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IAS 19 Employee Benefits

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IAS 19 Employee Benefits

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Employee Benefits


In April 2001 the International Accounting Standards Board (Board) adopted IAS 19
Employee Benefits, which had originally been issued by the International Accounting
Standards Committee in February 1998. IAS 19 Employee Benefits replaced IAS 19 Accounting
for Retirement Benefits in the Financial Statements of Employers (issued in January 1983). IAS 19
was further amended in 1993 and renamed as IAS 19 Retirement Benefit Costs.
The Board amended the accounting for multi-employer plans and group plans in
December 2004. In June 2011 the Board revised IAS 19; this included eliminating an
option that allowed an entity to defer the recognition of changes in net defined benefit
liability and amending some of the disclosure requirements for defined benefit plans and
multi-employer plans.
In November 2013 IAS 19 was amended by Defined Benefit Plans: Employee Contributions
(Amendments to IAS 19). The amendments simplified the requirements for contributions
from employees or third parties to a defined benefit plan, when those contributions are
applied to a simple contributory plan that is linked to service.
Other Standards have made minor consequential amendments to IAS 19, including
Annual Improvements to IFRSs 2012–2014 Cycle (issued September 2014), Annual Improvements
to IFRS Standards 2014–2016 Cycle (issued December 2016), IFRS 17 Insurance Contracts
(issued May 2017), Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
(issued February 2018) and Amendments to References to the Conceptual Framework in IFRS
Standards (issued March 2018).

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.

International Accounting Standard 19
Employee Benefits
Objective


The objective of this Standard is to prescribe the accounting and disclosure for
employee benefits. The Standard requires an entity to recognise:
(a) a liability when an employee has provided service in exchange for
employee benefits to be paid in the future; and
(b) an expense when the entity consumes the economic benefit arising
from service provided by an employee in exchange for employee
benefits.

Scope


This Standard shall be applied by an employer in accounting for all
employee benefits, except those to which IFRS 2 Share-based Payment
applies.
This Standard does not deal with reporting by employee benefit plans (see
IAS 26 Accounting and Reporting by Retirement Benefit Plans).
The employee benefits to which this Standard applies include those provided:
(a) under formal plans or other formal agreements between an entity and
individual employees, groups of employees or their representatives;
(b) under legislative requirements, or through industry arrangements,
whereby entities are required to contribute to national, state, industry
or other multi-employer plans; or
(c) by those informal practices that give rise to a constructive obligation.
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.
Employee benefits include:
(a) short-term employee benefits, 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:
(i) wages, salaries and social security contributions;
(ii) paid annual leave and paid sick leave;
(iii) profit-sharing and bonuses; and
(iv) non-monetary benefits (such as medical care, housing, cars and
free or subsidized goods or services) for current employees;

(b) post-employment benefits, such as the following:
(i) retirement benefits (eg pensions and lump sum payments on
retirement); and
(ii) other post-employment benefits, such as post-employment life
insurance and post-employment medical care;
(c) other long-term employee benefits, such as the following:
(i) long-term paid absences such as long-service leave or sabbatical
leave;
(ii) jubilee or other long-service benefits; and
(iii) long-term disability benefits; and
(d) termination benefits.
Employee benefits include benefits provided either to employees or to their
dependents 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 dependents or to others, such as insurance companies.
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


The following terms are used in this Standard with the meanings specified:


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:
(a) assets held by a long-term employee benefit fund; and
(b) qualifying insurance policies.

Assets held by a long-term employee benefit fund are assets (other than
non-transferable financial instruments issued by the reporting entity) 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:
(i) the remaining assets of the fund are sufficient to meet all the
related employee benefit obligations of the plan or the
reporting entity; or
(ii) the assets are returned to the reporting entity to reimburse
it for employee benefits already paid.
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:
(i) the proceeds represent surplus assets that are not needed for
the policy to meet all the related employee benefit
obligations; or
(ii) the proceeds are returned to the reporting entity to
reimburse it for employee benefits already paid.

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
1A qualifying insurance policy is not necessarily an insurance contract, as defined in IFRS 17
Insurance Contracts.

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.
Premeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses;
(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 realized and unrealized 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


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:
(a) wages, salaries and social security contributions;
(b) paid annual leave and paid sick leave;
(c) profit-sharing and bonuses; and
(d) non-monetary benefits (such as medical care, housing, cars and free or
subsidized goods or services) for current employees.

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


When an employee has rendered service to an entity during an accounting
period, the entity shall recognize the undiscounted amount of short-term
employee benefits expected to be paid in exchange for that service:
(a) as a liability (accrued expense), after deducting any amount already
paid. If the amount already paid exceeds the undiscounted amount
of the benefits, an entity shall recognize that excess as an asset
(prepaid expense) to the extent that the prepayment will lead to, for
example, a reduction in future payments or a cash refund.
(b) as an expense, unless another IFRS requires or permits the inclusion
of the benefits in the cost of an asset (see, for example, IAS 2
Inventories and IAS 16 Property, Plant and Equipment).
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.


Short-term paid absences


An entity shall recognize the expected cost of short-term employee benefits
in the form of paid absences under paragraph 11 as follows:
(a) in the case of accumulating paid absences, when the employees
render service that increases their entitlement to future paid
absences.
(b) in the case of non-accumulating paid absences, when the absences
occur.
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:
(a) accumulating; and
(b) non-accumulating.
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 recognized, 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.
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.
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.


