Contents
International Accounting Standard 19 Employee Benefits (IAS 19) is set out in paragraphs 1–179 and Appendices A–B. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 19 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [Refer:IAS 8 paragraphs 10–12]
International Accounting Standard 19Employee Benefits
Objective
1 | The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an entity to recognise:
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ScopeE1,E2
| E1 | [IFRIC® Update, November 2005, Agenda Decision, ‘IAS 32 Financial Instruments: Disclosure and Presentation—Employee long service leave’ The IFRIC considered whether a liability for long-service leave falls within IAS 19 or whether it is a financial liability within the scope of IAS 32. The IFRIC noted that IAS 19 indicates that employee benefit plans include a wide range of formal and informal arrangements. It is therefore clear that the exclusion of employee benefit plans from IAS 32 includes all employee benefits covered by IAS 19. The IFRIC decided that, since the Standard is clear, it would not expect diversity in practice and would not add this item to its agenda.] |
| E2 | [IFRIC® Update, November 2010, Agenda Decision, ‘IAS 19 Employee Benefits—Accounting for a statutory employee profit‑sharing arrangement’ The Committee received a request for clarification of the accounting for a statutory employee profit‑sharing arrangement that requires an entity to share 10 per cent of profit, calculated in accordance with tax law (subject to specific exceptions), with employees. The Committee noted that although such a statutory employee profit sharing arrangement calculates amounts to be payable to employees in accordance with tax law, it meets the definition of an employee benefit and is in the scope of IAS 19. Therefore, the employee profit‑sharing arrangement described in the request should not be accounted for by analogy to IAS 12 Income Taxes or IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Committee observed that the objective of IAS 19 is to record compensation expenses only when the employee has provided the related service. Consequently, an entity should not recognise an asset or liability related to future expected reversals of differences between taxable profit and accounting profit in connection with such an employee profit‑sharing arrangement. The Committee noted that the statutory employee profit‑sharing arrangement described in the request should be accounted for in accordance with IAS 19, and that IAS 19 provides sufficient guidance on amounts that should be recognised and measured, with the result that significantly divergent interpretations are not expected in practice. Consequently, the Committee decided not to add this issue to its agenda.] |
| Disclosure of employee benefits [text block] Disclosure | Text block | 800500, 834480 |
2 | This Standard shall be applied by an employer in accounting for all employee benefits, except those to which IFRS 2 Share‑based Payment applies. |
3 | This Standard does not deal with reporting by employee benefit plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans). |
4 | The employee benefits to which this Standard applies include those provided:
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5 | Employee benefits include:
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6 | Employee benefits include benefits provided either to employees or to their dependants or beneficiaries and may be settled by payments (or the provision of goods or services) made either directly to the employees, to their spouses, children or other dependants or to others, such as insurance companies. |
7 | An employee may provide services to an entity on a full‑time, part‑time, permanent, casual or temporary basis. For the purpose of this Standard, employees include directors and other management personnel. |
Definitions
8 | The following terms are used in this Standard with the meanings specified:
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Definitions of 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.
Short‑term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.
Post‑employment benefits are employee benefits (other than termination benefits and short‑term employee benefits) that are payable after the completion of employment.
Other long‑term employee benefits are all employee benefits other than short‑term employee benefits, post‑employment benefits and termination benefits.
Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either:
(a) | an entity’s decision to terminate an employee’s employment before the normal retirement date; or |
(b) | an employee’s decision to accept an offer of benefits in exchange for the termination of employment. |
Definitions relating to classification of plans
Post‑employment benefit plans are formal or informal arrangements under which an entity provides post‑employment benefits for one or more employees.
Defined contribution plans are post‑employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Defined benefit plans are post‑employment benefit plans other than defined contribution plans.
Multi‑employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that:
(a) | pool the assets contributed by various entities that are not under common control; and |
(b) | use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees. |
Definitions relating to the net defined benefit liability (asset)
The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.
The deficit or surplus is:
(a) | the present value of the defined benefit obligation less |
(b) | the fair value of plan assets (if any). |
The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The present value of a defined benefit obligation is the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods.
Plan assets comprise:E3
(a) | |
(b) |
| E3 | [IFRIC® Update, January 2008, Agenda Decision, ‘IAS 19 Employee Benefits—Definition of plan assets’ The IFRIC received a request for guidance on the accounting for investment or insurance policies that are issued by an entity to a pension plan covering its own employees (or the employees of an entity that is consolidated in the same group as the entity issuing the policy). The request asked for guidance on whether such policies would be part of plan assets in the consolidated and separate financial statements of the sponsor. The IFRIC noted the definitions of plan assets, assets held by a long‑term employee benefit fund and a qualifying insurance policy in IAS 19 paragraph 7. The IFRIC noted that, if a policy was issued by a group company to the employee benefit fund then the treatment would depend upon whether the policy was a ‘non‑transferable financial instrument issued by the reporting entity’. Since the policy was issued by a related party, it could not meet the definition of a qualifying insurance policy. The IFRIC considered that the issue was too narrow in scope to develop an Interpretation and decided not to add the issue to its agenda.] |
Assets held by a long‑term employee benefit fund are assets (other than non‑transferable financial instruments issued by the reporting entity)E4 that:
(a) | are held by an entity (a fund) that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and | ||||
(b) | are available to be used only to pay or fund employee benefits, are not available to the reporting entity’s own creditors (even in bankruptcy), and cannot be returned to the reporting entity, unless either:
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| E4 | [IFRIC® Update, January 2008, Agenda Decision, ‘IAS 19 Employee Benefits—Definition of plan assets’ The IFRIC received a request for guidance on the accounting for investment or insurance policies that are issued by an entity to a pension plan covering its own employees (or the employees of an entity that is consolidated in the same group as the entity issuing the policy). The request asked for guidance on whether such policies would be part of plan assets in the consolidated and separate financial statements of the sponsor. The IFRIC noted the definitions of plan assets, assets held by a long‑term employee benefit fund and a qualifying insurance policy in IAS 19 paragraph 7. The IFRIC noted that, if a policy was issued by a group company to the employee benefit fund then the treatment would depend upon whether the policy was a ‘non‑transferable financial instrument issued by the reporting entity’. Since the policy was issued by a related party, it could not meet the definition of a qualifying insurance policy. The IFRIC considered that the issue was too narrow in scope to develop an Interpretation and decided not to add the issue to its agenda.] |
A qualifying insurance policy is an insurance policy1 issued by an insurer that is not a related party (as defined in IAS 24 Related Party Disclosures) of the reporting entity, if the proceeds of the policy:
(a) | can be used only to pay or fund employee benefits under a defined benefit plan; and | ||||
(b) | are not available to the reporting entity’s own creditors (even in bankruptcy) and cannot be paid to the reporting entity, unless either:
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Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13 Fair Value Measurement.)
Definitions relating to defined benefit cost
Service cost comprises:
(a) | current service cost, which is the increase in the present value of the defined benefit obligation resulting from employee service in the current period; |
(b) | past service cost, which is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting from a plan amendment (the introduction or withdrawal of, or changes to, a defined benefit plan) or a curtailment (a significant reduction by the entity in the number of employees covered by a plan); and |
(c) | any gain or loss on settlement. |
Net interest on the net defined benefit liability (asset) is the change during the period in the net defined benefit liability (asset) that arises from the passage of time.
Remeasurements of the net defined benefit liability (asset) comprise:
(a) | |
(b) | the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and |
(c) | any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). |
Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from:
(a) | experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and |
(b) | the effects of changes in actuarial assumptions. |
The return on plan assets is interest, dividends and other income derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less:
(a) | any costs of managing plan assets; and |
(b) | any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the present value of the defined benefit obligation. |
A settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a defined benefit plan, other than a payment of benefits to, or on behalf of, employees that is set out in the terms of the plan and included in the actuarial assumptions.
Short‑term employee benefits
9 | Short‑term employee benefits include items such as the following, if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services: [Refer:Basis for Conclusions paragraphs BC16–BC21]
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| E5 | [IFRIC® Update, September 2023, Agenda Decision, ‘Homes and Home Loans Provided to Employees’ The Committee received a request about how an entity accounts for employee home ownership plans and employee home loans of the types described in two fact patterns. Fact pattern 1: employee home ownership plans An entity provides its employee with a house that the entity constructed and owns. In return, the employee has a proportion of his or her base salary deducted every month until the agreed price of the house has been fully repaid. If the employee leaves employment within the first five years of the arrangement, the employee forfeits his or her rights to the house and recovers the salary deductions to date. If the employee leaves employment after that five-year period, the employee may choose either:
Legal title to the house transfers to the employee only when he or she has paid in full the agreed price for the house. Fact pattern 2: employee home loans An entity provides its employee with a loan to buy a house, which the employee chooses and purchases and the entity does not own. The entity provides the loan at a below-market rate of interest; the loan is typically interest-free. The employee repays the loan through salary deductions. If the employee leaves employment for any reason at any point, the outstanding balance of the loan becomes repayable. Conclusion Evidence gathered by the Committee indicated that the matters described in the request are not widespread. On the basis of that evidence, the Committee concluded that the matters described in the request do not have widespread effect. Consequently, the Committee decided not to add a standard-setting project to the work plan.] |
10 | An entity need not reclassify a short‑term employee benefit if the entity’s expectations of the timing of settlement change temporarily. However, if the characteristics of the benefit change (such as a change from a non‑accumulating benefit to an accumulating benefit) or if a change in expectations of the timing of settlement is not temporary, then the entity considers whether the benefit still meets the definition of short‑term employee benefits. |
Recognition and measurement
All short‑term employee benefits
11 | When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short‑term employee benefits expected to be paid in exchange for that service:
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12 | Paragraphs 13, 16 and 19 explain how an entity shall apply paragraph 11 to short‑term employee benefits in the form of paid absences and profit‑sharing and bonus plans. [Refer:paragraphs 13–24] |
Short‑term paid absences
13 | An entity shall recognise the expected cost of short‑term employee benefits in the form of paid absences under paragraph 11 as follows:
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14 | An entity may pay employees for absence for various reasons including holidays, sickness and short‑term disability, maternity or paternity, jury service and military service. Entitlement to paid absences falls into two categories:
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15 | Accumulating paid absences are those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full. Accumulating paid absences may be either vesting (in other words, employees are entitled to a cash payment for unused entitlement on leaving the entity) or non‑vesting (when employees are not entitled to a cash payment for unused entitlement on leaving). An obligation arises as employees render service that increases their entitlement to future paid absences. The obligation exists, and is recognised, even if the paid absences are non‑vesting, although the possibility that employees may leave before they use an accumulated non‑vesting entitlement affects the measurement of that obligation. |
16 | An entity shall measure the expected cost of accumulating paid absences as the additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. |
17 | The method specified in the previous paragraph measures the obligation at the amount of the additional payments that are expected to arise solely from the fact that the benefit accumulates. In many cases, an entity may not need to make detailed computations to estimate that there is no material obligation for unused paid absences. For example, a sick leave obligation is likely to be material only if there is a formal or informal understanding that unused paid sick leave may be taken as paid annual leave.
