IAS 19 — Employee Benefits (1998) (superseded)
IAS 19 Employee Benefits (1998) outlines the accounting requirements for employee benefits, including short-term benefits (e.g. wages and salaries, annual leave), post-employment benefits such as retirement benefits, other long-term benefits (e.g. long service leave) and termination benefits. The 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.
IAS 19 (1998) is superseded by an amended version, IAS 19 Employee Benefits (2011), effective for annual periods beginning on or after 1 January 2013.
History of IAS 19
|April 1980||Exposure Draft E16 Accounting for Retirement Benefits in Financial Statements of Employers published|
|January 1983||IAS 19 Accounting for Retirement Benefits in Financial Statements of Employers issued||Operative for financial statements covering periods beginning on or after 1 January 1985|
|December 1992||E47 Retirement Benefit Costs published|
|December 1993||IAS 19 Retirement Benefit Costs issued||Operative for financial statements covering periods beginning on or after 1 January 1995|
|October 1996||E54 Employee Benefits published||Comment deadline 31 January 1997|
|February 1998||IAS 19 Employee Benefits issued||Operative for financial statements covering periods beginning on or after 1 January 1999|
|July 2000||E67 Pension Plan Assets published|
|October 2000||Amended to change the definition of plan assets and to introduce recognition, measurement and disclosure requirements for reimbursements||Operative for annual financial statements covering periods beginning on or after 1 January 2001|
|May 2002||Amended to prevent the recognition of gains solely as a result of actuarial losses or past service cost and the recognition of losses solely as a result of actuarial gains||Operative for annual financial statements covering periods ending on or after 31 May 2002|
|5 December 2002||ED 2 Share-based Payment published, proposing to replace the equity compensation benefits requirements of IAS 19||Comment deadline 7 March 2003|
|February 2004||Equity compensation benefits requirements replaced by IFRS 2 Share-based Payment||Effective for annual reporting periods beginning on or after 1 January 2005|
|29 April 2004||Exposure Draft Proposed Amendments to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures published||Comment deadline 31 July 2004|
|19 December 2004||Actuarial Gains and Losses, Group Plans and Disclosures issued||Effective for annual periods beginning on or after 1 January 2006|
|22 May 2008||Amended by Annual Improvements to IFRSs (negative past service costs and curtailments)||Effective for annual periods beginning on or after 1 January 2009|
|20 August 2009||ED/2009/10 Discount Rate for Employee Benefits (Proposed amendments to IAS 19) published||Comment deadline 30 September 2009
(proposals were not finalised)
|29 April 2010||ED/2010/3 Defined Benefit Plans (Proposed amendments to IAS 19) published||Comment deadline 6 September 2010|
|16 June 2011||Superseded by IAS 19 Employee Benefits (amended 2011)||Effective for annual periods beginning on or after 1 January 2013|
- IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Summary of IAS 19 (1998)
|IAS 19 Employee Benefits (1998) is superseded by an amended version, IAS 19 Employee Benefits (2011), effective for annual periods beginning on or after 1 January 2013. The summary that follows refers to IAS 19 (1998). Readers interested in the requirements of IAS 19 Employee Benefits (2011) should refer to our summary of IAS 19 (2011).|
Objective of IAS 19
The objective of IAS 19 (1998) is to prescribe the accounting and disclosure for employee benefits (that is, all forms of consideration given by an entity in exchange for service rendered by employees). The principle underlying all of the detailed requirements of the Standard is 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.
IAS 19 (1998) applies to (among other kinds of employee benefits):
- wages and salaries
- compensated absences (paid vacation and sick leave)
- profit sharing plans
- medical and life insurance benefits during employment
- housing benefits
- free or subsidised goods or services given to employees
- pension benefits
- post-employment medical and life insurance benefits
- long-service or sabbatical leave
- 'jubilee' benefits
- deferred compensation programmes
- termination benefits.
IAS 19 (1998) does not apply to employee benefits within the scope of IFRS 2 Share-based Payment or the reporting by employee benefit plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans).
Basic principle of IAS 19 (1998)
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.
Short-term employee benefits
For short-term employee benefits (those payable within 12 months after service is rendered, such as wages, paid vacation and sick leave, bonuses, and non-monetary benefits such as medical care and housing), the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period should be recognised in that period. [IAS 19(1998).10] The expected cost of short-term compensated absences should be recognised as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. [IAS 19(1998).11]
Profit-sharing and bonus payments
The entity should recognise the expected cost of profit-sharing and bonus payments when, and only when, it has a legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the expected cost can be made. [IAS 19(1998).17]
Types of post-employment benefit plans
The accounting treatment for a post-employment benefit plan depends on whether the plan is a defined contribution plan or a defined benefit plan:
- Under a defined contribution plan, the entity pays fixed contributions into a fund but has no legal or constructive obligation to make further payments if the fund does not have sufficient assets to pay all of the employees' entitlements to post-employment benefits
- A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. These would include both formal plans and those informal practices that create a constructive obligation to the entity's employees.