Example illustrating paragraphs 16 and 17


An entity has 100 employees, who are each entitled to five working days of
paid sick leave for each year. Unused sick leave may be carried forward for
one calendar year. Sick leave is taken first out of the current year’s
entitlement and then out of any balance brought forward from the previous
year (a LIFO basis). At 31 December 20X1 the average unused entitlement is
two days per employee. The entity expects, on the basis of experience that is
expected to continue, that 92 employees will take no more than five days of
paid sick leave in 20X2 and that the remaining eight employees will take an
average of six and a half days each.
The entity expects that it will pay an additional twelve days of sick pay as a result of the
unused entitlement that has accumulated at 31 December 20X1 (one and a half days
each, for eight employees). Therefore, the entity recognizes a liability equal to twelve
days of sick pay.
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 recognizes 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


An entity shall recognize the expected cost of profit-sharing and bonus
payments under paragraph 11 when, and only when:
(a) the entity has a present legal or constructive obligation to make
such payments as a result of past events; and

(b) a reliable estimate of the obligation can be made.
A present obligation exists when, and only when, the entity has no realistic
alternative but to make the payments.
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.


Example illustrating paragraph 20


A profit-sharing plan requires an entity to pay a specified proportion of its
profit for the year to employees who serve throughout the year. If no
employees leave during the year, the total profit-sharing payments for the
year will be 3 per cent of profit. The entity estimates that staff turnover will
reduce the payments to 2.5 per cent of profit.
The entity recognizes a liability and an expense of 2.5 per cent of profit.
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.
An entity can make a reliable estimate of its legal or constructive obligation
under a profit-sharing or bonus plan when, and only when:
(a) the formal terms of the plan contain a formula for determining the
amount of the benefit;
(b) the entity determines the amounts to be paid before the financial
statements are authorized for issue; or
(c) past practice gives clear evidence of the amount of the entity’s
constructive obligation.
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 recognizes the cost of profit-sharing and bonus plans not as a
distribution of profit but as an expense.
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


Although this Standard does not require specific disclosures about short-term
employee benefits, other IFRSs may require disclosures. For example, IAS 24
requires disclosures about employee benefits for key management
personnel. IAS 1 Presentation of Financial Statements requires disclosure of
employee benefits expense.


Post-employment benefits: distinction between defined
contribution plans and defined benefit plans


Post-employment benefits include items such as the following:
(a) retirement benefits (eg pensions and lump sum payments on
retirement); and
(b) other post-employment benefits, such as post-employment life
insurance and post-employment medical care.
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.
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.
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.
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:
(a) a plan benefit formula that is not linked solely to the amount of
contributions and requires the entity to provide further contributions
if assets are insufficient to meet the benefits in the plan benefit
formula;
(b) a guarantee, either indirectly through a plan or directly, of a specified
return on contributions; or
(c) those informal practices that give rise to a constructive obligation. For
example, a constructive obligation may arise where an entity has a
history of increasing benefits for former employees to keep pace with
inflation even where there is no legal obligation to do so.

Under defined benefit plans:
(a) the entity’s obligation is to provide the agreed benefits to current and
former employees; and
(b) actuarial risk (that benefits will cost more than expected) and
investment risk fall, in substance, on the entity. If actuarial or
investment experience are worse than expected, the entity’s obligation
may be increased.
Paragraphs 32–49 explain the distinction between defined contribution plans
and defined benefit plans in the context of multi-employer plans, defined
benefit plans that share risks between entities under common control, state
plans and insured benefits.


Multi-employer plans


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).
If an entity participates in a multi-employer defined benefit plan, unless
paragraph 34 applies, it shall:
(a) account for its proportionate share of the defined benefit
obligation, plan assets and cost associated with the plan in the same
way as for any other defined benefit plan; and
(b) disclose the information required by paragraphs 135–148 (excluding
paragraph 148(d)).
When sufficient information is not available to use defined benefit
accounting for a multi-employer defined benefit plan, an entity shall:
(a) account for the plan in accordance with paragraphs 51 and 52 as if
it were a defined contribution plan; and
(b) disclose the information required by paragraph 148.
One example of a multi-employer defined benefit plan is one where:
(a) the plan is financed on a pay-as-you-go basis: contributions are set at a
level that is expected to be sufficient to pay the benefits falling due in
the same period; and future benefits earned during the current period
will be paid out of future contributions; and
(b) employees’ benefits are determined by the length of their service and
the participating entities have no realistic means of withdrawing from
the plan without paying a contribution for the benefits earned by
employees up to the date of withdrawal. Such a plan creates actuarial
risk for the entity: if the ultimate cost of benefits already earned at the
end of the reporting period is more than expected, the entity will have
either to increase its contributions or to persuade employees to accept
a reduction in benefits. Therefore, such a plan is a defined benefit
plan.

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:
(a) the plan exposes the participating entities to actuarial risks associated
with the current and former employees of other entities, with the
result that there is no consistent and reliable basis for allocating the
obligation, plan assets and cost to individual entities participating in
the plan; or
(b) the entity does not have access to sufficient information about the plan
to satisfy the requirements of this Standard.
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.
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 recognize the
asset or liability that arises from the contractual agreement and the resulting
income or expense in profit or loss.


Example illustrating paragraph 37


An entity participates in a multi-employer defined benefit plan that does not
prepare plan valuations on an IAS 19 basis. It therefore accounts for the plan
as if it were a defined contribution plan. A non-IAS 19 funding valuation
shows a deficit of CU100 million(a) in the plan. The plan has agreed under
contract a schedule of contributions with the participating employers in the
plan that will eliminate the deficit over the next five years. The entity’s total
contributions under the contract are CU8 million.
The entity recognizes a liability for the contributions adjusted for the time value of
money and an equal expense in profit or loss.
(a) In this Standard monetary amounts are denominated in ‘currency units (CU)’.
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).
In determining when to recognize, and how to measure, 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


Defined benefit plans that share risks between entities under common
control, for example, a parent and its subsidiaries, are not multi-employer
plans.
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,
recognize the net defined benefit cost so charged. If there is no such
agreement or policy, the net defined benefit cost shall be recognized 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, recognize a cost equal to their
contribution payable for the period.
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
An entity shall account for a state plan in the same way as for a
multi-employer plan (see paragraphs 32–39).
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.
State plans are characterized 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.