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18 | Non‑accumulating paid absences do not carry forward: they lapse if the current period’s entitlement is not used in full and do not entitle employees to a cash payment for unused entitlement on leaving the entity. This is commonly the case for sick pay (to the extent that unused past entitlement does not increase future entitlement), maternity or paternity leave and paid absences for jury service or military service. An entity recognises no liability or expense until the time of the absence, because employee service does not increase the amount of the benefit. |
Profit‑sharing and bonus plans
19 | An entity shall recognise the expected cost of profit‑sharing and bonus payments under paragraph 11 when, and only when:
A present obligation exists when, and only when, the entity has no realistic alternative but to make the payments. |
20 | Under some profit‑sharing plans, employees receive a share of the profit only if they remain with the entity for a specified period. Such plans create a constructive obligation as employees render service that increases the amount to be paid if they remain in service until the end of the specified period. The measurement of such constructive obligations reflects the possibility that some employees may leave without receiving profit‑sharing payments.
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21 | An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus. The measurement of the constructive obligation reflects the possibility that some employees may leave without receiving a bonus. |
22 | An entity can make a reliable estimate of its legal or constructive obligation under a profit‑sharing or bonus plan when, and only when:
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23 | An obligation under profit‑sharing and bonus plans results from employee service and not from a transaction with the entity’s owners. Therefore, an entity recognises the cost of profit‑sharing and bonus plans not as a distribution of profit but as an expense. |
24 | If profit‑sharing and bonus payments 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, those payments are other long‑term employee benefits (see paragraphs 153–158). |
Disclosure
25 | Although this Standard does not require specific disclosures about short‑term employee benefits, other IFRSs may require disclosures. For example, IAS 24 [Refer:IAS 24 paragraph 17] requires disclosures about employee benefits for key management personnel. IAS 1 Presentation of Financial Statements [Refer:IAS 1 paragraphs 102 and 104] requires disclosure of employee benefits expense. |
Post‑employment benefits: distinction between defined contribution plans and defined benefit plans
26 | Post‑employment benefits include items such as the following:
Arrangements whereby an entity provides post‑employment benefits are post‑employment benefit plans. An entity applies this Standard to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. |
27 | Post‑employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions.E6, E7 |
| E6 | [IFRIC® Update, August 2002, Agenda Decision, ‘IAS 19 Employee Benefits—Classification of an insured plan’ This issue relates to a particular insured plan found in Sweden. The IFRIC was asked to provide guidance on whether the particular plan was a defined benefit plan, or a defined contribution plan under IAS 19 and, if it was thought to be a defined benefit plan, whether it would qualify for the exemptions from defined benefit plan accounting available under IAS 19 for some multi‑employer plans. The IFRIC agreed not to develop an Interpretation. IAS 19 was clear that the particular plan considered was a defined benefit plan. However, the IFRIC’s Agenda Committee was looking at whether the general issue of the availability of the exemptions for multi‑employer plans should be examined by the IFRIC.] |
| E7 | [IFRIC® Update, June 2019, Agenda Decision, ‘IAS 19 Employee Benefits—Effect of a potential discount on plan classification’ The Committee received a request about the classification of a post-employment benefit plan applying IAS 19. In the fact pattern described in the request, an entity sponsors a post- employment benefit plan that is administered by a third party. The relevant terms and conditions of the plan are as follows:
The request asked whether, applying IAS 19, the existence of a right to a potential discount would result in a defined benefit plan classification. Paragraph 8 of IAS 19 defines defined contribution plans as ‘post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods’. Defined benefit plans are ‘post-employment benefit plans other than defined contribution plans’. Paragraphs 27–30 of IAS 19 specify requirements relating to the classification of post-employment benefit plans as either defined contribution plans or defined benefit plans. Paragraph 27 states that ‘[p]ost-employment benefit plans are classified as either defined contribution or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions’. The Committee therefore noted the importance of assessing all relevant terms and conditions of a post-employment benefit plan, as well as any informal practices that might give rise to a constructive obligation, in classifying the plan. That assessment would identify whether:
The Committee noted that, in the fact pattern described in the request, assessing the relevant terms and conditions of the plan would include, for example, assessing (a) the manner and frequency in which annual contributions and any potential discount (including the target ratio) are determined; and (b) whether the manner and frequency of determining the contributions and any discount transfers actuarial risk and investment risk (as described in IAS 19) to the entity. The Committee observed that, to meet the definition of a defined contribution plan, an entity must (a) have an obligation towards employees to pay fixed contributions into a fund; and (b) not be obliged to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current or prior periods. For example, there should be no possibility that future contributions could be set to cover shortfalls in funding employee benefits relating to employee service in the current and prior periods. The Committee also observed that paragraphs 28 and 30 of IAS 19 specify that, under defined contribution plans, actuarial risk and investment risk fall in substance on the employee whereas, under defined benefit plans, those risks fall in substance on the entity. Paragraphs 28 and 30 describe (a) actuarial risk as the risk that benefits will cost the entity more than expected or will be less than expected for the employee; and (b) investment risk as the risk that assets invested will be insufficient to meet expected benefits. Paragraph BC29 of IAS 19 explains that the definition of defined contribution plans does not exclude the upside potential that the cost to the entity may be less than expected. Consequently, the Committee concluded that, applying IAS 19, the existence of a right to a potential discount would not in itself result in classifying a post-employment benefit plan as a defined benefit plan. Nonetheless, the Committee reiterated the importance of assessing all relevant terms and conditions of a plan, as well as any informal practices that might give rise to a constructive obligation, in classifying the plan. The Committee noted that, applying paragraph 122 of IAS 1 Presentation of Financial Statements, an entity would disclose the judgements that its management has made regarding the classification of post-employment benefit plans, if those are part of the judgements that had the most significant effect on the amounts recognised in the financial statements. The Committee concluded that the requirements in IAS 19 provide an adequate basis for an entity to determine the classification of a post-employment benefit plan as a defined contribution plan or a defined benefit plan. Consequently, the Committee decided not to add the matter to its standard-setting agenda.] |
28 | Under defined contribution plans the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post‑employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post‑employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee.
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29 | Examples of cases where an entity’s obligation is not limited to the amount that it agrees to contribute to the fund are when the entity has a legal or constructive obligation through:
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30 | Under defined benefit plans:
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31 | Paragraphs 32–49 explain the distinction between defined contribution plans and defined benefit plans in the context of multi‑employer plans [Refer:paragraphs 32–39], defined benefit plans that share risks between entities under common control [Refer:paragraphs 40–42], state plans [Refer:paragraphs 43–45] and insured benefits. [Refer:paragraphs 46–49] |
Multi‑employer plans
32 | An entity shall classify a multi‑employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan (including any constructive obligation that goes beyond the formal terms). |
33 | If an entity participates in a multi‑employer defined benefit plan, unless paragraph 34 applies, it shall:
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34 | When sufficient information is not available to use defined benefit accounting for a multi‑employer defined benefit plan, an entity shall:
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35 | One example of a multi‑employer defined benefit plan is one where:
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36 | Where sufficient information is available about a multi‑employer defined benefit plan, an entity accounts for its proportionate share of the defined benefit obligation, plan assets and post‑employment cost associated with the plan in the same way as for any other defined benefit plan. However, an entity may not be able to identify its share of the underlying financial position and performance of the plan with sufficient reliability for accounting purposes. This may occur if:
In those cases, an entity accounts for the plan as if it were a defined contribution plan and discloses the information required by paragraph 148. |
37 | There may be a contractual agreement between the multi‑employer plan and its participants that determines how the surplus in the plan will be distributed to the participants (or the deficit funded). A participant in a multi‑employer plan with such an agreement that accounts for the plan as a defined contribution plan in accordance with paragraph 34 shall recognise the asset or liability that arises from the contractual agreement and the resulting income or expense in profit or loss.
