Introduction

Ind AS 19 recognizes the liabilities and expenses for employee benefits that arise when an employee renders service to a company. The cost of the employee benefit schemes to a reporting entity are generally recognized in profit and loss as service cost and net interest cost, and in Other Comprehensive Income (OCI) as remeasurements. Post-Employment plans are classified into defined Contribution Plans and Defined Benefit Plans. To account for Defined Benefit Plans, the present value of the defined benefit plan is estimated by actuarial valuation methods, and the fair value of plan assets are deducted and any effect of the asset cost is adjusted. Long Term Employee Benefits are accounted for on a discounted basis using a discount factor.

In this publication, we present a list of disclosures mandated under INDAS 19 Actuarial Valuation reporting along with examples and explanations of the figures that are to be reported under this accounting standard.

1. Short-term Employee Benefits

Short-term employee benefits are defined as payments within 12 months after the end of the reporting period for which the employee served. These benefits usually include:

• Salaries and wages
• Annual leave
• Sick leave
• Bonuses and profit-sharing arrangements
• Non-monetary benefits (e.g., medical care, housing)

Short-term employee benefits are the basis of an organization's compensation strategy. By definition, these are benefits that are liquidated over a short period of time and does not involve complicated or uncertain actuarial valuations. These benefits are a key component in retaining talent and ensuring colleague satisfaction which directly affects work efficiency.

Key Disclosure Requirements:

• Expense Recognition: Organizations should disclose the total amount of expenses recognized in the profit and loss demonstration for short-term benefits to employees. By clearly stating the differences whenever possible.
• Nature and Scope: A description of the nature and scope of the benefits provided is important to provide clarity to stakeholders about the policy and financial implications.

2. Defined Benefit Plans

A defined benefit scheme is a pension scheme in which the employer is obliged to provide agreed-upon benefits, regardless of the pension fund. Examples include gratuity and pensions.

Overview

Defined benefit plans present a unique set of challenges for organisations which contrast with a defined contribution plan. The employer's obligation ends with the contribution. Transfer plans require employers to meet specified contribution obligations, this usually takes many years. The long-term nature of these charts creates uncertainty, which makes actuarial assumptions and financial data important.

Key Disclosure Requirements:

• Determination of DBO: A detailed determination of the fair value of a rate of return obligation (DBO) is required, especially changes based on service costs, interest, and actuarial gains/losses and the rate of return paid.
• Plan Funds: Information on gratuity fund fair values and valuations. This includes expected employees withdrawals, contributions and actuarial gains/losses.
• Net Debt/Equity: The net defined benefit liability or asset recognised in the balance sheet must be clearly stated, providing a transparent view of the organization's financial health.
• Cost Allocation: Detailed amount recognised on revenue and other gross income, separating recurring service costs, interest cost and related items.
• Actuarial Assumptions: Important actuarial assumptions such as discount rate, wage inflation rate and maturity date must be disclosed.
• Sensitivity Analysis: Organizations are required to conduct and disclose a sensitivity analysis of key actuarial assumptions that demonstrates the impact of changes to the assumptions.

3. Multi-Employer Plans

This is usually handled by a third party. These plans can be classified as defined contribution or defined benefit.

Overview

Multi-employer plans are common, especially in industries with high levels of employee mobility or where economies of scale are achieved through collective agreements. While they offer simplicity, they also pose challenges in understanding the financial implications for participating employers.

Key Disclosure Requirements:

• Plan Characteristics: Reveals the nature of the plan with details of contribution or benefit specified.
• Scope of Participation: Clearly indicate the extent of the organization's participation in the plan including the number of participating employees and contribution terms.
• Contributions: Indicates the total contributions made during the reporting period along with any outstanding debts.
• Funding Status: If the plan is underfunded, disclose any known or expected financial implications for future periods, including potential increases in contributions.

4. Other Long-Term Employee Benefits

Other long-term employee benefits include benefits that are not paid in full within 12 months but are not classified as post-employment benefits. Examples include: Long-term incentive plans, vacation and long-term disability benefits.

Overview

These benefits often act as tool for employee retention. This is especially true for middle to senior executives. They are different from short-term benefits as these require an actuarial valuation. But it does not deal with the complexities of defined benefit plans as remeasurements are recognised in profit or loss rather than other comprehensive income.

Key Disclosure Requirements:

• Expense Recognition: The organization should disclose the total number of expenses recognized during the period, providing transparency about the financial impact.
• Reconciliation of Obligations: It highlights important changes such as current service costs, interest, and benefit payments.
• Actuarial Gains/Loss: Significant gains or losses should be recognized immediately avoiding deferred recognition.
• Benefit Description: Provide a clear description of the types of benefits offered and disclose material changes to the plan's terms.

5. Post-Employment Defined Contribution Plans

Although simpler than defined benefit plans, defined contribution plans also require disclosures to provide stakeholders with clarity. These plans involve contributions by the employer to a separate entity, with the organization’s obligation ending after the contribution.

Key Disclosure Requirements:

• Total contributions made by the organization during the reporting period.
• Any outstanding liabilities or prepaid contributions.
• A description of the plan and the basis for determining contributions.

Frequently Asked Questions