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Update on Indian GAAP: Revised Accounting Standard (AS) 15 on Employee Benefits

24 Apr 2006

The Institute of Chartered Accountants of India (ICAI) has specified that the Revised AS 15 Employee Benefits will become mandatory for accounting periods commencing on or after 1 April, 2006.

The Revised AS 15 reflects limited revisions to the existing standard, including the following:


The revised AS 15 is applicable in its entirety to all Level I enterprises (see the January 2004 Update for definition of Levels I, II, and III). For Levels II and III enterprises whose average number of persons employed is more than 50 during the year (referred as category B), AS 15 will apply in its entirety, except for the following:

  • Recognition and measurement of short-term accumulating compensated absences which are non-vesting.
  • Discounting of the amount of defined contribution and termination benefits which fall due for a period of more than 12 months after the balance sheet date.
  • The elaborate recognition and measurement principles and disclosures relating to defined benefit plans and other long-term employee benefits. However, such enterprises should actuarially determine and provide for such liability based on the Projected Unit Credit Method for which the discount rate should be determined with reference to market yields at the balance sheet date on government bonds. Further, disclosure should be made in respect of the actuarial assumptions as provided in AS 15.

In respect of enterprises which employed less than 50 people during the year (referred as category C), they may calculate and account for the accrued liability under defined benefit plans and other long-term benefit plans by some other rational method on the assumption that such benefits are payable to all employees at the end of the year. Accordingly, it is not necessary to determine the liability based on the actuarial method.

In case of a change in the status of an enterprise from category A to B/C or from category B to C, the respective exemptions as specified above would not apply for a period of two consecutive years. Further, in the first year in respect of which the change becomes applicable, the corresponding previous year's figures need not be given for the disclosures.

Termination Benefits

Where an enterprise incurs expenditure in respect of termination benefits on or before 31 March, 2009, the enterprise may choose to follow the accounting policy of deferring such expenditure over its pay-back period. However, expenditure so deferred cannot be carried forward beyond accounting period commencing on or before 31 March, 2010.


AS 15 has a now mandated additional disclosure to enable users to evaluate the nature of defined benefit plans and the financial effects thereof during the period. Further, disclosure is also required of the reconciliation of the opening and closing balances of the present value of defined benefit obligations and the fair value of the plan assets. Finally, specific assertions are also required with regard to actuarial assumptions which are made and other related matters. An enterprise availing exemption as category B or C, as the case may be, should disclose the fact. An enterprise under category C should additionally disclose the method used to calculate and provide for the accrued liability.


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US, Japanese life insurers propose accounting standard

24 Apr 2006

An international accounting standard for life insurance developed jointly by a group of eleven large life insurance companies in the United States and the four largest life insurance companies in Japan has been submitted for consideration by the International Accounting Standards Board.

The proposal, which includes 16 principles and related guidance, is presented in a paper titled (PDF 92k), accompanied by a (PDF 54k). The paper focuses on the measurement of life insurance, annuity contracts that qualify as insurance, long-term care insurance, disability insurance, and other types of noncancelable or guaranteed renewable health insurance contracts issued by either a life or nonlife company. The 16 proposed principles are as follows:

Principles Proposed by US and Japanese Insurers

  • Principle 1: The Net Insurance Liability (or Liability) should be based on the present value of all future cash flows associated with the portfolio of insurance contracts being valued.
  • Principle 2: The Net Insurance Liability at all times must be sufficient to provide for payment of all expected future obligations with adequate provision for risk and uncertainty.
  • Principle 3: Profit should be recognized in line with the release from risk.
  • Principle 4: On initial issue there should be no accounting gain or loss.
  • Principle 5: A policyholder intangible (or Deferred Acquisition Cost) asset should be established when a policy (or block of policies) is issued and amortized over time into earnings in line with the policy's profit profile.
  • Principle 6: Insurance liabilities should reflect the inherent risk and uncertainty of future cash flows.
  • Principle 7: Assumptions underlying the measurement of insurance liabilities and intangible assets should be periodically reviewed and changed, if appropriate.
  • Principle 8: Liabilities should reflect the value of all financial options and guarantees.
  • Principle 9: Measurement should be based on a portfolio of exposures.
  • Principle 10: Policyholder behavior should be reflected in the measurement of all liabilities.
  • Principle 11: Renewal options or provisions that obligate the insurer to continue to provide coverages should be recognized to the extent they are included in the contract or required by law or regulation.
  • Principle 12: The credit standing of an entity should not be considered in the valuation of insurance liabilities.
  • Principle 13: Entities should have the ability to measure assets and liabilities on a consistent basis to reflect the way companies manage risk.
  • Principle 14: Liabilities supported by a separate account, a unit-linked fund or a similar dedicated portfolio should reflect the expected returns on that portfolio.
  • Principle 15: Liabilities for participating contracts must include provision for the expected payout of policyholder dividends, additional benefits provided or any other result of the participating mechanism.
  • Principle 16: Insurance policies with flexible premiums should only be unbundled in the event that the separation would result in material differences in the overall value of the contract and either
    • a. The deposit and insurance components of the contract are separately priced and separately managed by the insurer; or
    • b. Separate measurement of a deposit component is necessary to recognize rights and obligations of the insurer and the policyholder.
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CGA-Canada concerned about IASB's SME direction

23 Apr 2006

While expressing strong support for a global set of financial reporting standards for small and medium-sized entities (SMEs), Canada's Certified General Accountants has issued a Press Release (PDF 18k) expressing concern that the decisions made to date by the IASB in its Project to Develop Standards for SMEs do not go far enough toward achieving the goal of simplification.