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38 | Multi‑employer plans are distinct from group administration plans. A group administration plan is merely an aggregation of single employer plans combined to allow participating employers to pool their assets for investment purposes and reduce investment management and administration costs, but the claims of different employers are segregated for the sole benefit of their own employees. Group administration plans pose no particular accounting problems because information is readily available to treat them in the same way as any other single employer plan and because such plans do not expose the participating entities to actuarial risks associated with the current and former employees of other entities. The definitions in this Standard require an entity to classify a group administration plan as a defined contribution plan or a defined benefit plan in accordance with the terms of the plan (including any constructive obligation that goes beyond the formal terms). |
39 | In determining when to recognise, [Refer:IAS 37 paragraphs 14–30] and how to measure, [Refer:IAS 37 paragraphs 36–52] a liability relating to the wind‑up of a multi‑employer defined benefit plan, or the entity’s withdrawal from a multi‑employer defined benefit plan, an entity shall apply IAS 37 Provisions, Contingent Liabilities and Contingent Assets. |
Defined benefit plans that share risks between entities under common control
40 | Defined benefit plans that share risks between entities under common control, for example, a parent and its subsidiaries, are not multi‑employer plans. |
41 | An entity participating in such a plan shall obtain information about the plan as a whole measured in accordance with this Standard on the basis of assumptions that apply to the plan as a whole. If there is a contractual agreement or stated policy for charging to individual group entities the net defined benefit cost for the plan as a whole measured in accordance with this Standard, the entity shall, in its separate or individual financial statements, recognise the net defined benefit cost so charged. If there is no such agreement or policy, the net defined benefit cost shall be recognised in the separate or individual financial statements of the group entity that is legally the sponsoring employer for the plan. The other group entities shall, in their separate or individual financial statements, recognise a cost equal to their contribution payable for the period. |
42 | Participation in such a plan is a related party transaction for each individual group entity. An entity shall therefore, in its separate or individual financial statements, disclose the information required by paragraph 149. |
State plans
43 | An entity shall account for a state plan in the same way as for a multi‑employer plan (see paragraphs 32–39). |
44 | State plans are established by legislation to cover all entities (or all entities in a particular category, for example, a specific industry) and are operated by national or local government or by another body (for example, an autonomous agency created specifically for this purpose) that is not subject to control or influence by the reporting entity. Some plans established by an entity provide both compulsory benefits, as a substitute for benefits that would otherwise be covered under a state plan, and additional voluntary benefits. Such plans are not state plans. |
45 | State plans are characterised as defined benefit or defined contribution, depending on the entity’s obligation under the plan. Many state plans are funded on a pay‑as‑you‑go basis: contributions are set at a level that is expected to be sufficient to pay the required benefits falling due in the same period; future benefits earned during the current period will be paid out of future contributions. Nevertheless, in most state plans the entity has no legal or constructive obligation to pay those future benefits: its only obligation is to pay the contributions as they fall due and if the entity ceases to employ members of the state plan, it will have no obligation to pay the benefits earned by its own employees in previous years. For this reason, state plans are normally defined contribution plans. However, when a state plan is a defined benefit plan an entity applies paragraphs 32–39.
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Insured benefits
46 | An entity may pay insurance premiums to fund a post‑employment benefit plan. The entity shall treat such a plan as a defined contribution plan unless the entity will have (either directly, or indirectly through the plan) a legal or constructive obligation [Refer:paragraph 112] either:
If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a defined benefit plan.E8 |
| E8 | [IFRIC® Update, January 2008, Agenda Decision, ‘IAS 19 Employee Benefits—Death in service benefits’ An entity may provide payments to employees if they die while employed (‘death in service’ benefits). In some situations, IAS 19 requires these benefits to be attributed to periods of service using the Projected Unit Credit Method. The IFRIC received a request for guidance on how an entity should attribute these benefits to periods of service. The request noted that different treatments existed in practice. The IFRIC noted that paragraph 67(b) of IAS 19 requires attribution of the cost of the benefits until the date ‘when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.’ In the case of death in service benefits, the IFRIC noted that:
The IFRIC concluded that divergence in this area was unlikely to be significant. In addition, any further guidance that it could issue would be application guidance on the use of the Projected Unit Credit Method. The IFRIC therefore decided not to add the issue to its agenda.] |
47 | The benefits insured by an insurance policy need not have a direct or automatic relationship with the entity’s obligation for employee benefits. Post‑employment benefit plans involving insurance policies are subject to the same distinction between accounting and funding as other funded plans. |
48 | Where an entity funds a post‑employment benefit obligation by contributing to an insurance policy under which the entity (either directly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retains a legal or constructive obligation, the payment of the premiums does not amount to a defined contribution arrangement. It follows that the entity:
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49 | Where an insurance policy is in the name of a specified plan participant or a group of plan participants and the entity does not have any legal or constructive obligation to cover any loss on the policy, the entity has no obligation to pay benefits to the employees and the insurer has sole responsibility for paying the benefits. The payment of fixed premiums under such contracts is, in substance, the settlement of the employee benefit obligation, rather than an investment to meet the obligation. Consequently, the entity no longer has an asset or a liability. Therefore, an entity treats such payments as contributions to a defined contribution plan. |
Post‑employment benefits: defined contribution plans
50 | Accounting for defined contribution plans is straightforward because the reporting entity’s obligation for each period is determined by the amounts to be contributed for that period. Consequently, no actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss. Moreover, the obligations are measured on an undiscounted basis, except where they 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. |
Recognition and measurement
51 | 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:E9
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| E9 | [IFRIC® Update, July 2011, Agenda Decision, ‘IAS 19 Employee Benefits—defined contribution plans with vesting conditions’ The Interpretations Committee received a request seeking clarification on the effect that vesting conditions have on the accounting for defined contribution plans. The Committee was asked whether contributions to such plans should be recognised as an expense in the period for which they are paid or over the vesting period. In the examples given in the submission, the employee’s failure to meet a vesting condition could result in the refund of contributions to, or reductions in future contributions by, the employer. The Committee noted from the definition of a defined contribution plan in paragraph 8 of IAS 19 and the explanation in paragraph BC5 of IAS 19 that vesting conditions do not affect the classification of a plan as a defined contribution plan if the employer is not required to make additional contributions to cover shortfalls because of these vesting conditions. In addition, the Committee noted from the guidance in paragraph 50 of IAS 19 that accounting for defined contribution plans is based on accounting for the reporting entity’s obligation to pay contributions to the separate entity that runs the plan, but not accounting for the obligation to the employees who benefit from the plan. As such, the Committee noted that accounting for defined contribution plans under IAS 19 focuses on the employer’s obligation to make a contribution to the separate entity that runs the plan. Consequently, paragraph 51 of IAS 19 requires, and paragraph IN5 of IAS 19 explains, that each contribution to a defined contribution plan is to be recognised as an expense or recognised as a liability (accrued expense) over the period of service that obliges the employer to pay this contribution to the defined contribution plan. This period of service is distinguished from the period of service that entitles an employee to receive the benefit from the defined contribution plan (ie the vesting period), although both periods may be coincident in some circumstances. Refunds are recognised as an asset and as income when the entity/employer becomes entitled to the refunds, eg when the employee fails to meet the vesting condition. The Committee noted that there is no significant diversity in practice in respect of the effect that vesting conditions have on the accounting for defined contribution post‑employment benefit plans, nor does it expect significant diversity in practice to emerge in the future. Consequently, the Committee decided not to add this issue to its agenda.] |
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. |
Disclosure
53 | An entity shall disclose the amount recognised as an expense for defined contribution plans.
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54 | Where required by IAS 24 [Refer:IAS 24 paragraph 17] an entity discloses information about contributions to defined contribution plans for key management personnel. |
Post‑employment benefits: defined benefit plans
55 | Accounting for defined benefit plans is complex because actuarial assumptions [Refer:paragraphs 75–98] are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses. Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service.E10 |
| E10 | [IFRIC® Update, April 2002, Agenda Decision, ‘Employee benefits—Undiscounted vested employee benefits’ The IFRIC considered the possibility of issuing guidance on whether vested benefits payable when an employee left service could be recognised at an undiscounted amount (ie the amount that would be payable if all employees left the entity at the balance sheet date). The IFRIC agreed that it would not issue an interpretation on this matter because the answer is clear under IAS 19: the measurement of the liability for the vested benefits must reflect the expected date of employees leaving service and be discounted to a present value.] |
Recognition and measurement
56 | Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting entity and from which the employee benefits are paid. The payment of funded benefits when they fall due depends not only on the financial position and the investment performance of the fund but also on an entity’s ability, and willingness, to make good any shortfall in the fund’s assets. Therefore, the entity is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognised for a defined benefit plan is not necessarily the amount of the contribution due for the period. |
57 | Accounting by an entity for defined benefit plans involves the following steps:
Where an entity has more than one defined benefit plan, the entity applies these procedures for each material plan separately. |
58 | An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the end of the reporting period. |
59 | This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post‑employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period. |
60 | In some cases, estimates, averages and computational short cuts may provide a reliable approximation of the detailed computations illustrated in this Standard. |
Accounting for the constructive obligation
61 | An entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity’s informal practices. Informal practices give rise to a constructive obligation where the entity has no realistic alternative but to pay employee benefits. An example of a constructive obligation is where a change in the entity’s informal practices would cause unacceptable damage to its relationship with employees. |
62 | The formal terms of a defined benefit plan may permit an entity to terminate its obligation under the plan. Nevertheless, it is usually difficult for an entity to terminate its obligation under a plan (without payment) if employees are to be retained. Therefore, in the absence of evidence to the contrary, accounting for post‑employment benefits assumes that an entity that is currently promising such benefits will continue to do so over the remaining working lives of employees. |
Statement of financial position
63 | An entity shall recognise the net defined benefit liability (asset) in the statement of financial position. |
64 | When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of:
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65 | A net defined benefit asset may arise where a defined benefit plan has been overfunded or where actuarial gains have arisen. An entity recognises a net defined benefit asset in such cases because:
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Recognition and measurement: present value of defined benefit obligations and current service cost
66 | The ultimate cost of a defined benefit plan may be influenced by many variables, such as final salaries, employee turnover and mortality, employee contributions and medical cost trends. The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a long period of time. In order to measure the present value of the post‑employment benefit obligations and the related current service cost, it is necessary:
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Actuarial valuation method
67 | An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost. |
68 | The projected unit credit method (sometimes known as the accrued benefit method pro‑rated on service or as the benefit/years of service method) sees each period of service as giving rise to an additional unit of benefit entitlement (see paragraphs 70–74) and measures each unit separately to build up the final obligation (see paragraphs 75–98).