Defined contribution plans
For defined contribution plans, the cost to be recognised in the period is the contribution payable in exchange for service rendered by employees during the period. [IAS 19(1998).44]
If contributions to a defined contribution plan do not fall due within 12 months after the end of the period in which the employee renders the service, they are discounted to their present value. [IAS 19(1998).45]
Defined benefit plans
For defined benefit plans, the amount recognised in the statement of financial position is the present value of the defined benefit obligation (that is, the present value of expected future payments required to settle the obligation resulting from employee service in the current and prior periods), as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair value of plan assets at the end of the reporting period. [IAS 19(1998).54]
The present value of the defined benefit obligation should be determined using the Projected Unit Credit Method. [IAS 19(1998).64] Valuations should be carried out with sufficient regularity such that the amounts recognised in the financial statements do not differ materially from those that would be determined at the end of the reporting period. [IAS 19(1998).56] The assumptions used for the purposes of such valuations must be unbiased and mutually compatible. [IAS 19(1998).72] The rate used to discount estimated cash flows is determined by reference to market yields at the end of the reporting period on high quality corporate bonds, or where there is no deep market in such bonds, by reference to market yields on government bonds. [IAS 19(1998).78]
On an ongoing basis, actuarial gains and losses arise that comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred) and the effects of changes in actuarial assumptions. In the long-term, actuarial gains and losses may offset one another and, as a result, the entity is not required to recognise all such gains and losses in profit or loss immediately. IAS 19 (1998) specifies that if the accumulated unrecognised actuarial gains and losses exceed 10% of the greater of the defined benefit obligation or the fair value of plan assets, a portion of that net gain or loss is required to be recognised immediately as income or expense. The portion recognised is the excess divided by the expected average remaining working lives of the participating employees. Actuarial gains and losses that do not breach the 10% limits described above (the 'corridor') need not be recognised - although the entity may choose to do so. [IAS 19(1998).92-93]
In December 2004, the IASB issued amendments to IAS 19 (1998) to allow the option of recognising actuarial gains and losses in full in the period in which they occur, outside profit or loss, in other comprehensive income. This option is similar to the requirements of the UK standard, FRS 17 Retirement Benefits. The Board concluded that, pending further work on post-employment benefits and on reporting comprehensive income, the approach in FRS 17 should be available as an option to preparers of financial statements using IFRSs. [IAS 19(1998).93A]
Over the life of the plan, changes in benefits under the plan will result in increases or decreases in the entity's obligation.
Past service cost is the term used to describe the change in the obligation for employee service in prior periods, arising as a result of changes to plan arrangements in the current period. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced). Past service cost is recognised immediately to the extent that it relates to former employees or to active employees already vested. Otherwise, it is amortised on a straight-line basis over the average period until the amended benefits become vested. [IAS 19(1998).96]
Plan curtailments or settlements: Gains or losses resulting from curtailments or settlements of a plan are recognised when the curtailment or settlement occurs. [IAS 19(1998).109-110] Curtailments are reductions in scope of employees covered or in benefits.
If the calculation of the statement of financial position amount set out above results in an asset, the amount recognised is limited to the net total of unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. [IAS 19(1998).58]
The IASB issued the final 'asset ceiling' amendment to IAS 19 (1998) in May 2002. The amendment prevents the recognition of gains solely as a result of deferral of actuarial losses or past service cost, and prohibits the recognition of losses solely as a result of deferral of actuarial gains. [IAS 19(1998).58A]
The amount recognised in the profit or loss (unless included in the cost of an asset under another Standard) in a period in respect of a defined benefit plan is made up of the following components: [IAS 19(1998).61]
- current service cost (the actuarial estimate of benefits earned by employee service in the period)
- interest cost (the increase in the present value of the obligation as a result of moving one period closer to settlement)
- expected return on plan assets* and on any reimbursement rights
- actuarial gains and losses, to the extent recognised
- past service cost, to the extent recognised
- the effect of any plan curtailments or settlements
- the effect of 'asset ceiling'
*The return on plan assets is interest, dividends and other revenue derived from the plan assets, together with realised and unrealised gains or losses on the plan assets, less any costs of administering the plan (other than those included in the actuarial assumptions used to measure the defined benefit obligation) and less any tax payable by the plan itself. [IAS 19(1998).7]
IAS 19 (1998) contains detailed disclosure requirements for defined benefit plans. [IAS 19(1998).120-125]
IAS 19 (1998) also provides guidance on allocating the cost in:
- a multi-employer plan to the individual entities-employers [IAS 19(1998).29-33]
- a group defined benefit plan to the entities in the group [IAS 19(1998).34-34B]
- a state plan to participating entities [IAS 19(1998).36-38].
Other long-term benefits
IAS 19 (1998) requires a simplified application of the model described above for other long-term employee benefits. This method differs from the accounting required for post-employment benefits in that: [IAS 19(1998).128-129]
- actuarial gains and losses are recognised immediately without the application of a 'corridor' (as discussed above for post-employment benefits)
- all past service costs are recognised immediately.
For termination benefits, IAS 19 (1998) specifies that amounts payable should be recognised when, and only when, the entity is demonstrably committed to either: [IAS 19(1998).133]
- terminate the employment of an employee or group of employees before the normal retirement date, or
- provide termination benefits as a result of an offer made in order to encourage voluntary redundancy.
The entity will be demonstrably committed to a termination when, and only when, it has a detailed formal plan (meeting minimum outlined requirements) for the termination and is without realistic possibility of withdrawal. [IAS 19(1998).134] Where termination benefits fall due after more than 12 months after the balance sheet date, they are discounted. [IAS 19(1998).139]