Insured benefits


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 either:
(a) to pay the employee benefits directly when they fall due; or
(b) to pay further amounts if the insurer does not pay all future
employee benefits relating to employee service in the current and
prior periods.
If the entity retains such a legal or constructive obligation, the entity shall
treat the plan as a defined benefit plan.
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.
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:
(a) accounts for a qualifying insurance policy as a plan asset (see
paragraph 8); and
(b) recognizes other insurance policies as reimbursement rights (if the
policies satisfy the criterion in paragraph 116).
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


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


When an employee has rendered service to an entity during a period, the
entity shall recognize the contribution payable to a defined contribution
plan in exchange for that service:
(a) as a liability (accrued expense), after deducting any contribution
already paid. If the contribution already paid exceeds the
contribution due for service before the end of the reporting period,
an entity shall recognize that excess as an asset (prepaid expense) to
the extent that the prepayment will lead to, for example, a
reduction in future payments or a cash refund.
(b) as an expense, unless another IFRS requires or permits the inclusion
of the contribution in the cost of an asset (see, for example, IAS 2
and IAS 16).
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


An entity shall disclose the amount recognized as an expense for defined
contribution plans.
Where required by IAS 24 an entity discloses information about contributions
to defined contribution plans for key management personnel.


Post-employment benefits: defined benefit plans


Accounting for defined benefit plans is complex because actuarial
assumptions 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.

Recognition and measurement


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 recognized for a defined benefit plan is
not necessarily the amount of the contribution due for the period.
Accounting by an entity for defined benefit plans involves the following steps:
(a) determining the deficit or surplus. This involves:
(i) using an actuarial technique, the projected unit credit method,
to make a reliable estimate of the ultimate cost to the entity of
the benefit that employees have earned in return for their
service in the current and prior periods (see paragraphs 67–69).
This requires an entity to determine how much benefit is
attributable to the current and prior periods (see paragraphs
70–74) and to make estimates (actuarial assumptions) about
demographic variables (such as employee turnover and
mortality) and financial variables (such as future increases in
salaries and medical costs) that will affect the cost of the
benefit (see paragraphs 75–98).
(ii) discounting that benefit in order to determine the present
value of the defined benefit obligation and the current service
cost (see paragraphs 67–69 and 83–86).
(iii) deducting the fair value of any plan assets (see paragraphs
113–115) from the present value of the defined benefit
obligation.

(b) determining the amount of the net defined benefit liability (asset) as
the amount of the deficit or surplus determined in (a), adjusted for any
effect of limiting a net defined benefit asset to the asset ceiling (see
paragraph 64).
(c) determining amounts to be recognized in profit or loss:
(i) current service cost (see paragraphs 70–74 and
paragraph 122A).
(ii) any past service cost and gain or loss on settlement (see
paragraphs 99–112).
(iii) net interest on the net defined benefit liability (asset) (see
paragraphs 123–126).

(d) determining the premeasurements of the net defined benefit liability
(asset), to be recognized in other comprehensive income, comprising:

(i) actuarial gains and losses (see paragraphs 128 and 129);
(ii) return on plan assets, excluding amounts included in net
interest on the net defined benefit liability (asset) (see
paragraph 130); and
(iii) any change in the effect of the asset ceiling (see paragraph 64),
excluding amounts included in net interest on the net defined
benefit liability (asset).

Where an entity has more than one defined benefit plan, the entity applies
these procedures for each material plan separately.
An entity shall determine the net defined benefit liability (asset) with
sufficient regularity that the amounts recognized in the financial
statements do not differ materially from the amounts that would be
determined at the end of the reporting period.
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.
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


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.
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
An entity shall recognize the net defined benefit liability (asset) in the
statement of financial position.

When an entity has a surplus in a defined benefit plan, it shall measure the
net defined benefit asset at the lower of:
(a) the surplus in the defined benefit plan; and
(b) the asset ceiling, determined using the discount rate specified in
paragraph 83.
A net defined benefit asset may arise where a defined benefit plan has been
overfunded or where actuarial gains have arisen. An entity recognizes a net
defined benefit asset in such cases because:
(a) the entity controls a resource, which is the ability to use the surplus to
generate future benefits;
(b) that control is a result of past events (contributions paid by the entity
and service rendered by the employee); and
(c) future economic benefits are available to the entity in the form of a
reduction in future contributions or a cash refund, either directly to
the entity or indirectly to another plan in deficit. The asset ceiling is
the present value of those future benefits.


Recognition and measurement: present value of defined


benefit obligations and current service cost
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:
(a) to apply an actuarial valuation method (see paragraphs 67–69);
(b) to attribute benefit to periods of service (see paragraphs 70–74); and
(c) to make actuarial assumptions (see paragraphs 75–98).


Actuarial valuation method


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.
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).

Example illustrating paragraph 68


A lump sum benefit is payable on termination of service and equal to
1 per cent of final salary for each year of service. The salary in year 1 is
CU10,000 and is assumed to increase at 7 per cent (compound) each year.
The discount rate used is 10 per cent per year. The following table shows
how the obligation builds up for an employee who is expected to leave at the
end of year 5, assuming that there are no changes in actuarial assumptions.
For simplicity, this example ignores the additional adjustment needed to
reflect the probability that the employee may leave the entity at an earlier or
later date.
Year 1 2 3 4 5
CU CU CU CU CU

Benefit attributed to:
– prior years 0 131 262 393 524
– current year
(1% of final salary) 131 131 131 131 131
– current and prior years 131 262 393 524 655
Opening obligation – 89 196 324 476
Interest at 10% – 9 20 33 48
Current service cost 89 98 108 119 131
Closing obligation 89 196 324 476 655
Note:
1 The opening obligation is the present value of the benefit attributed to prior
years.
2 The current service cost is the present value of the benefit attributed to the
current year.
3 The closing obligation is the present value of the benefit attributed to
current and prior years.