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69 | An entity discounts the whole of a post‑employment benefit obligation, even if part of the obligation is expected to be settled before twelve months after the reporting period. |
Attributing benefit to periods of service
70 | In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an entity shall attribute benefit to periods of service under the plan’s benefit formula. However, if an employee’s service in later years will lead to a materially higher level of benefit than in earlier years, an entity shall attribute benefit on a straight‑line basis from:
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| E11 | [IFRIC® Update, September 2007, Agenda Decision, ‘IAS 19 Employee Benefits—Post‑employment benefits—Benefit allocation for defined benefit plans’ IAS 19 requires entities to attribute the benefit in defined benefit plans to periods of service in accordance with the benefit formula, unless the benefit formula would result in a materially higher level of benefit allocated to future years. In that case, the entity allocates the benefit on a straight‑line basis (paragraph 67 of IAS 19). The IFRIC had previously considered whether entities should take into account expected increases in salary in determining whether a benefit formula expressed in terms of current salary allocates a materially higher level of benefit in later years. The IFRIC considered this issue as part of its deliberations leading to Draft IFRIC Interpretation D9 Employee Benefits with a Promised Return on Contributions or Notional Contributions. However, the IFRIC suspended work on this project until it could see what implications might be drawn from the Board’s deliberations in its project on post‑employment benefits. The IFRIC noted that the Board will not address this issue for all defined benefit plans in phase I of its project on post‑employment benefits. However, the IFRIC noted that it would be difficult to address this issue while the Board had an ongoing project that addressed the issue for some defined benefit plans. The IFRIC decided to remove this issue from its agenda.] |
| E12 | [IFRIC® Update, January 2008, Agenda Decision, ‘IAS 19 Employee Benefits—Death in service benefits’ An entity may provide payments to employees if they die while employed (‘death in service’ benefits). In some situations, IAS 19 requires these benefits to be attributed to periods of service using the Projected Unit Credit Method. The IFRIC received a request for guidance on how an entity should attribute these benefits to periods of service. The request noted that different treatments existed in practice. The IFRIC noted that paragraph 67(b) of IAS 19 requires attribution of the cost of the benefits until the date ‘when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.’ In the case of death in service benefits, the IFRIC noted that:
The IFRIC concluded that divergence in this area was unlikely to be significant. In addition, any further guidance that it could issue would be application guidance on the use of the Projected Unit Credit Method. The IFRIC therefore decided not to add the issue to its agenda.] |
| E13 | [IFRIC® Update, April 2021, Agenda Decision, ‘IAS 19 Employee Benefits—Attributing Benefit to Periods of Service’ The Committee received a request about the periods of service to which an entity attributes benefit for a particular defined benefit plan. Under the terms of the plan:
To illustrate the fact pattern described in the request, assume an entity sponsors a defined benefit plan for its employees. Under the terms of the plan:
Paragraphs 70–74 of IAS 19 require an entity to attribute benefit to periods of service under the plan’s benefit formula from the date when employee service first leads to benefits under the plan until the date when further employee service will lead to no material amount of further benefits under the plan. Paragraph 71 requires an entity to attribute benefit to periods in which the obligation to provide post-employment benefits arises. That paragraph also specifies that the obligation arises as employees render services in return for post-employment benefits an entity expects to pay in future reporting periods. Paragraph 72 specifies that employee service before the vesting date gives rise to a constructive obligation because, at the end of each successive reporting period, the amount of future service an employee will have to render before becoming entitled to the benefit is reduced. For the defined benefit plan illustrated in this agenda decision:
Paragraph 73 of IAS 19 specifies that an entity’s obligation increases until the date when further service by the employee will lead to no material amount of further benefits under the plan. The Committee observed that:
Consequently, for the defined benefit plan illustrated in this agenda decision, the Committee concluded that the entity attributes retirement benefit to each year in which an employee renders service from the age of 46 to the age of 62 (or, if employment commences on or after the age of 46, from the date the employee first renders service to the age of 62). The Committee’s conclusion aligns with the outcome set out in the first part of Example 2 illustrating paragraph 73 (that is, for employees who join before the age of 35), which is part of IAS 19. The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to determine the periods to which retirement benefit is attributed in the fact pattern described in the request. Consequently, the Committee decided not to add a standard-setting project to the work plan.] |
71 | The projected unit credit method [Refer:paragraph 67] requires an entity to attribute benefit to the current period (in order to determine current service cost) and the current and prior periods (in order to determine the present value of defined benefit obligations). An entity attributes benefit to periods in which the obligation to provide post‑employment benefits arises. That obligation arises as employees render services in return for post‑employment benefits that an entity expects to pay in future reporting periods. Actuarial techniques allow an entity to measure that obligation with sufficient reliability to justify recognition of a liability.
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72 | Employee service gives rise to an obligation under a defined benefit plan even if the benefits are conditional on future employment (in other words they are not vested). Employee service before the vesting date gives rise to a constructive obligation because, at the end of each successive reporting period, the amount of future service that an employee will have to render before becoming entitled to the benefit is reduced. In measuring its defined benefit obligation, an entity considers the probability that some employees may not satisfy any vesting requirements. Similarly, although some post‑employment benefits, for example, post‑employment medical benefits, become payable only if a specified event occurs when an employee is no longer employed, an obligation is created when the employee renders service that will provide entitlement to the benefit if the specified event occurs. The probability that the specified event will occur affects the measurement of the obligation, but does not determine whether the obligation exists.
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73 | The obligation increases until the date when further service by the employee will lead to no material amount of further benefits. Therefore, all benefit is attributed to periods ending on or before that date. Benefit is attributed to individual accounting periods under the plan’s benefit formula. [Refer:paragraph 70] However, if an employee’s service in later years will lead to a materially higher level of benefit than in earlier years, an entity attributes benefit on a straight‑line basis until the date when further service by the employee will lead to no material amount of further benefits. That is because the employee’s service throughout the entire period will ultimately lead to benefit at that higher level.