CGA-Canada chairman Dany Girard, who serves on the IASB's SME Working Group, said:

There has been broad agreement in recent years that a set of stringent standards tailored to the unique needs of SMEs is necessary. Progress has been made by international standard setters toward reaching that goal. But recently, the International Accounting Standards Board (IASB) has wavered in its commitment to address the needs of the SME sector. The IASB's current direction is not acceptable to the users of SME financial statements.

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New PCAOB ethics and independence rules

22 Apr 2006

On 19 April 2006, the US Securities and Exchange Commission approved the rules on auditor ethics, independence, and tax services that had been adopted by the Public Company Accounting Oversight Board (PCAOB).

The rules establish a general obligation requiring a registered public accounting firm and its associated persons to be independent of the firm's audit clients throughout the audit and professional engagement period. The rules identify circumstances in which the provision of tax services impairs an auditor's independence, including services related to marketing, planning, or opining in favor of the tax treatment of, among other things, transactions that are based on aggressive interpretations of applicable tax laws and regulations. Click for:
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Public Sector Accounting Standards Board update

21 Apr 2006

We have posted the April 2006 issue of IPSASB Update.

The newsletter reports the decisions made at the meeting of the International Public Sector Accounting Standards Board (IPSASB) in late March 2006. The IPSASB develops standards for accounting and financial reporting by national, regional, and local governments and related governmental agencies. Those standards are generally based on IFRSs, and profit-oriented government business enterprises are required to comply directly with IFRSs. The IPSASB's current work programme includes an ongoing project on 'Convergence with International Financial Reporting Standards (IFRSs) issued by the IASB':
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New IASB Due Process Handbook

20 Apr 2006

The Trustees of the International Accounting Standards Committee Foundation have published a new Due Process Handbook for the IASB.

The Handbook describes the IASB's consultative procedures. Those procedures require that all decisions are made in public meetings and that proposals receive appropriate public scrutiny. The Due Process Handbook does not mark a significant change in existing IASB practice and is meant to provide interested parties and the general public with a better understanding of the IASB's operations. The Trustees had finalised the handbook at their March 2006 meeting. Click for Press Release (PDF 57k). Click here to download the Due Process Handbook from IASCF Website.
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Comment deadline on management commentary paper

18 Apr 2006

We remind you that the deadline is 28 April 2006 for commenting on the Management Commentary Discussion Paper that was published by the IASB on 27 October 2005. The paper considers the role the IASB could play in improving the quality of the management commentary that accompanies financial statements.

It was prepared for the IASB by staff of its partner standard-setters from Canada, Germany, New Zealand, and the United Kingdom. The paper reviews existing national requirements or principles on management commentary and offers recommendations on how the IASB might promote the wider adoption of best practice in the interests of investors and others who use financial reports. While the IASB has discussed the paper, it has not yet developed tentative views on the authors' recommendations.
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Accounting Roundup –first quarter 2006 review

17 Apr 2006

We have posted the (PDF 382k), prepared by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP (USA).

During the first quarter of 2006, accounting standard-setters and accounting regulators issued a number of final and proposed FASB Interpretations, FSPs, EITF consensuses, SEC rules, PCAOB rules, IFRSs, etc. affecting accounting, financial reporting, and corporate governance. Accounting Roundup: 1st Quarter in Review–2006, presents brief descriptions of those pronouncements, as well as certain other regulatory and professional developments in accounting and financial reporting. The articles included derive from issues of the Accounting Roundup newsletters published in the first quarter of 2006, with updates added where appropriate. You will find past issues Here.
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Standard setting activity in Asia-Pacific region

17 Apr 2006

We have updated the following pages on this website to reflect recent standard setting activity in the Asia-Pacific region: Australia Hong Kong SAR Japan Malaysia New Zealand Philippines Singapore Taiwan .

We have updated the following pages on this website to reflect recent standard setting activity in the Asia-Pacific region:

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IAS Plus Newsletters for April 2006 are posted

16 Apr 2006

The April 2006 IAS Plus Quarterly Newsletter has been published.

The newsletter reports on the 1st quarter 2006 activities of the IASB, the IFRIC, and the IASC Foundation, and also on worldwide issues and events relating to international financial reporting. The Asia-Pacific edition has the same 30-page news content as the Global Edition plus 8 more pages of accounting standards updates for the Asia-Pacific region. You will find all Past IAS Plus Issues Here. Sign up for Free Subscription by Email.

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