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IAS 19 Valuations

IAS 19 addresses generally accepted accounting and actuarial standards for the reporting of Employee Benefits schemes. Valuing End of Service Gratuities as per IAS 19 and commissioning an Actuarial Report demonstrates good Corporate Governance. It also helps obtain better understanding of the amount and sensitivity of the liabilities and whether the accrued liability is under or over provisioned.

IAS 19 Employee Benefits – What is it?

“IAS 19 Employee Benefits” prescribes the accounting and disclosure requirements by employers for employee benefits, including short-term benefits (e.g. wages and salaries, annual leave), post-employment benefits (e.g. retirement benefits), other long-term benefits (e.g. long service leave) and termination benefits. This accounting standard establishes the principle that the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable, and outlines how each category of employee benefits are measured, providing detailed guidance in particular about post-employment benefits.

The accounting requirements for defined employee benefits, and for End of Service Benefits in particular, are complex and the liabilities are frequently material. They are associated with long term projections and this gives rise to challenges in measuring the cost attributable to each year. Defined Employee Benefits includes post-employment benefits (such as End of Service Benefits).

To measure the Defined Benefit Liabilities under IAS19, an actuarial valuation is required based on a set of financial and demographic assumptions. The assumptions are based on the management’s best estimates, supported by historical data and market information. To meet the complex reporting requirements of IAS 19, skilled actuarial personnel, both in qualification and in specific experience, is required. It is also important for management to understand the uncertainties related to the Defined Benefit Liabilities and how their measurement is affected by market conditions (e.g. fixed income yields) and the internal environment of the company (e.g. wages policy, employees turnover etc.). It is also important to understand the impact these liabilities will have on the company’s future cashflow.

Deloitte has a committed team of actuarial specialists on the ground ready to address all your enquiries and offer a comprehensive assessment of End of Service Benefits.
 

Why is it important for employers?

Valuing Defined Benefit Liabilities as per IAS 19 and commissioning an Actuarial Report offers numerous benefits to employers:

  • It demonstrates good corporate governance;
  • An actuarial valuation safeguards fair market valuation of liabilities providing comfort to stakeholders;
  • It also helps organisations, operating in countries where International Accounting Standards are not yet fully adopted, to ensure their future compliance with the rapidly developing regulatory and accounting requirements;
  • Provides an assessment of risks by measuring the sensitivity to changes in parameters such as long term interest rates, salary increases and employee termination rates;
  • It helps avoid surprises upon a major corporate transaction.

Simplistic approaches to valuing End of Service Benefits EOS gratuities, still a rather common approach, can materially misstate the underlying value of the liability. To understand how Deloitte can assist you in obtaining an actuarial valuation and to further discuss your needs you can reach our team below.

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