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74 | Where the amount of a benefit is a constant proportion of final salary for each year of service, future salary increases will affect the amount required to settle the obligation that exists for service before the end of the reporting period, but do not create an additional obligation. Therefore:
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Actuarial assumptions
75 | Actuarial assumptions shall be unbiased and mutually compatible.E14 |
| E14 | [IFRIC® Update, January 2008, Agenda Decision, ‘IAS 19 Employee Benefits—Death in service benefits’ An entity may provide payments to employees if they die while employed (‘death in service’ benefits). In some situations, IAS 19 requires these benefits to be attributed to periods of service using the Projected Unit Credit Method. The IFRIC received a request for guidance on how an entity should attribute these benefits to periods of service. The request noted that different treatments existed in practice. The IFRIC noted that paragraph 67(b) of IAS 19 requires attribution of the cost of the benefits until the date ‘when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.’ In the case of death in service benefits, the IFRIC noted that:
The IFRIC concluded that divergence in this area was unlikely to be significant. In addition, any further guidance that it could issue would be application guidance on the use of the Projected Unit Credit Method. The IFRIC therefore decided not to add the issue to its agenda.] |
76 | Actuarial assumptions are an entity’s best estimates of the variables that will determine the ultimate cost of providing post‑employment benefits. Actuarial assumptions comprise:
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77 | Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative. |
78 | Actuarial assumptions are mutually compatible if they reflect the economic relationships between factors such as inflation, rates of salary increase and discount rates. For example, all assumptions that depend on a particular inflation level (such as assumptions about interest rates and salary and benefit increases) in any given future period assume the same inflation level in that period. |
79 | An entity determines the discount rate and other financial assumptions in nominal (stated) terms, unless estimates in real (inflation‑adjusted) terms are more reliable, for example, in a hyperinflationary economy (see IAS 29 Financial Reporting in Hyperinflationary Economies), or where the benefit is index‑linked and there is a deep market in index‑linked bonds of the same currency and term. |
80 | Financial assumptions shall be based on market expectations, at the end of the reporting period, for the period over which the obligations are to be settled. |
Actuarial assumptions: mortality
81 | An entity shall determine its mortality assumptions by reference to its best estimate of the mortality of plan members both during and after employment. |
82 | In order to estimate the ultimate cost of the benefit an entity takes into consideration expected changes in mortality, for example by modifying standard mortality tables with estimates of mortality improvements. |
Actuarial assumptions: discount rate
83 | The rate used to discount post‑employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. For currencies for which there is no deep market in such high quality corporate bonds, the market yields (at the end of the reporting period) on government bonds denominated in that currency shall be used. The currency and term of the corporate bonds or government bonds shall be consistent with the currency and estimated term of the post‑employment benefit obligations.E15,E16,E17,E18 |
| E15 | [IFRIC® Update, February 2002, ‘Employee benefits—calculation of discount rates’ How to determine the discount rate to be used in measuring a defined benefit liability under IAS 19 when there is no deep market in high quality corporate bonds and the terms of government bonds are much shorter than the benefit obligations. The IFRIC agreed to not add this issue to its agenda because IAS 19 provides sufficient guidance.] |
| E16 | [IFRIC® Update, July 2013, Agenda Decision, ‘IAS 19 Employee Benefits—pre-tax or post-tax discount rate’ The Interpretations Committee received a request for guidance on the calculation of defined benefit obligations. In particular, the submitter asked the Interpretations Committee to clarify whether, in accordance with IAS 19 Employee Benefits (2011), the discount rate used to calculate a defined benefit obligation should be a pre-tax or post-tax rate. The tax regime in the jurisdiction of the submitter can be summarised as follows:
The Interpretations Committee noted that:
Consequently, the Interpretations Committee observed that the discount rate used to calculate a defined benefit obligation should be a pre-tax discount rate. On the basis of the analysis above the Interpretations Committee decided not to add this issue to its agenda.] |
| E17 | [IFRIC® Update, November 2013, Agenda Decision, ‘IAS 19 Employee Benefit—Actuarial assumptions: discount rate’ The Interpretations Committee discussed a request for guidance on the determination of the rate used to discount post-employment benefit obligations. The submitter stated that:
In the light of the points above, the submitter asked the Interpretations Committee whether corporate bonds with a rating lower than ‘AA’ can be considered to be HQCB. The Interpretations Committee observed that IAS 19 does not specify how to determine the market yields on HQCB, and in particular what grade of bonds should be designated as high quality. The Interpretations Committee considers that an entity should take into account the guidance in paragraphs 84 and 85 of IAS 19 (2011) in determining what corporate bonds can be considered to be HQCB. Paragraphs 84 and 85 of IAS 19 (2011) state that the discount rate:
The Interpretations Committee further noted that ‘high quality’ as used in paragraph 83 of IAS 19 reflects an absolute concept of credit quality and not a concept of credit quality that is relative to a given population of corporate bonds, which would be the case, for example, if the paragraph used the term ‘the highest quality’. Consequently, the Interpretations Committee observed that the concept of high quality should not change over time. Accordingly, a reduction in the number of HQCB should not result in a change to the concept of high quality. The Interpretations Committee does not expect that an entity’s methods and techniques used for determining the discount rate so as to reflect the yields on HQCB will change significantly from period to period. Paragraphs 83 and 86 of IAS 19, respectively, contain requirements if the market in HQCB is no longer deep or if the market remains deep overall, but there is an insufficient number of HQCB beyond a certain maturity. The Interpretations Committee also noted that:
The Interpretations Committee discussed this issue in several meetings and noted that issuing additional guidance on, or changing the requirements for, the determination of the discount rate would be too broad for it to address in an efficient manner. The Interpretations Committee therefore recommends that this issue should be addressed in the IASB’s research project on discount rates. Consequently, the Interpretations Committee decided not to add this issue to its agenda.] |
| E18 | [IFRIC® Update, June 2017, 'IAS 19 Employee Benefits—Discount rate in a country that has adopted another country’s currency' The Committee received a request to clarify how an entity determines the rate used to discount post-employment benefit obligations (discount rate) in a country (Ecuador) that has adopted another currency as its official or legal currency (the US dollar). The entity’s post-employment benefit obligation is denominated in US dollars. The submitter says there is no deep market for high quality corporate bonds denominated in US dollars in the country in which the entity operates (Ecuador). The submitter asked whether, in that situation, the entity considers the depth of the market in high quality corporate bonds denominated in US dollars in other markets or countries in which those bonds are issued (for example, the United States). If there is no deep market in high quality corporate bonds denominated in US dollars, IAS 19 requires the entity to use the market yield on government bonds denominated in US dollars when determining the discount rate. The submitter asked whether the entity can use market yields on bonds denominated in US dollars issued by the Ecuadorian government, or whether instead the entity is required to use market yields on bonds denominated in US dollars issued by a government in another market or country. The Committee observed, applying paragraph 83 of IAS 19, that:
The Committee noted that the discount rate does not reflect the expected return on plan assets. Paragraph BC130 of IAS 19 says that the measurement of the obligation should be independent of the measurement of any plan assets actually held by a plan. In addition, the Committee considered the interaction between the requirements in paragraphs 75 and 83 of IAS 19. Paragraph 75 of IAS 19 requires actuarial assumptions to be mutually compatible. The Committee concluded that it is not possible to assess whether, and to what extent, a discount rate derived by applying the requirements in paragraph 83 of IAS 19 is compatible with other actuarial assumptions. Accordingly, the entity applies the requirements in paragraph 83 of IAS 19 when it determines the discount rate. The Committee concluded that the requirements in IAS 19 provide an adequate basis for an entity to determine the discount rate when the entity operates in a country that has adopted another currency as its official or legal currency. Consequently, the Committee decided not to add this matter to its standard-setting agenda.] |
84 | One actuarial assumption that has a material effect is the discount rate. The discount rate reflects the time value of money but not the actuarial or investment risk. Furthermore, the discount rate does not reflect the entity‑specific credit risk borne by the entity’s creditors, nor does it reflect the risk that future experience may differ from actuarial assumptions. |
85 | The discount rate reflects the estimated timing of benefit payments. In practice, an entity often achieves this by applying a single weighted average discount rate that reflects the estimated timing and amount of benefit payments and the currency in which the benefits are to be paid. |
86 | In some cases, there may be no deep market in bonds with a sufficiently long maturity to match the estimated maturity of all the benefit payments. In such cases, an entity uses current market rates of the appropriate term to discount shorter‑term payments, and estimates the discount rate for longer maturities by extrapolating current market rates along the yield curve. The total present value of a defined benefit obligation is unlikely to be particularly sensitive to the discount rate applied to the portion of benefits that is payable beyond the final maturity of the available corporate or government bonds. |
Actuarial assumptions: salaries, benefits and medical costsE19
| E19 | [IFRIC® Update, November 2007, Agenda Decision, ‘IAS 19 Employee Benefits—Changes to a plan caused by government’ The IFRIC was asked to provide guidance on accounting for the effects of a change to a defined benefit plan resulting from action by a government. The IFRIC noted that IAS 19 already provides guidance on whether the identity of the originator of the change affects the accounting. Paragraph BC55 of the Basis for Conclusions on IAS 19 explains the IASC Board’s decision to reject the proposal that ‘past service cost should not be recognised immediately if the past service cost results from legislative changes (such as a new requirement to equalise retirement ages for men and women) or from decisions by trustees who are not controlled, or influenced, by the entity’s management’. In other words, IASC did not believe that the source of the change should affect the accounting. Therefore, the accounting for changes caused by government should be the same as for changes made by an employer. The IFRIC acknowledged that, in some circumstances, it might be difficult to determine whether the change affects either actuarial assumptions or benefits payable and noted that judgement is required. The IFRIC also noted that any guidance beyond that given in IAS 19 would be more in the nature of application guidance than an Interpretation. For this reason, the IFRIC decided not to add this item to the agenda.] |
87 | An entity shall measure its defined benefit obligations on a basis that reflects:
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88 | Actuarial assumptions reflect future benefit changes that are set out in the formal terms of a plan (or a constructive obligation that goes beyond those terms) at the end of the reporting period.E20,E21 This is the case if, for example:
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| E20 | [IFRIC® Update, September 2012, Agenda Decision, ‘IAS 19 Employee Benefits—Accounting for contribution-based promises: impact of the 2011 amendments to IAS 19’ The Interpretations Committee received a request for clarification about the accounting in accordance with IAS 19 (2011) for contribution-based promises. An underlying concern in the submission was whether the revisions to IAS 19 in 2011 that, for example, clarified the treatment of risk-sharing features related to defined benefit obligations, affect the accounting for contribution-based promises. The Interpretations Committee noted that the 2011 amendments to IAS 19 clarified the treatment of risk-sharing features (described in paragraph BC144 as features that share the benefit of a surplus or the cost of a deficit between the employer and the plan participants or benefit plans that provide benefits that are conditional to some extent on whether there are sufficient assets in the plan to fund them). The Interpretations Committee noted that the IASB did not intend to address elements specific to contribution-based promises in the amendments. Accordingly, the Interpretations Committee does not expect the 2011 amendments to cause changes to the accounting for contribution-based promises unless such promises also include elements of risk sharing arrangements between employees and employers. Finally, the Interpretations Committee noted that the IASB expressed, in paragraph BC148 of the revised Standard, that addressing concerns about the measurement of contribution-based promises and similar promises was beyond the scope of the 2011 amendments. On the basis of the analysis described above, the Interpretations Committee decided not to add the issue to its agenda. It is, however, working towards proposals to address the accounting for contribution-based promises. [see the following footnote]] |
