Module 12 - PAS 19 Employee Benefits

MODULE 11: PAS 19
EMPLOYEE BENEFITS
I. Description
This module discusses the basic concepts of IAS / PAS 19.
II. Objectives
After completing the module, the students are expected to:
 To know the standard history of IAS 19

 Differentiate between the four classifications of employee benefits under PAS 19.
 State the timing of the recognition of employee benefits.
 Differentiate between a defined contribution plan and a defined benefit plan.
 State the accounting procedures for defined benefit plans.
III. Duration
Start: Week 15
End: Week 15
IV. Learning Contents
A. STANDARD HISTORY
In April 2001 the International Accounting Standards Board (Board) adopted

IAS 19 Employee Benefits, which had originally been issued by the International Accounting
Standards Committee in February 1998. IAS 19 Employee Benefits replaced
IAS 19 Accounting for Retirement Benefits in the Financial Statements of Employers (issued
in January 1983). IAS 19 was further amended in 1993 and renamed as IAS 19 Retirement
Benefit Costs.
The Board amended the accounting for multi-employer plans and group plans in December
2004. In June 2011 the Board revised IAS 19; this included eliminating an option that
allowed an entity to defer the recognition of changes in net defined benefit liability and
amending some of the disclosure requirements for defined benefit plans and multi-employer
plans.
In November 2013 IAS 19 was amended by Defined Benefit Plans: Employee

Contributions (Amendments to IAS 19). The amendments simplified the requirements for
contributions from employees or third parties to a defined benefit plan, when those
contributions are applied to a simple contributory plan that is linked to service.
Other Standards have made minor consequential amendments to IAS 19, including:
 Annual Improvements to IFRSs 2012–2014 Cycle (issued September 2014)

 Annual Improvements to IFRS Standards 2014–2016 Cycle (issued December 2016)
 IFRS 17 Insurance Contracts (issued May 2017)
 Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) (issued
February 2018)
UPDATES IN FINANCIAL REPORTING STANDARDS 1

Desiree D. Cemefrania, CPA
 Amendments to References to the Conceptual Framework in IFRS Standards (issued
March 2018)
B. EMPLOYEE BENEFITS
Employee benefits are “all forms of consideration given by an entity in exchange for service
rendered by employees.” (PAS 19.8)
Four categories of employee benefits under PAS 19
1. Short-term employee benefits

2. Post-employment benefits
3. Other long-term employee benefits
4. Termination benefits.
Short-term employee benefits
Short-term employee benefits are employee benefits (other than termination benefits) that
are due to be settled within 12 months after the end of the period in which the employees
render the related service.
Recognition and Measurement
When an employee has rendered service to an entity during an accounting period, the entity
shall recognize the undiscounted amount of short-term employee benefits expected to be
paid in exchange for that service:
1. as a liability (accrued expense), after deducting any amount already paid.
2. as an asset (prepaid expense) if the amount paid is in excess of the undiscounted

amount of the benefits incurred; provided, the prepayment will lead to a reduction in
future payments or a cash refund; and
3. as an expense, unless the employee benefit forms part of the cost of an asset, e.g.,
as part of the cost of inventories or property, plant and equipment.
Short-term compensated absences
Accumulating compensated absences are those that are carried forward and can be used
in future periods if the current period’s entitlement is not used in full. Accumulating
compensated absences may either be
1. Vesting – wherein employees are entitled to a cash payment for unused

entitlement on leaving the entity ; or
2. Non-vesting - wherein employees are not entitled to a cash payment for

unused entitlement on leaving the entity

Non-accumulating compensated absences are those that are not carried forward. No
liability or expense is recognized until the absences occur, because employee service does
not increase the amount of the benefit.
Post-Employment Benefits
Post-employment benefits are employee benefits (other than termination benefits) that are
payable after the completion of employment. Post-employment benefit plans are classified
as either:
1. Defined contribution plans
2. Defined benefit plans

The accounting for defined contribution plans is straightforward because the reporting
entity’s obligation for each period is determined by the amounts to be contributed for that
period. Consequently, no actuarial assumptions are required to measure the obligation or
the expense and there is no possibility of any actuarial gain or loss.
The accounting for defined benefit plans is complex because actuarial assumptions are
required to measure the obligation and the expense and there is a possibility of actuarial
gains and losses.
Obligations are measured on a discounted basis.
1. Determine the deficit or surplus

(Deficit) Surplus = FVPA – PV of DBO
2. Determine the Net defined benefit liability (asset)

 If there is a deficit, the deficit is the Net defined benefit liability.
 If there is a surplus, the Net defined benefit asset is the lower of the surplus and the
asset ceiling.
The asset ceiling is the present value of any economic benefits available in the form of
refunds from the plan or reductions in future contributions to the plan.
3. Determine the defined benefit cost
1. Current service cost - is the increase in the present value of a defined benefit obligation
resulting from employee service in the current period.