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 


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:
(a) the date when service by the employee first leads to benefits under
the plan (whether or not the benefits are conditional on further
service) until
(b) 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.
The projected unit credit method 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.


Examples illustrating paragraph 71


1 A defined benefit plan provides a lump sum benefit of CU100 payable on
retirement for each year of service.
A benefit of CU100 is attributed to each year. The current service cost is the present
value of CU100. The present value of the defined benefit obligation is the present
value of CU100, multiplied by the number of years of service up to the end of the
reporting period.
If the benefit is payable immediately when the employee leaves the entity, the
current service cost and the present value of the defined benefit obligation reflect
the date at which the employee is expected to leave. Thus, because of the effect of
discounting, they are less than the amounts that would be determined if the
employee left at the end of the reporting period.
2 A plan provides a monthly pension of 0.2 per cent of final salary for each
year of service. The pension is payable from the age of 65.
Benefit equal to the present value, at the expected retirement date, of a monthly
pension of 0.2 per cent of the estimated final salary payable from the expected
retirement date until the expected date of death is attributed to each year of service.
The current service cost is the present value of that benefit. The present value of the
defined benefit obligation is the present value of monthly pension payments of
0.2 per cent of final salary, multiplied by the number of years of service up to the
end of the reporting period. The current service cost and the present value of the
defined benefit obligation are discounted because pension payments begin at the
age of 65.
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.


Examples illustrating paragraph 72


1 A plan pays a benefit of CU100 for each year of service. The benefits vest
after ten years of service.
A benefit of CU100 is attributed to each year. In each of the first ten years, the
current service cost and the present value of the obligation reflect the probability
that the employee may not complete ten years of service.
2 A plan pays a benefit of CU100 for each year of service, excluding service
before the age of 25. The benefits vest immediately.
No benefit is attributed to service before the age of 25 because service before that
date does not lead to benefits (conditional or unconditional). A benefit of CU100 is
attributed to each subsequent year.
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. 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.
Examples illustrating paragraph 73
1 A plan pays a lump sum benefit of CU1,000 that vests after ten years of
service. The plan provides no further benefit for subsequent service.
A benefit of CU100 (CU1,000 divided by ten) is attributed to each of the first ten
years.
The current service cost in each of the first ten years reflects the probability that the
employee may not complete ten years of service. No benefit is attributed to
subsequent years. 

Examples illustrating paragraph 73


2 A plan pays a lump sum retirement benefit of CU2,000 to all employees
who are still employed at the age of 55 after twenty years of service, or
who are still employed at the age of 65, regardless of their length of
service.
For employees who join before the age of 35, service first leads to benefits under the
plan at the age of 35 (an employee could leave at the age of 30 and return at the
age of 33, with no effect on the amount or timing of benefits). Those benefits are
conditional on further service. Also, service beyond the age of 55 will lead to no
material amount of further benefits. For these employees, the entity attributes
benefit of CU100 (CU2,000 divided by twenty) to each year from the age of 35 to
the age of 55.
For employees who join between the ages of 35 and 45, service beyond twenty years
will lead to no material amount of further benefits. For these employees, the entity
attributes benefit of 100 (2,000 divided by twenty) to each of the first twenty years.
For an employee who joins at the age of 55, service beyond ten years will lead to no
material amount of further benefits. For this employee, the entity attributes benefit
of CU200 (CU2,000 divided by ten) to each of the first ten years.
For all employees, the current service cost and the present value of the obligation
reflect the probability that the employee may not complete the necessary period of
service.

3 A post-employment medical plan reimburses 40 per cent of an employee’s post-employment medical costs if the employee leaves after more

than ten and less than twenty years of service and 50 per cent of those
costs if the employee leaves after twenty or more years of service.
Under the plan’s benefit formula, the entity attributes 4 per cent of the present
value of the expected medical costs (40 per cent divided by ten) to each of the first
ten years and 1 per cent (10 per cent divided by ten) to each of the second ten years.
The current service cost in each year reflects the probability that the employee may
not complete the necessary period of service to earn part or all of the benefits. For
employees expected to leave within ten years, no benefit is attributed. 

Examples illustrating paragraph 73

4 A post-employment medical plan reimburses 10 per cent of an employee’s post-employment medical costs if the employee leaves after more

than ten and less than twenty years of service and 50 per cent of those
costs if the employee leaves after twenty or more years of service.
Service in later years will lead to a materially higher level of benefit than in earlier
years. Therefore, for employees expected to leave after twenty or more years, the
entity attributes benefit on a straight-line basis under paragraph 71. Service
beyond twenty years will lead to no material amount of further benefits. Therefore,
the benefit attributed to each of the first twenty years is 2.5 per cent of the present
value of the expected medical costs (50 per cent divided by twenty).

For employees expected to leave between ten and twenty years, the benefit attributed to each of the first ten years is 1 per cent of the present value of the expected

medical costs.
For these employees, no benefit is attributed to service between the end of the tenth
year and the estimated date of leaving.
For employees expected to leave within ten years, no benefit is attributed.
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:
(a) for the purpose of paragraph 70(b), salary increases do not lead to
further benefits, even though the amount of the benefits is dependent
on final salary; and
(b) the amount of benefit attributed to each period is a constant
proportion of the salary to which the benefit is linked.


Example illustrating paragraph 74


Employees are entitled to a benefit of 3 per cent of final salary for each year
of service before the age of 55.
Benefit of 3 per cent of estimated final salary is attributed to each year up to the age
of 55. This is the date when further service by the employee will lead to no material
amount of further benefits under the plan. No benefit is attributed to service after that
age.