| E21 | [IFRIC® Update, May 2014, Agenda Decision, ‘IAS 19 Employee Benefits—employee benefit plans with a guaranteed return on contributions or notional contributions’ The Interpretations Committee observed that the accounting for the plans that fall within the scope of the project is an important issue. These plans are part of a growing range of plan designs that incorporate features that were not envisaged when IAS 19 was first developed. The accounting for these plans in accordance with IAS 19 is problematic and has resulted in diversity in practice. The Interpretations Committee attempted to develop a solution to improve the financial reporting for such plans. However, it was unable to reach a consensus in identifying a suitable scope for an amendment that would both:
In the Interpretations Committee’s view, developing accounting requirements for these plans would be better addressed by a broader consideration of accounting for employee benefits, potentially through the research agenda of the IASB. The Interpretations Committee acknowledged that reducing diversity in practice in the short term would be beneficial. However, because of the difficulties encountered in progressing the issues, the Interpretations Committee decided to remove the project from its agenda. The Interpretations Committee notes the importance of this issue because of the increasing use of these plans. Consequently, the Interpretations Committee would welcome progress on the IASB’s research project on post-employment benefits.] |
89 | Actuarial assumptions do not reflect future benefit changes that are not set out in the formal terms of the plan (or a constructive obligation) at the end of the reporting period. Such changes will result in:
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90 | Estimates of future salary increases take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. |
91 | Some defined benefit plans limit the contributions that an entity is required to pay. The ultimate cost of the benefits takes account of the effect of a limit on contributions. The effect of a limit on contributions is determined over the shorter of:
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92 | Some defined benefit plans require employees or third parties to contribute to the cost of the plan. Contributions by employees reduce the cost of the benefits to the entity. An entity considers whether third‑party contributions reduce the cost of the benefits to the entity, or are a reimbursement right as described in paragraph 116. Contributions by employees or third parties are either set out in the formal terms of the plan (or arise from a constructive obligation that goes beyond those terms), or are discretionary. Discretionary contributions by employees or third parties reduce service cost upon payment of these contributions to the plan. |
93 | Contributions from employees or third parties set out in the formal terms of the plan either reduce service cost (if they are linked to service), or affect remeasurements of the net defined benefit liability (asset) (if they are not linked to service). An example of contributions that are not linked to service is when the contributions are required to reduce a deficit arising from losses on plan assets or from actuarial losses. [Refer:Basis for Conclusions paragraphs BC150I and BC150J] If contributions from employees or third parties are linked to service, those contributions reduce the service cost as follows:
Paragraph A1 provides related application guidance. |
94 | For contributions from employees or third parties that are attributed to periods of service in accordance with paragraph 93(a), [Refer:Basis for Conclusions paragraph BC150Q] changes in the contributions result in:
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95 | Some post‑employment benefits are linked to variables such as the level of state retirement benefits or state medical care. The measurement of such benefits reflects the best estimate of such variables, based on historical data and other reliable evidence. |
96 | Assumptions about medical costs shall take account of estimated future changes in the cost of medical services, resulting from both inflation and specific changes in medical costs. [Refer:paragraph 76(b)(iii)] |
97 | Measurement of post‑employment medical benefits requires assumptions about the level and frequency of future claims and the cost of meeting those claims. An entity estimates future medical costs on the basis of historical data about the entity’s own experience, supplemented where necessary by historical data from other entities, insurance companies, medical providers or other sources. Estimates of future medical costs consider the effect of technological advances, changes in health care utilisation or delivery patterns and changes in the health status of plan participants. |
98 | The level and frequency of claims is particularly sensitive to the age, health status and sex of employees (and their dependants) and may be sensitive to other factors such as geographical location. Therefore, historical data are adjusted to the extent that the demographic mix of the population differs from that of the population used as a basis for the data. They are also adjusted where there is reliable evidence that historical trends will not continue. |
Past service cost and gains and losses on settlement
99 | When determining past service cost, or a gain or loss on settlement, an entity shall remeasure the net defined benefit liability (asset) using the current fair value of plan assets and current actuarial assumptions, including current market interest rates and other current market prices, reflecting:
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100 | An entity need not distinguish between past service cost resulting from a plan amendment, past service cost resulting from a curtailment and a gain or loss on settlement if these transactions occur together. In some cases, a plan amendment occurs before a settlement, such as when an entity changes the benefits under the plan and settles the amended benefits later. In those cases an entity recognises past service cost before any gain or loss on settlement. |
101 | A settlement occurs together with a plan amendment and curtailment if a plan is terminated with the result that the obligation is settled and the plan ceases to exist. However, the termination of a plan is not a settlement if the plan is replaced by a new plan that offers benefits that are, in substance, the same. |
101A | When a plan amendment, curtailment or settlement occurs, an entity shall recognise and measure any past service cost, or a gain or loss on settlement, in accordance with paragraphs 99–101 and paragraphs 102–112. In doing so, an entity shall not consider the effect of the asset ceiling. An entity shall then determine the effect of the asset ceiling after the plan amendment, curtailment or settlement and shall recognise any change in that effect in accordance with paragraph 57(d). |
Past service cost
102 | Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. |
103 | An entity shall recognise past service cost as an expense at the earlier of the following dates:
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104 | A plan amendment occurs when an entity introduces, or withdraws, a defined benefit plan or changes the benefits payable under an existing defined benefit plan.E22 |
| E22 | [IFRIC® Update, November 2007, Agenda Decision, ‘IAS 19 Employee Benefits—Changes to a plan caused by government’ The IFRIC was asked to provide guidance on accounting for the effects of a change to a defined benefit plan resulting from action by a government. The IFRIC noted that IAS 19 already provides guidance on whether the identity of the originator of the change affects the accounting. Paragraph BC55 of the Basis for Conclusions on IAS 19 explains the IASC Board’s decision to reject the proposal that ‘past service cost should not be recognised immediately if the past service cost results from legislative changes (such as a new requirement to equalise retirement ages for men and women) or from decisions by trustees who are not controlled, or influenced, by the entity’s management’. In other words, IASC did not believe that the source of the change should affect the accounting. Therefore, the accounting for changes caused by government should be the same as for changes made by an employer. The IFRIC acknowledged that, in some circumstances, it might be difficult to determine whether the change affects either actuarial assumptions or benefits payable and noted that judgement is required. The IFRIC also noted that any guidance beyond that given in IAS 19 would be more in the nature of application guidance than an Interpretation. For this reason, the IFRIC decided not to add this item to the agenda.] |
105 | A curtailment occurs when an entity significantly reduces the number of employees covered by a plan. A curtailment may arise from an isolated event, such as the closing of a plant, discontinuance of an operation or termination or suspension of a plan. |
106 | Past service cost may be either positive (when benefits are introduced or changed so that the present value of the defined benefit obligation increases) or negative (when benefits are withdrawn or changed so that the present value of the defined benefit obligation decreases). |
107 | Where an entity reduces benefits payable under an existing defined benefit plan and, at the same time, increases other benefits payable under the plan for the same employees, the entity treats the change as a single net change. |
108 | Past service cost excludes:
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Gains and losses on settlement
109 | The gain or loss on a settlement is the difference between:
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110 | An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs. |
111 | A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan (other than a payment of benefits to, or on behalf of, employees in accordance with the terms of the plan and included in the actuarial assumptions). For example, a one‑off transfer of significant employer obligations under the plan to an insurance company through the purchase of an insurance policy is a settlement; a lump sum cash payment, under the terms of the plan, to plan participants in exchange for their rights to receive specified post‑employment benefits is not. |
112 | In some cases, an entity acquires an insurance policy to fund some or all of the employee benefits relating to employee service in the current and prior periods. The acquisition of such a policy is not a settlement if the entity retains a legal or constructive obligation (see paragraph 46) to pay further amounts if the insurer does not pay the employee benefits specified in the insurance policy. Paragraphs 116–119 deal with the recognition and measurement of reimbursement rights under insurance policies that are not plan assets. |
Recognition and measurement: plan assets
Fair value of plan assetsE23
| E23 | [IFRIC® Update, March 2015, Agenda Decision, ‘IAS 19 Employee Benefits—Should longevity swaps held under a defined benefit plan be measured as a plan asset at fair value or on another basis as a "qualifying insurance policy"?’ The Interpretations Committee received a request to clarify the measurement of longevity swaps held under an entity’s defined benefit pension plan. The submitter raised a question about whether an entity should:
The submitter also raised questions about presentation if the measurement in criterion (b) were to be used. The outreach did not provide evidence that the use of longevity swaps is widespread. The Interpretations Committee understands that when such transactions take place, the predominant practice is to account for a longevity swap as a single instrument, and measure it at fair value as part of plan assets, by applying paragraphs 8 and 113 of IAS 19 and IFRS 13. On the basis of this analysis, the Interpretations Committee concluded that it did not expect diversity to develop in the application of IAS 19 and it therefore decided not to add this issue to its agenda.] |
113 | The fair value of any plan assets is deducted from the present value of the defined benefit obligation in determining the deficit or surplus. |
114 | Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well as any non‑transferable financial instruments issued by the entity and held by the fund. Plan assets are reduced by any liabilities of the fund that do not relate to employee benefits, for example, trade and other payables and liabilities resulting from derivative financial instruments. |
115 | Where plan assets include qualifying insurance policies that exactly match the amount and timing of some or all of the benefits payable under the plan, the fair value of those insurance policies is deemed to be the present value of the related obligations (subject to any reduction required if the amounts receivable under the insurance policies are not recoverable in full). |
Reimbursements
116 | When, and only when, it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, an entity shall:
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117 | Sometimes, an entity is able to look to another party, such as an insurer, to pay part or all of the expenditure required to settle a defined benefit obligation. Qualifying insurance policies, as defined in paragraph 8, are plan assets. An entity accounts for qualifying insurance policies in the same way as for all other plan assets and paragraph 116 is not relevant (see paragraphs 46–49 and 115). |
118 | When an insurance policy held by an entity is not a qualifying insurance policy, that insurance policy is not a plan asset. Paragraph 116 is relevant to such cases: the entity recognises its right to reimbursement under the insurance policy as a separate asset, rather than as a deduction in determining the defined benefit deficit or surplus. Paragraph 140(b) requires the entity to disclose a brief description of the link between the reimbursement right and the related obligation. |
119 | If the right to reimbursement arises under an insurance policy that exactly matches the amount and timing of some or all of the benefits payable under a defined benefit plan, the fair value of the reimbursement right is deemed to be the present value of the related obligation (subject to any reduction required if the reimbursement is not recoverable in full). |
Components of defined benefit cost
120 | An entity shall recognise the components of defined benefit cost, except to the extent that another IFRS requires or permits their inclusion in the cost of an asset, as follows:
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121 | Other IFRSs require the inclusion of some employee benefit costs within the cost of assets, such as inventories and property, plant and equipment (see IAS 2 [Refer:IAS 2 paragraphs 10–22] and IAS 16 [Refer:IAS 16 paragraphs 15–28]). Any post‑employment benefit costs included in the cost of such assets include the appropriate proportion of the components listed in paragraph 120. |
122 | Remeasurements of the net defined benefit liability (asset) recognised in other comprehensive income shall not be reclassified to profit or loss in a subsequent period [Refer:Basis for Conclusions paragraph BC99]. However, the entity may transfer those amounts recognised in other comprehensive income within equity [Refer:Basis for Conclusions paragraph BC100]. |
Current service cost
122A | An entity shall determine current service cost using actuarial assumptions determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, it shall determine current service cost for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using the actuarial assumptions used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b). |
Net interest on the net defined benefit liability (asset)
123 | An entity shall determine net interest on the net defined benefit liability (asset) by multiplying the net defined benefit liability (asset) by the discount rate specified in paragraph 83. |
123A | To determine net interest in accordance with paragraph 123, an entity shall use the net defined benefit liability (asset) and the discount rate determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine net interest for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using:
In applying paragraph 123A, the entity shall also take into account any changes in the net defined benefit liability (asset) during the period resulting from contributions or benefit payments. |
124 | Net interest on the net defined benefit liability (asset) [Refer:paragraph 116(b)] can be viewed as comprising interest income on plan assets, interest cost on the defined benefit obligation and interest on the effect of the asset ceiling mentioned in paragraph 64. |
125 | Interest income on plan assets is a component of the return on plan assets, and is determined by multiplying the fair value of the plan assets by the discount rate specified in paragraph 123A. An entity shall determine the fair value of the plan assets at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine interest income for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using the plan assets used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b). In applying paragraph 125, the entity shall also take into account any changes in the plan assets held during the period resulting from contributions or benefit payments. The difference between the interest income on plan assets and the return on plan assets is included in the remeasurement of the net defined benefit liability (asset). |
126 | Interest on the effect of the asset ceiling is part of the total change in the effect of the asset ceiling, and is determined by multiplying the effect of the asset ceiling by the discount rate specified in paragraph 123A. An entity shall determine the effect of the asset ceiling at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine interest on the effect of the asset ceiling for the remainder of the annual reporting period after the plan amendment, curtailment or settlement taking into account any change in the effect of the asset ceiling determined in accordance with paragraph 101A. The difference between interest on the effect of the asset ceiling and the total change in the effect of the asset ceiling is included in the remeasurement of the net defined benefit liability (asset). |
Remeasurements of the net defined benefit liability (asset)
127 | Remeasurements of the net defined benefit liability (asset) comprise:
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128 | Actuarial gains and losses result from increases or decreases in the present value of the defined benefit obligation because of changes in actuarial assumptions and experience adjustments. Causes of actuarial gains and losses include, for example:
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129 | Actuarial gains and losses do not include changes in the present value of the defined benefit obligation because of the introduction, amendment, curtailment or settlement of the defined benefit plan, or changes to the benefits payable under the defined benefit plan. Such changes result in past service cost or gains or losses on settlement. [Refer:paragraphs 99–112] |
130 | In determining the return on plan assets, an entity deducts the costs of managing the plan assets and any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the defined benefit obligation (paragraph 76). Other administration costs are not deducted from the return on plan assets. [Refer:Basis for Conclusions paragraphs BC121–BC128] |
Presentation
Offset
131 | An entity shall offset an asset relating to one plan against a liability relating to another plan when, and only when, the entity:
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132 | The offsetting criteria are similar to those established for financial instruments in IAS 32 Financial Instruments: Presentation [Refer:IAS 32 paragraph 42]. |
Current/non‑current distinction
133 | Some entities distinguish current assets and liabilities from non‑current assets and liabilities [Refer:IAS 1 paragraph 60]. This Standard does not specify whether an entity should distinguish current and non‑current portions of assets and liabilities arising from post‑employment benefits. |
Components of defined benefit cost
134 | Paragraph 120 requires an entity to recognise service cost and net interest on the net defined benefit liability (asset) in profit or loss. This Standard does not specify how an entity should present service cost and net interest on the net defined benefit liability (asset). An entity presents those components in accordance with IAS 1 [Refer:IAS 1 paragraphs 81–105]. |
Disclosure
135 | An entity shall disclose information that:
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136 | To meet the objectives in paragraph 135, an entity shall consider all the following:
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137 | If the disclosures provided in accordance with the requirements in this Standard and other IFRSs are insufficient to meet the objectives in paragraph 135, an entity shall disclose additional information necessary to meet those objectives. For example, an entity may present an analysis of the present value of the defined benefit obligation that distinguishes the nature, characteristics and risks of the obligation. Such a disclosure could distinguish:
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138 | An entity shall assess whether all or some disclosures should be disaggregated to distinguish plans or groups of plans with materially different risks. For example, an entity may disaggregate disclosure about plans showing one or more of the following features:
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Characteristics of defined benefit plans and risks associated with them
139 | An entity shall disclose:
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Explanation of amounts in the financial statements
140 | An entity shall provide a reconciliation from the opening balance to the closing balance for each of the following, if applicable:
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141 | Each reconciliation listed in paragraph 140 shall show each of the following, if applicable:
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142 | An entity shall disaggregate the fair value of the plan assets into classes that distinguish the nature and risks of those assets, subdividing each class of plan asset into those that have a quoted market price in an active market (as defined in IFRS 13 Fair Value Measurement [Refer:IFRS 13 Appendix A]) and those that do not. For example, and considering the level of disclosure discussed in paragraph 136, an entity could distinguish between:
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143 | An entity shall disclose the fair value of the entity’s own transferable financial instruments held as plan assets, and the fair value of plan assets that are property occupied by, or other assets used by, the entity.
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144 | An entity shall disclose the significant actuarial assumptions used to determine the present value of the defined benefit obligation (see paragraph 76). Such disclosure shall be in absolute terms (eg as an absolute percentage, and not just as a margin between different percentages and other variables). When an entity provides disclosures in total for a grouping of plans, it shall provide such disclosures in the form of weighted averages or relatively narrow ranges.
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Amount, timing and uncertainty of future cash flows
145 | An entity shall disclose:
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146 | An entity shall disclose a description of any asset‑liability matching strategies used by the plan or the entity, including the use of annuities and other techniques, such as longevity swaps, to manage risk.
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147 | To provide an indication of the effect of the defined benefit plan on the entity’s future cash flows, an entity shall disclose:
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Multi‑employer plans
148 | If an entity participates in a multi‑employer defined benefit plan, it shall disclose:
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Defined benefit plans that share risks between entities under common control
149 | If an entity participates in a defined benefit plan that shares risks between entities under common control, it shall disclose:
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150 | The information required by paragraph 149(c) and (d) can be disclosed by cross‑reference to disclosures in another group entity’s financial statements if:
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Disclosure requirements in other IFRSs
151 | Where required by IAS 24 an entity discloses information about:
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152 | Where required by IAS 37 an entity discloses information about contingent liabilities arising from post‑employment benefit obligations. [Refer:IAS 37 paragraphs 27–30, 86–88, 91 and 92]
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Other long‑term employee benefits
153 | Other long‑term employee benefits include items such as the following, if 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:
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154 | The measurement of other long‑term employee benefits is not usually subject to the same degree of uncertainty as the measurement of post‑employment benefits. For this reason, this Standard requires a simplified method of accounting for other long‑term employee benefits. Unlike the accounting required for post‑employment benefits, this method does not recognise remeasurements in other comprehensive income. |
Recognition and measurement
155 | In recognising and measuring the surplus or deficit in an other long‑term employee benefit plan, an entity shall apply paragraphs 56–98 and 113–115. An entity shall apply paragraphs 116–119 in recognising and measuring any reimbursement right. |
156 | For other long‑term employee benefits, an entity shall recognise the net total of the following amounts in profit or loss, except to the extent that another IFRS requires or permits their inclusion in the cost of an asset: |
157 | One form of other long‑term employee benefit is long‑term disability benefit. If the level of benefit depends on the length of service, an obligation arises when the service is rendered. Measurement of that obligation reflects the probability that payment will be required and the length of time for which payment is expected to be made. If the level of benefit is the same for any disabled employee regardless of years of service, the expected cost of those benefits is recognised when an event occurs that causes a long‑term disability. |
Disclosure
158 | 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 [Refer:IAS 24 paragraph 17(c)]. IAS 1 requires disclosure of employee benefits expense [Refer:IAS 1 paragraphs 102 and 104].
