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

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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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