).
- (c) Determining amounts to be recognised in profit or loss:
- (i) Current service cost (see paragraphs 70–74).
- (ii) Any past service cost and gain or loss on settlement (see paragraphs 99–112).
- (iii) Net interest on the net defined benefit liability (asset) (see paragraphs 123–126).
- (d) Determining the remeasurements of the net defined benefit liability (asset), to be recognised in other comprehensive income, comprising:
- (i) actuarial gains and losses (see paragraphs 128 and 129).
- (ii) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) (see paragraph 130); and
- (iii) any change in the effect of the asset ceiling (see paragraph 64), excluding amounts included in net interest on the net defined benefit liability (asset).
Where an entity has more than one defined benefit plan, the entity applies these procedures for each material plan separately.
And in relation to the recognition and measurement of post-employment benefits, defined contribution plans, in paragraphs 51 and 52, IAS 19 specifically states:
When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service:
- (a) As a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund.
- (b) As an expense, unless another IFRS requires or permits the inclusion of the contribution in the cost of an asset.
52 When contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, they shall be discounted using the discount rate specified in paragraph 83.
ISAP 3 - International Standard of Actuarial Practice 3
Standard issued by the International Actuarial Association (IAA)
This International Standard of Actuarial Practice (ISAP) provides guidelines for actuaries when they perform actuarial services relating to International Accounting Standard 19 (IAS 19) Employee benefits.
The reporting entity is responsible for all the information reported in its IFRS financial statements, including the information presented in accordance with IAS 19. This means that the reporting entity is responsible for the classification of the employee benefit plans, the choice of actuarial assumptions and methods used to measure the employee benefit obligations, and the disclosure of employee benefit plans.
IAS 19 encourages, but does not require, a reporting entity to hire a qualified actuary to measure all post-employment benefit plans.
In practice, an actuary may provide advice about a number of questions arising from the application of IAS 19, including measurement in the short-term of post-employment benefits, termination benefits or other long-term employee benefits and disclosures in the IFRS financial statements
ISAP 3 Standard added values
In general
- Level of importance of the requirements and the advice provided by the Actuary to the Reporting Entity.
- Focus on practical effects (Materiality).
- Enhancement of IAS 19 using mathematics and actuarial statistics.
- Detailed breakdown of the basis for conclusions.
- Improvement of the quality of the information presented in the IFRS Financial Statements.
Contributions to a defined contribution plan
Request for clarification made to the Head of the Reporting Entity.
Lack of data and resolution of the situation.
Further added values
Increase in society’s trust in the service the actuary provides
Demonstration of the IAA’s commitment to providing support to the International Accounting Standards Board (IASB)
Enabling of convergence in the standards for actuarial practice in relation to accounting regulations in post-employment benefit plans for employees