PAS 19 Employee Benefits: CFAS Course Module 26

Employee Benefits

• Employee benefits are forms of consideration given to an entity in exchange for services rendered by employees or for the termination of employment.
• Includes: short-term employee benefits, post-employment benefits, other long-term employee benefits, and termination benefits.

Short-Term Employee Benefits

• Include: salaries, wages, social security contributions, short-term compensated or paid absences, profit sharing, and bonuses payable within 12 months.
• Accounting procedures:
  • Unpaid short-term employee benefits at the end of the accounting period are recognized as accrued expense.
  • Any short-term benefits paid in advance are recognized as prepayment.

Short-Term Compensated or Paid Absences

• Accumulating paid absences: entitlement for leaves that can be carried forward and used in future periods if not used in full.
• Non-accumulating absences: not carried forward.
• Vesting: employees are entitled to a cash payment for unused entitlement on leaving the entity.
• Non-vesting: employees are not entitled to a cash payment for unused entitlement on leaving the entity.

Post-Employment Benefits

• Employee benefits payable upon completion of employment, excluding termination benefits and short-term benefits.
• Includes: retirement benefits, post-employment life insurance, post-employment medical care, and defined contribution plans.

Defined Contribution Plan

• A post-employment benefit plan where an entity pays fixed contributions into a separate entity (a fund).
• Accounting procedures:
  • Recognize the contribution payable to a defined contribution plan as a liability (accrued expense).
  • Recognize excess contribution as an asset (prepaid expense) if it will lead to a reduction in future payments or a cash refund.

Defined Benefit Plan

• A plan where an entity's obligation is to provide the agreed benefits to current and former employees.
• Actuarial risk and investment risk fall on the entity.
• Components:
  • Plan assets
  • Service cost
  • Net interest on the net defined benefit liability (asset)
  • Remeasurements of the net defined benefit liability (asset)

Remeasurements of Net Defined Benefit Liability (Asset)

• Include: actuarial gains and losses, return on plan assets, and change in the effect of the asset ceiling.

Other Long-Term Employee Benefits

• Employee benefits other than short-term employee benefits, post-employment benefits, and termination benefits.
• PAS 19 requires a simplified method of accounting, similar to post-employment benefits, except that remeasurements are not recognized in other comprehensive income.

Termination Benefits

• Employee benefits provided in exchange for the termination of an employee's employment.
• Can be due to an entity's decision to terminate an employee's employment before the normal retirement date or an employee's decision to accept an offer of benefits in exchange for termination of employment.