Actuarial assumptions


Actuarial assumptions shall be unbiased and mutually compatible.
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:

(a) demographic assumptions about the future characteristics of current
and former employees (and their dependents) who are eligible for
benefits. Demographic assumptions deal with matters such as:
(i) mortality (see paragraphs 81 and 82);
(ii) rates of employee turnover, disability and early retirement;
(iii) the proportion of plan members with dependents who will be
eligible for benefits;
(iv) the proportion of plan members who will select each form of
payment option available under the plan terms; and
(v) claim rates under medical plans.
(b) financial assumptions, dealing with items such as:
(i) the discount rate (see paragraphs 83–86);
(ii) benefit levels, excluding any cost of the benefits to be met by
employees, and future salary (see paragraphs 87–95);
(iii) in the case of medical benefits, future medical costs, including
claim handling costs (ie the costs that will be incurred in
processing and resolving claims, including legal and adjuster’s
fees) (see paragraphs 96–98); and
(iv) taxes payable by the plan on contributions relating to service
before the reporting date or on benefits resulting from that
service.

Actuarial assumptions are unbiased if they are neither imprudent nor
excessively conservative.
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.
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.
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


An entity shall determine its mortality assumptions by reference to its best
estimate of the mortality of plan members both during and after
employment.
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


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.
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.
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.
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 costs
An entity shall measure its defined benefit obligations on a basis that
reflects:
(a) the benefits set out in the terms of the plan (or resulting from any
constructive obligation that goes beyond those terms) at the end of
the reporting period;
(b) any estimated future salary increases that affect the benefits
payable;

(c) the effect of any limit on the employer’s share of the cost of the
future benefits;
(d) contributions from employees or third parties that reduce the
ultimate cost to the entity of those benefits; and
(e) estimated future changes in the level of any state benefits that
affect the benefits payable under a defined benefit plan, if, and only
if, either:
(i) those changes were enacted before the end of the reporting
period; or
(ii) historical data, or other reliable evidence, indicate that those
state benefits will change in some predictable manner, for
example, in line with future changes in general price levels
or general salary levels.

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. This is the case if, for example:
(a) the entity has a history of increasing benefits, for example, to mitigate
the effects of inflation, and there is no indication that this practice will
change in the future;
(b) the entity is obliged, by either the formal terms of a plan (or a
constructive obligation that goes beyond those terms) or legislation, to
use any surplus in the plan for the benefit of plan participants (see
paragraph 108(c)); or
(c) benefits vary in response to a performance target or other criteria. For
example, the terms of the plan may state that it will pay reduced
benefits or require additional contributions from employees if the plan
assets are insufficient. The measurement of the obligation reflects the
best estimate of the effect of the performance target or other criteria.
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:
(a) past service cost, to the extent that they change benefits for service
before the change; and
(b) current service cost for periods after the change, to the extent that
they change benefits for service after the change.
Estimates of future salary increases take account of inflation, seniority,
promotion and other relevant factors, such as supply and demand in the
employment market.
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:

(a) the estimated life of the entity; and
(b) the estimated life of the plan.
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.
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. If contributions from employees
or third parties are linked to service, those contributions reduce the service
cost as follows:
(a) if the amount of the contributions is dependent on the number of
years of service, an entity shall attribute the contributions to periods of
service using the same attribution method required
by paragraph 70 for the gross benefit (ie either using the plan’s
contribution formula or on a straight-line basis); or
(b) if the amount of the contributions is independent of the number of
years of service, the entity is permitted to recognize such contributions
as a reduction of the service cost in the period in which the related
service is rendered. Examples of contributions that are independent of
the number of years of service include those that are a fixed
percentage of the employee’s salary, a fixed amount throughout the
service period or dependent on the employee’s age.
Paragraph A1 provides related application guidance.
For contributions from employees or third parties that are attributed to
periods of service in accordance with paragraph 93(a), changes in the
contributions result in:
(a) current and past service cost (if those changes are not set out in the
formal terms of a plan and do not arise from a constructive obligation);
or
(b) actuarial gains and losses (if those changes are set out in the formal
terms of a plan, or arise from a constructive obligation).
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.

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.
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 utilization or delivery patterns
and changes in the health status of plan participants.
The level and frequency of claims is particularly sensitive to the age, health
status and sex of employees (and their dependents) 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


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:
(a) the benefits offered under the plan and the plan assets before the
plan amendment, curtailment or settlement; and
(b) the benefits offered under the plan and the plan assets after the
plan amendment, curtailment or settlement.
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 recognizes past service cost before any gain or loss on settlement.
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.
When a plan amendment, curtailment or settlement occurs, an entity shall
recognize 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 recognize any change in that effect in
accordance with paragraph 57(d).


Past service cost


Past service cost is the change in the present value of the defined benefit
obligation resulting from a plan amendment or curtailment.
An entity shall recognize past service cost as an expense at the earlier of
the following dates:
(a) when the plan amendment or curtailment occurs; and
(b) when the entity recognizes related restructuring costs (see IAS 37) or
termination benefits (see paragraph 165).
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.
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.
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).
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.
Past service cost excludes:
(a) the effect of differences between actual and previously assumed salary
increases on the obligation to pay benefits for service in prior years
(there is no past service cost because actuarial assumptions allow for
projected salaries);
(b) underestimates and overestimates of discretionary pension increases
when an entity has a constructive obligation to grant such increases
(there is no past service cost because actuarial assumptions allow for
such increases);
(c) estimates of benefit improvements that result from actuarial gains or
from the return on plan assets that have been recognized in the
financial statements if the entity is obliged, by either the formal terms
of a plan (or a constructive obligation that goes beyond those terms) or
legislation, to use any surplus in the plan for the benefit of plan
participants, even if the benefit increase has not yet been formally
awarded (there is no past service cost because the resulting increase in
the obligation is an actuarial loss, see paragraph 88); and

(d) the increase in vested benefits (ie benefits that are not conditional on
future employment, see paragraph 72) when, in the absence of new or
improved benefits, employees complete vesting requirements (there is
no past service cost because the entity recognized the estimated cost of
benefits as current service cost as the service was rendered).


