Accounting for Employee Benefits under IAS 19
Employers are on the hot seat when it comes to benefits they offer their employees. We are seeing employers get creative and try to offer the best perks in order to attract and hire top talent. Do you expect your employer to give you Fridays off in the summer (Okay!)? Do you want unlimited sick days (Sure!)? Do you want pet sitting paid for during work hours (I don’t have a dog so I can’t answer that)? Think about all the different benefits that are being offered to employees; but have you ever thought about how these benefits are accounted for?
Lucky for you, we have thought about the accounting! As part of our IFRS eLearning library we’ve put together a course collection (eligible for 2.0 hours of CPE) on IAS 19, Employee Benefits. If you’re looking for U.S. GAAP rules, we also have an eLearning course on Pensions and Postretirement Benefits (worth 1.5 CPE credits). However, this blog post summarizes our course collection on IAS 19.
Employee benefits: Scope and defined contribution plans under IAS 19
IAS 19 sets forth the accounting and disclosure for employee benefits and requires the recognition of:
- A liability when an employee has provided service and earned benefits, but the benefits will be paid in the future; and
- An expense as the entity consumes the economic benefit provided by the employee through their service in exchange for employee benefits
Note that IAS 19 does not define the term “employee”; therefore, when we refer to “employee”, this includes an employee that provides services on a full time, part time, permanent, casual, or temporary basis. Additionally, employees can also include directors and other management personnel.
In our CPE-eligible eLearning course (1.0 CPE), you’ll learn what’s in scope of IAS 19, and the various accounting requirements for certain types of employee benefits, including short-term, termination, and defined contribution plans. By the end of this course, you should be able to:
- Recall the scope of IAS 19
- Recognize the accounting requirements for short-term employee benefits and employee termination benefits
- Identify a defined contribution post-employment plan and its related accounting requirements
Employee benefits: Defined benefit plans and other issues under IAS 19
Defined benefit plans are a type of post-employment benefit within the scope of IAS 19 where an entity has a legal (or constructive) obligation to make additional contributions in order to pay all of its agreed upon employee benefits related to current and prior service.
In our CPE-eligible eLearning course (1.0 CPE), you’ll learn about the accounting requirements for defined benefit plans. The key components of defined benefit plan accounting are the defined benefit obligation (DBO) and the fair value of plan assets. Depending on the balances of those two key components, a plan will be funded (there are plan assets available to settle the plan’s obligations) or unfunded (no assets are set aside, and benefits must be paid directly by the employer).
Additionally, we discuss other important considerations and issues (e.g., the asset ceiling, settlements, curtailments, amendments, and “other” long-term employee benefits). By the end of the course, you should be able to:
- Identify the key components of a defined benefit plan and recognize the related accounting requirements for each component under IAS 19
- Recall important considerations for defined benefit plans and the accounting requirements for other long-term employee benefits
Final thoughts
Accounting for employee benefits can be challenging and subjective. Therefore, it’s important to know what kind of benefits are being offered because this will drive the related accounting, including the various key inputs to use. We hope you find our IAS 19 courses “beneficial” and helpful!
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Disclaimer
This post is for informational purposes only and should not be relied upon as official accounting guidance. While we’ve ensured accuracy as of the publishing date, standards evolve. Please consult a professional for specific advice.
