|This paper summarizes the rules embodied in the International Accounting Standard (IAS) 19 on Employee Benefits issued by the International Accounting Standard Board (IASB). IAS 19 was originally issued in 1983 and subsequently revised and amended in 1993, 1998, 2000 and 2002. IAS 19 applies to all employee benefits offered by an employer to employees and their dependents and beneficiaries, under formal employer plans, or national, state, industry and multi-employer plans or informal practices giving rise to a constructive obligation.
IAS 19 covers post-employment benefits including pensions, organized either in the form of contribution defined plans - where the employer has no legal or constructive obligation other than the contributions payable under the plan - or of schemes called defined benefits plans. Accounting for the latter is more complex owing to the actuarial techniques and assumptions employed to measure the defined benefit obligation and expense.
IAS 19 requires entities to recognize in the balance sheet the net total of the following as the defined benefit liability:
(a) the present value (PV) of the defined benefit obligation (gross obligations before deducting the fair value of plan assets);
(b) plus any actuarial gains (less any actuarial losses) not recognized because of the "corridor" approach;
(c) minus any past service cost not yet recognized; and
(d) minus the fair value at the balance sheet date of plan assets (if any) out of which obligations are to be settled directly.
The enterprise should recognize in the income statement the net total of the following as expense (or income), except to the extent that another IAS requires or permits their inclusion in the cost of an asset:
(1) current service cost;
(2) interest cost;
(3) the expected return on any plan assets and any reimbursement rights;
(4) actuarial gains and losses to the extent that they are recognized;
(5) past service cost to the extent required; and
(6) the effect of any curtailment or settlement of the defined benefit plan.
Information on the on-going "project" of the IASB on the revision of IAS 19 is provided in the contribution to the EDG by Anne McGeachin, Project Manager for IASB, posted on June 24, 2003 (at: http://www.imf.org/forum/Message2.asp?forumid=10&messageid=340&threadid=340)
Ahmad Hamidi-Ravari is Project Manager for the IFAC PSC.
The IFAC (International Federation of Accountants) is the global organization for the accountancy profession (at www.ifac.org). It works with its 155 member organizations in 113 countries to protect the public interest by encouraging high quality practices by the world's accountants. IFAC members represent 2.4 million accountants employed in public practice, industry and commerce, government, and academe. The Public Sector Committee (PSC) of IFAC issues International Public Sector Accounting Standards (IPSASs). IPSASs are based, to the extent appropriate for the public sector, on International Financial Reporting Standards (formerly IAS), issued by the IASB.
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