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Termination benefits
159 | This Standard deals with termination benefits separately from other employee benefits because the event that gives rise to an obligation is the termination of employment rather than employee service. Termination benefits result from either an entity’s decision to terminate the employment or an employee’s decision to accept an entity’s offer of benefits in exchange for termination of employment. |
160 | Termination benefits do not include employee benefits resulting from termination of employment at the request of the employee without an entity’s offer, or as a result of mandatory retirement requirements, because those benefits are post‑employment benefits. Some entities provide a lower level of benefit for termination of employment at the request of the employee (in substance, a post‑employment benefit) than for termination of employment at the request of the entity. The difference between the benefit provided for termination of employment at the request of the employee and a higher benefit provided at the request of the entity is a termination benefit. |
161 | The form of the employee benefit does not determine whether it is provided in exchange for service or in exchange for termination of the employee’s employment. Termination benefits are typically lump sum payments, but sometimes also include:
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162 | Indicators that an employee benefit is provided in exchange for services include the following:
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| E24 | [IFRIC® Update, January 2012, Agenda Decision, ‘IAS 19 Employee Benefits—Applying the definition of termination benefits to "Altersteilzeit" plans’ The Interpretations Committee received a request for guidance regarding the application of IAS 19 (2011) to ‘Altersteilzeit’ plans (ATZ plans) in Germany. ATZ plans are early retirement programmes designed to create an incentive for employees within a certain age group to smooth the transition from (full- or part-time) employment into retirement before the employees’ legal retirement age. ATZ plans offer bonus payments to employees in exchange for a 50 per cent reduction in working hours. Their employment is terminated at the end of a required service period. The bonus payments are wholly conditional on the completion of the required service period. If employment ends before the required service is provided, the employees do not receive the bonus payments. ATZ plans typically operate over a period of one to six years. Eligibility for the benefit would be on the basis of the employee’s age but would also typically include a past service requirement. IAS 19 (2011) was the result of revisions issued in 2011 to IAS 19. These revisions, among other things, amended the guidance relating to termination benefits. Paragraph 8 of IAS 19 (2011) defines termination benefits as ‘employee benefits provided in exchange for the termination of an employee’s employment as a result of either:
The Committee observed that ATZ plans have attributes of both required service and termination benefits. The Committee noted that the distinction between benefits provided in exchange for services and termination benefits should be based on:
The Committee noted that, in the fact pattern described above, consistently with paragraph 162(a) of IAS 19 (2011), the fact that the bonus payments are wholly conditional upon completion of an employee service over a period indicates that the benefits are in exchange for that service. They therefore do not meet the definition of termination benefits. On the basis of the analysis described above, the Committee decided not to add the issue to its agenda.] |
163 | Some termination benefits are provided in accordance with the terms of an existing employee benefit plan. For example, they may be specified by statute, employment contract or union agreement, or may be implied as a result of the employer’s past practice of providing similar benefits. As another example, if an entity makes an offer of benefits available for more than a short period, or there is more than a short period between the offer and the expected date of actual termination, the entity considers whether it has established a new employee benefit plan and hence whether the benefits offered under that plan are termination benefits or post‑employment benefits. Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they both result from an entity’s decision to terminate an employee’s employment and are not conditional on future service being provided. |
164 | Some employee benefits are provided regardless of the reason for the employee’s departure. The payment of such benefits is certain (subject to any vesting or minimum service requirements) but the timing of their payment is uncertain. Although such benefits are described in some jurisdictions as termination indemnities or termination gratuities, they are post‑employment benefits rather than termination benefits, and an entity accounts for them as post‑employment benefits. |
Recognition
165 | An entity shall recognise a liability and expense for termination benefits at the earlier of the following dates:
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166 | For termination benefits payable as a result of an employee’s decision to accept an offer of benefits in exchange for the termination of employment, the time when an entity can no longer withdraw the offer of termination benefits is the earlier of:
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167 | For termination benefits payable as a result of an entity’s decision to terminate an employee’s employment, the entity can no longer withdraw the offer when the entity has communicated to the affected employees a plan of termination meeting all of the following criteria:
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168 | When an entity recognises termination benefits, the entity may also have to account for a plan amendment or a curtailment of other employee benefits (see paragraph 103). |
Measurement
169 | An entity shall measure termination benefits on initial recognition, and shall measure and recognise subsequent changes, in accordance with the nature of the employee benefit, provided that if the termination benefits are an enhancement to post‑employment benefits, the entity shall apply the requirements for post‑employment benefits. Otherwise:
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170 | Because termination benefits are not provided in exchange for service, paragraphs 70–74 relating to the attribution of the benefit to periods of service are not relevant.
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Disclosure
171 | 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 [Refer:IAS 24 paragraph 17(d)]. IAS 1 requires disclosure of employee benefits expense [Refer:IAS 1 paragraphs 102 and 104].
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Transition and effective date
172 | An entity shall apply this Standard for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this Standard for an earlier period, it shall disclose that fact. |
173 | An entity shall apply this Standard retrospectively, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [Refer:IAS 8 paragraphs 14–31], except that:
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174 | IFRS 13, issued in May 2011, amended the definition of fair value in paragraph 8 and amended paragraph 113. An entity shall apply those amendments when it applies IFRS 13. |
175 | Defined Benefit Plans: Employee Contributions (Amendments to IAS 19), issued in November 2013, amended paragraphs 93–94. An entity shall apply those amendments for annual periods beginning on or after 1 July 2014 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. [Refer:Basis for Conclusions paragraphs BC271A and BC271B] |
176 | Annual Improvements to IFRSs 2012–2014 Cycle, issued in September 2014, amended paragraph 83 and added paragraph 177. An entity shall apply that amendment for annual periods beginning on or after 1 January 2016. Earlier application is permitted. If an entity applies that amendment for an earlier period it shall disclose that fact. |
177 | An entity shall apply the amendment in paragraph 176 from the beginning of the earliest comparative period presented in the first financial statements in which the entity applies the amendment. Any initial adjustment arising from the application of the amendment shall be recognised in retained earnings at the beginning of that period. |
178 | IFRS 17, issued in May 2017, amended the footnote to paragraph 8. An entity shall apply that amendment when it applies IFRS 17. |
179 | Plan Amendment, Curtailment or Settlement (Amendments to IAS 19), issued in February 2018, added paragraphs 101A, 122A and 123A, and amended paragraphs 57, 99, 120, 123, 125, 126 and 156. An entity shall apply these amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 January 2019. Earlier application is permitted. [Refer:Basis for Conclusions paragraph BC271D] If an entity applies these amendments earlier, it shall disclose that fact. |
Appendices
Appendix AApplication Guidance
This appendix is an integral part of the IFRS. It describes the application of paragraphs 92–93 and has the same authority as the other parts of the IFRS.
A1 | The accounting requirements for contributions from employees or third parties are illustrated in the diagram below.  [Refer:paragraph 93]
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Appendix BAmendments to other IFRSs
This appendix sets out amendments to other IFRSs that are a consequence of the Board amending IAS 19 in June 2011. An entity shall apply these amendments when it applies IAS 19 as amended. Amended paragraphs are shown with new text underlined and deleted text struck through.
| * * * * * |
The amendments contained in this appendix when this Standard was amended in 2011 have been incorporated into the relevant IFRSs published in this volume.
Board Approvals
Approval by the Board of Actuarial Gains and Losses, Group Plans and Disclosures (Amendment to IAS 19) issued in December 2004
Actuarial Gains and Losses, Group Plans and Disclosures (Amendment to IAS 19) was approved for issue by twelve of the fourteen members of the International Accounting Standards Board. Messrs Leisenring and Yamada dissented. Their dissenting opinions are set out after the Basis for Conclusions.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice-Chairman |
| Mary E Barth | |
| Hans-Georg Bruns | |
| Anthony T Cope | |
| Jan Engström | |
| Robert P Garnett | |
| Gilbert Gélard | |
| James J Leisenring | |
| Warren J McGregor | |
| Patricia L O’Malley | |
| John T Smith | |
| Geoffrey Whittington | |
| Tatsumi Yamada |
Approval by the Board of IAS 19 issued in June 2011
International Accounting Standard 19 Employee Benefits (as amended in 2011) was approved for issue by thirteen of the fifteen members of the International Accounting Standards Board. Messrs Engström and Yamada dissented. Their dissenting opinions are set out after the Basis for Conclusions.
| Sir David Tweedie | Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Jan Engström | |
| Patrick Finnegan | |
| Amaro Luiz de Oliveira Gomes | |
| Prabhakar Kalavacherla | |
| Elke König | |
| Patricia McConnell | |
| Warren J McGregor | |
| Paul Pacter | |
| Darrel Scott | |
| John T Smith | |
| Tatsumi Yamada | |
| Wei-Guo Zhang |
Approval by the Board of Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) issued in November 2013
Defined Benefit Plans: Employee Contributions was approved for issue by the sixteen members of the International Accounting Standards Board.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice-Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Martin Edelmann | |
| Jan Engström | |
| Patrick Finnegan | |
| Amaro Luiz de Oliveira Gomes | |
| Gary Kabureck | |
| Prabhakar Kalavacherla | |
| Patricia McConnell | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Mary Tokar | |
| Chungwoo Suh | |
| Wei-Guo Zhang |
Approval by the Board of Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) issued in February 2018
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) was approved for issue by 13 of 14 members of the International Accounting Standards Board (Board). Ms Tarca abstained in view of her recent appointment to the Board.
| Hans Hoogervorst | Chairman |
| Suzanne Lloyd | Vice-Chair |
| Nick Anderson | |
| Martin Edelmann | |
| Françoise Flores | |
| Amaro Luiz de Oliveira Gomes | |
| Gary Kabureck | |
| Jianqiao Lu | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Thomas Scott | |
| Chungwoo Suh | |
| Ann Tarca | |
| Mary Tokar |
Footnotes
| 1 | A qualifying insurance policy is not necessarily an insurance contract, as defined in IFRS 17 Insurance Contracts. (back) |