Gains and losses on settlement


The gain or loss on a settlement is the difference between:
(a) the present value of the defined benefit obligation being settled, as
determined on the date of settlement; and
(b) the settlement price, including any plan assets transferred and any
payments made directly by the entity in connection with the
settlement.
An entity shall recognize a gain or loss on the settlement of a defined
benefit plan when the settlement occurs.
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.
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 assets


The fair value of any plan assets is deducted from the present value of the
defined benefit obligation in determining the deficit or surplus.
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.

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


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:
(a) recognize its right to reimbursement as a separate asset. The entity
shall measure the asset at fair value.
(b) disaggregate and recognize changes in the fair value of its right to
reimbursement in the same way as for changes in the fair value of
plan assets (see paragraphs 124 and 125). The components of defined
benefit cost recognized in accordance with paragraph 120 may be
recognized net of amounts relating to changes in the carrying
amount of the right to reimbursement.
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).
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 recognizes 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.
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


An entity shall recognize 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:
(a) service cost (see paragraphs 66–112 and paragraph 122A) in profit or
loss;
(b) net interest on the net defined benefit liability (asset) (see
paragraphs 123–126) in profit or loss; and

(c) remeasurements of the net defined benefit liability (asset) (see
paragraphs 127–130) in other comprehensive income.
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 and IAS 16). Any post-employment benefit costs included in the cost of
such assets include the appropriate proportion of the components listed in
paragraph 120.
Remeasurements of the net defined benefit liability (asset) recognized in
other comprehensive income shall not be reclassified to profit or loss in a
subsequent period. However, the entity may transfer those amounts
recognized in other comprehensive income within equity.


Current service cost


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)


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.
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:
(a) the net defined benefit liability (asset) determined in accordance
with paragraph 99(b); and
(b) the discount rate used to remeasure the net defined benefit liability
(asset) in accordance with paragraph 99(b).
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.
Net interest on the net defined benefit liability (asset) 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.

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).
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)
Remeasurements of the net defined benefit liability (asset) comprise:
(a) actuarial gains and losses (see paragraphs 128 and 129);
(b) the return on plan assets (see paragraph 130), excluding amounts
included in net interest on the net defined benefit liability (asset) (see
paragraph 125); and
(c) any change in the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit liability (asset) (see
paragraph 126).
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:
(a) unexpectedly high or low rates of employee turnover, early retirement
or mortality or of increases in salaries, benefits (if the formal or
constructive terms of a plan provide for inflationary benefit increases)
or medical costs;

(b) the effect of changes to assumptions concerning benefit payment
options;
(c) the effect of changes in estimates of future employee turnover, early
retirement or mortality or of increases in salaries, benefits (if the
formal or constructive terms of a plan provide for inflationary benefit
increases) or medical costs; and
(d) the effect of changes in the discount rate.
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.
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.


Presentation
Offset


An entity shall offset an asset relating to one plan against a liability
relating to another plan when, and only when, the entity:
(a) has a legally enforceable right to use a surplus in one plan to settle
obligations under the other plan; and
(b) intends either to settle the obligations on a net basis, or to realize
the surplus in one plan and settle its obligation under the other
plan simultaneously.
The offsetting criteria are similar to those established for financial
instruments in IAS 32 Financial Instruments: Presentation.


Current/non-current distinction


Some entities distinguish current assets and liabilities from non-current assets
and liabilities. 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


Paragraph 120 requires an entity to recognize 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.

Disclosure


An entity shall disclose information that:
(a) explains the characteristics of its defined benefit plans and risks
associated with them (see paragraph 139);
(b) identifies and explains the amounts in its financial statements
arising from its defined benefit plans (see paragraphs 140–144); and
(c) describes how its defined benefit plans may affect the amount,
timing and uncertainty of the entity’s future cash flows (see
paragraphs 145–147).
To meet the objectives in paragraph 135, an entity shall consider all the
following:
(a) the level of detail necessary to satisfy the disclosure requirements;
(b) how much emphasis to place on each of the various requirements;
(c) how much aggregation or disaggregation to undertake; and
(d) whether users of financial statements need additional information to
evaluate the quantitative information disclosed.
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:
(a) between amounts owing to active members, deferred members, and
pensioners.
(b) between vested benefits and accrued but not vested benefits.
(c) between conditional benefits, amounts attributable to future salary
increases and other benefits.
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:
(a) different geographical locations.
(b) different characteristics such as flat salary pension plans, final salary
pension plans or post-employment medical plans.
(c) different regulatory environments.
(d) different reporting segments.
(e) different funding arrangements (eg wholly unfunded, wholly or partly
funded).

Characteristics of defined benefit plans and risks associated with
them


An entity shall disclose:
(a) information about the characteristics of its defined benefit plans,
including:
(i) the nature of the benefits provided by the plan (eg final salary
defined benefit plan or contribution-based plan with
guarantee).
(ii) a description of the regulatory framework in which the plan
operates, for example the level of any minimum funding
requirements, and any effect of the regulatory framework on
the plan, such as the asset ceiling (see paragraph 64).
(iii) a description of any other entity’s responsibilities for the
governance of the plan, for example responsibilities of trustees
or of board members of the plan.

(b) a description of the risks to which the plan exposes the entity, focused
on any unusual, entity-specific or plan-specific risks, and of any
significant concentrations of risk. For example, if plan assets are
invested primarily in one class of investments, eg property, the plan
may expose the entity to a concentration of property market risk.
(c) a description of any plan amendments, curtailments and settlements.


