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IAS 19 Employee Benefits: Allocation of Benefits to Periods of Service

Go To List of IFRIC Issues Issue Description: IAS 19.67 requires that benefits generally should be allocated to periods of service according to the benefit formula. However, if the benefit formula allocates a materially higher level of benefit to later years of service, then straight-line allocation should be used. The issue is whether expected increases in salary should be taken into account in determining whether a benefit formula expressed in terms of current salary will give rise to materially higher levels of benefits in later years. Discussion at IFRIC Meeting July 2003: The IFRIC agreed to suggest to the IASB that the Board consider addressing the issue as part of its short-term IFRS-US GAAP convergence project. Discussion at IFRIC Meeting December 2003 The staff asked whether they should address guidance on how to allocate the benefits to periods of service – specifically, whether future salaries should be included in the measurement of the plan liability. The IFRIC previously could not interpret IAS 19 in a manner it thought appropriate and therefore had previously asked the IASB to amend IAS 19. The staff noted that there will not be a short-term amendment to IAS 19 given the delay in the performance reporting project. Therefore IFRIC is being asked whether it wants to address this issue again. There was general agreement that IAS 19 requires the inclusion of future salaries in the measurement. However, the IFRIC was uncomfortable with that answer. It was noted that the EITF agreed that future salaries should not be used to measure the liability, although it questioned the logic of how the EITF came to that decision. The IFRIC reaffirmed its position that it will not address this issue since (a) it is not a priority issue, (b) IAS 19 appears clear enough to interpret, and (c) any proposed interpretation by IFRIC would require an amendment to IAS 19 which would not happen anytime soon.