2. Past service cost - is the change in the present value of the defined benefit obligation
resulting from a plan amendment or curtailment.
3. Gain or loss on settlement – the difference between the present value of the defined
benefit obligation and the settlement price.
4. Interest cost on the defined benefit obligation – is the increase during a period in the
present value of a defined benefit obligation which arises because the benefits are one
period closer to settlement.
5. Actuarial gains and losses – are changes in the present value of the defined benefit
obligation resulting from experience adjustments and the effects of changes in actuarial
assumptions.
Actuarial Assumptions
Actuarial assumptions are an entity’s best estimates of the variables that will determine the
ultimate cost of providing post-employment benefits.
1. Demographic assumptions about the future characteristics of employees who are eligible
for benefits. Demographic assumptions deal with matters such as:
a. mortality, both during and after employment
b. rates of employee turnover, disability and early retirement
c. the proportion of plan members with dependents who will be eligible for
benefits
d. claim rates under medical plans
2. Financial assumptions, dealing with items such as:

a. the discount rate
b. future salary and benefit levels
c. future medical costs, if any, including cost of administering claims and
payments
d. the expected rate of return on plan assets
Actuarial Assumption – Discount Rate
The rate used to discount post-employment benefit obligations shall be determined by

reference to market yields at the end of the reporting period on high quality corporate bonds.
In countries where there is no deep market in such bonds, the market yields at the end of the
reporting period on government bonds shall be used.

Other Long Term Benefits
Other long-term employee benefits are employee benefits (other than post-employment
benefits and termination benefits) that are due to be settled beyond 12 months after the end
of the period in which the employees render the related service.
Other long-term employee benefits are accounted for using the procedures applicable for a
defined benefit plan. However, all of the components of the net benefit cost are recognized
in profit or loss.
Termination Benefits
Termination benefits are employee benefits provided in exchange for the termination of an
employee’s employment as a result of either:
1. an entity’s decision to terminate an employee’s employment before the normal

retirement date; or
2. an employee’s decision to accept an entity’s offer of benefits in exchange for the

termination of employment.
Measurement:
Termination benefits are initially and subsequently recognized in accordance with the nature
of the employee benefit.
a. If the termination benefits are payable within 12 months, the entity shall account for
the termination benefits similarly with short-term employee benefits.
b. If the termination benefits are payable beyond 12 months, the entity shall account for
the termination benefits similarly with other long-term benefits.
c. If the termination benefits are, in substance, enhancement to post-employment

benefits, the entity shall account for the benefits as post-employment benefits.
V. References
 Conceptual Frameworks and Accounting Standards, 2019 Edition by Zeus Vernon B.
Millan
 IAS 19 – Employee Benefits
 https://www.ifrs.org


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MODULE 11: PAS 19

 To know the standard history of IAS 19

IV. Learning Contents

In April 2001 the International Accounting Standards Board (Board) adopted

In November 2013 IAS 19 was amended by Defined Benefit Plans: Employee

 Annual Improvements to IFRSs 2012–2014 Cycle (issued September 2014)

UPDATES IN FINANCIAL REPORTING STANDARDS 1

Four categories of employee benefits under PAS 19

1. Short-term employee benefits

Short-term employee benefits

Recognition and Measurement

1. as a liability (accrued expense), after deducting any amount already paid.

2. as an asset (prepaid expense) if the amount paid is in excess of the undiscounted

Short-term compensated absences

1. Vesting – wherein employees are entitled to a cash payment for unused

2. Non-vesting - wherein employees are not entitled to a cash payment for

UPDATES IN FINANCIAL REPORTING STANDARDS 2

UPDATES IN FINANCIAL REPORTING STANDARDS 3

Obligations are measured on a discounted basis.

1. Determine the deficit or surplus

2. Determine the Net defined benefit liability (asset)

3. Determine the defined benefit cost

UPDATES IN FINANCIAL REPORTING STANDARDS 4

2. Financial assumptions, dealing with items such as:

Actuarial Assumption – Discount Rate

The rate used to discount post-employment benefit obligations shall be determined by

UPDATES IN FINANCIAL REPORTING STANDARDS 5

1. an entity’s decision to terminate an employee’s employment before the normal

2. an employee’s decision to accept an entity’s offer of benefits in exchange for the

c. If the termination benefits are, in substance, enhancement to post-employment

UPDATES IN FINANCIAL REPORTING STANDARDS 6

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