Explanation of amounts in the financial statements


An entity shall provide a reconciliation from the opening balance to the
closing balance for each of the following, if applicable:
(a) the net defined benefit liability (asset), showing separate
reconciliations for:
(i) plan assets.
(ii) the present value of the defined benefit obligation.
(iii) the effect of the asset ceiling.
(b) any reimbursement rights. An entity shall also describe the
relationship between any reimbursement right and the related
obligation.
Each reconciliation listed in paragraph 140 shall show each of the following, if
applicable:
(a) current service cost.
(b) interest income or expense.
(c) premeasurements of the net defined benefit liability (asset), showing
separately:

(i) the return on plan assets, excluding amounts included in
interest in (b).
(ii) actuarial gains and losses arising from changes in demographic
assumptions (see paragraph 76(a)).
(iii) actuarial gains and losses arising from changes in financial
assumptions (see paragraph 76(b)).
(iv) changes in the effect of limiting a net defined benefit asset to
the asset ceiling, excluding amounts included in interest in (b).
An entity shall also disclose how it determined the maximum
economic benefit available, ie whether those benefits would be
in the form of refunds, reductions in future contributions or a
combination of both.

(d) past service cost and gains and losses arising from settlements. As
permitted by paragraph 100, past service cost and gains and losses
arising from settlements need not be distinguished if they occur
together.
(e) the effect of changes in foreign exchange rates.
(f) contributions to the plan, showing separately those by the employer
and by plan participants.
(g) payments from the plan, showing separately the amount paid in
respect of any settlements.
(h) the effects of business combinations and disposals.
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) and those that do not. For example,
and considering the level of disclosure discussed in paragraph 136, an entity
could distinguish between:
(a) cash and cash equivalents;
(b) equity instruments (segregated by industry type, company size,
geography etc);
(c) debt instruments (segregated by type of issuer, credit quality,
geography etc);
(d) real estate (segregated by geography etc);
(e) derivatives (segregated by type of underlying risk in the contract, for
example, interest rate contracts, foreign exchange contracts, equity
contracts, credit contracts, longevity swaps etc);
(f) investment funds (segregated by type of fund);
(g) asset-backed securities; and
(h) structured debt.

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.
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.


Amount, timing and uncertainty of future cash flows


An entity shall disclose:
(a) a sensitivity analysis for each significant actuarial assumption (as
disclosed under paragraph 144) as of the end of the reporting period,
showing how the defined benefit obligation would have been affected
by changes in the relevant actuarial assumption that were reasonably
possible at that date.
(b) the methods and assumptions used in preparing the sensitivity
analyses required by (a) and the limitations of those methods.
(c) changes from the previous period in the methods and assumptions
used in preparing the sensitivity analyses, and the reasons for such
changes.
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.
To provide an indication of the effect of the defined benefit plan on the
entity’s future cash flows, an entity shall disclose:
(a) a description of any funding arrangements and funding policy that
affect future contributions.
(b) the expected contributions to the plan for the next annual reporting
period.
(c) information about the maturity profile of the defined benefit
obligation. This will include the weighted average duration of the
defined benefit obligation and may include other information about
the distribution of the timing of benefit payments, such as a maturity
analysis of the benefit payments.

Multi-employer plans


If an entity participates in a multi-employer defined benefit plan, it shall
disclose:
(a) a description of the funding arrangements, including the method used
to determine the entity’s rate of contributions and any minimum
funding requirements.
(b) a description of the extent to which the entity can be liable to the plan
for other entities’ obligations under the terms and conditions of the
multi-employer plan.
(c) a description of any agreed allocation of a deficit or surplus on:
(i) wind-up of the plan; or
(ii) the entity’s withdrawal from the plan.
(d) if the entity accounts for that plan as if it were a defined contribution
plan in accordance with paragraph 34, it shall disclose the following,
in addition to the information required by (a)–(c) and instead of the
information required by paragraphs 139–147:
(i) the fact that the plan is a defined benefit plan.
(ii) the reason why sufficient information is not available to enable
the entity to account for the plan as a defined benefit plan.
(iii) the expected contributions to the plan for the next annual
reporting period.
(iv) information about any deficit or surplus in the plan that may
affect the amount of future contributions, including the basis
used to determine that deficit or surplus and the implications,
if any, for the entity.
(v) an indication of the level of participation of the entity in the
plan compared with other participating entities. Examples of
measures that might provide such an indication include the
entity’s proportion of the total contributions to the plan or the
entity’s proportion of the total number of active members,
retired members, and former members entitled to benefits, if
that information is available.

Defined benefit plans that share risks between entities under
common control


If an entity participates in a defined benefit plan that shares risks between
entities under common control, it shall disclose:
(a) the contractual agreement or stated policy for charging the net defined
benefit cost or the fact that there is no such policy.
(b) the policy for determining the contribution to be paid by the entity.

(c) if the entity accounts for an allocation of the net defined benefit cost
as noted in paragraph 41, all the information about the plan as a whole
required by paragraphs 135–147.
(d) if the entity accounts for the contribution payable for the period as
noted in paragraph 41, the information about the plan as a whole
required by paragraphs 135–137, 139, 142–144 and 147(a) and (b).
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:
(a) that group entity’s financial statements separately identify and
disclose the information required about the plan; and
(b) that group entity’s financial statements are available to users of the
financial statements on the same terms as the financial statements of
the entity and at the same time as, or earlier than, the financial
statements of the entity.


Disclosure requirements in other IFRSs


Where required by IAS 24 an entity discloses information about:
(a) related party transactions with post-employment benefit plans; and
(b) post-employment benefits for key management personnel.
Where required by IAS 37 an entity discloses information about contingent
liabilities arising from post-employment benefit obligations.


Other long-term employee benefits


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:
(a) long-term paid absences such as long-service or sabbatical leave;
(b) jubilee or other long-service benefits;
(c) long-term disability benefits;
(d) profit-sharing and bonuses; and
(e) deferred remuneration.
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 recognize
premeasurements in other comprehensive income.

Recognition and measurement


In recognizing 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 recognizing and measuring any
reimbursement right.
For other long-term employee benefits, an entity shall recognize 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:
(a) service cost (see paragraphs 66–112 and paragraph 122A);
(b) net interest on the net defined benefit liability (asset) (see
paragraphs 123–126); and
(c) premeasurements of the net defined benefit liability (asset) (see
paragraphs 127–130).
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 recognized when an event occurs that causes a long-term disability.


Disclosure


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. IAS 1 requires disclosure of employee benefits
expense.


Termination benefits


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.
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.

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:
(a) enhancement of post-employment benefits, either indirectly through
an employee benefit plan or directly.
(b) salary until the end of a specified notice period if the employee renders
no further service that provides economic benefits to the entity.
Indicators that an employee benefit is provided in exchange for services
include the following:
(a) the benefit is conditional on future service being provided (including
benefits that increase if further service is provided).
(b) the benefit is provided in accordance with the terms of an employee
benefit plan.
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.
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


An entity shall recognize a liability and expense for termination benefits at
the earlier of the following dates:
(a) when the entity can no longer withdraw the offer of those benefits;
and
(b) when the entity recognizes costs for a restructuring that is within
the scope of IAS 37 and involves the payment of termination
benefits.

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:
(a) when the employee accepts the offer; and
(b) when a restriction (eg a legal, regulatory or contractual requirement or
other restriction) on the entity’s ability to withdraw the offer takes
effect. This would be when the offer is made, if the restriction existed
at the time of the offer.
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:
(a) Actions required to complete the plan indicate that it is unlikely that
significant changes to the plan will be made.
(b) The plan identifies the number of employees whose employment is to
be terminated, their job classifications or functions and their locations
(but the plan need not identify each individual employee) and the
expected completion date.
(c) The plan establishes the termination benefits that employees will
receive in sufficient detail that employees can determine the type and
amount of benefits they will receive when their employment is
terminated.
When an entity recognizes termination benefits, the entity may also have to
account for a plan amendment or a curtailment of other employee benefits
(see paragraph 103).


Measurement


An entity shall measure termination benefits on initial recognition, and
shall measure and recognize 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:
(a) if the termination benefits are expected to be settled wholly before
twelve months after the end of the annual reporting period in
which the termination benefit is recognized, the entity shall apply
the requirements for short-term employee benefits.
(b) if the termination benefits are not expected to be settled wholly
before twelve months after the end of the annual reporting period,
the entity shall apply the requirements for other long-term
employee benefits.

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.


Example illustrating paragraphs 159–170


Background
As a result of a recent acquisition, an entity plans to close a factory in ten
months and, at that time, terminate the employment of all of the remaining
employees at the factory. Because the entity needs the expertise of the
employees at the factory to complete some contracts, it announces a plan of
termination as follows.
Each employee who stays and renders service until the closure of the factory
will receive on the termination date a cash payment of CU30,000. Employees
leaving before closure of the factory will receive CU10,000.
There are 120 employees at the factory. At the time of announcing the plan,
the entity expects 20 of them to leave before closure. Therefore, the total
expected cash outflows under the plan are CU3,200,000 (ie 20 × CU10,000 +
100 × CU30,000). As required by paragraph 160, the entity accounts for
benefits provided in exchange for termination of employment
as termination benefits and accounts for benefits provided in exchange for
services as short-term employee benefits.
Termination benefits
The benefit provided in exchange for termination of employment is
CU10,000. This is the amount that an entity would have to pay for
terminating the employment regardless of whether the employees stay and
render service until closure of the factory or they leave before closure. Even
though the employees can leave before closure, the termination of all
employees’ employment is a result of the entity’s decision to close the
factory and terminate their employment (ie all employees will leave
employment when the factory closes). Therefore the entity recognizes a
liability of CU1,200,000 (ie 120 × CU10,000) for the termination benefits
provided in accordance with the employee benefit plan at the earlier of
when the plan of termination is announced and when the entity recognizes
the restructuring costs associated with the closure of the factory.
Benefits provided in exchange for service
The incremental benefits that employees will receive if they provide services
for the full ten-month period are in exchange for services provided over that
period. The entity accounts for them as short-term employee
benefits because the entity expects to settle them before twelve months after
the end of the annual reporting period. In this example, discounting is not
required, so an expense of CU200,000 (ie CU2,000,000 ÷ 10) is recognised in
each month during the service period of ten months, with a corresponding
increase in the carrying amount of the liability.

Disclosure


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.
IAS 1 requires disclosure of employee benefits expense.


Transition and effective date


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.
An entity shall apply this Standard retrospectively, in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors, except that:
(a) an entity need not adjust the carrying amount of assets outside the
scope of this Standard for changes in employee benefit costs that were
included in the carrying amount before the date of initial application.
The date of initial application is the beginning of the earliest prior
period presented in the first financial statements in which the entity
adopts this Standard.
(b) in financial statements for periods beginning before 1 January 2014, an
entity need not present comparative information for the disclosures
required by paragraph 145 about the sensitivity of the defined benefit
obligation.
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.
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.
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.
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 recognized in retained earnings at
the beginning of that period.
IFRS 17, issued in May 2017, amended the footnote to paragraph 8. An entity
shall apply that amendment when it applies IFRS 17.

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. If an entity
applies these amendments earlier, it shall disclose that fact.

Appendix A

Application 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.
The accounting requirements for contributions from employees or third
parties are illustrated in the diagram below. 

Appendix B
Amendments 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.

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

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