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Ias 19.2
Ias 19.2
Up until now the preparation of financial Short-term benefits Robert Kirk CPA is Professor
reports under local SSAPs and FRSs This includes those benefits which the of Financial Reporting at
only covered the accounting treatment entity expects to settle within 12 months the University of Ulster.
of retirement benefits. Under the new after the year-/period-end. Examples of Robert is also author of
FRS 102 the topic has been considerably these would include: the CPA Ireland Skillnet’s
expanded to include employee benefits publication A New Era for
earned and received whilst working as well • Wages, salaries and social security Irish & UK GAAP – A Quick
as those that will be received during an contributions Reference Guide to FRS 102
employee’s retirement years. which is available free of
• Paid annual leave and paid sick leave charge to CPA Members on
Section 28 of FRS 102 covers all forms www.cpaireland.ie.
of consideration given by an entity to • Profit-sharing and bonuses; and
its employees and directors in exchange The CPA Ireland Certificate
for services rendered. One exception is, • Non-monetary benefits (such as medical in FRS 102 will take place
however, the accounting treatment of care, housing, cars and free or subsidised again in March 2015.
share-based payment transactions as goods or services) for current employees. Visit www.cpaireland.ie/
these are covered separately by Section 26 certificate-in-frs-102 for
of the standard. From a practical view it is probably the further information.
compulsory recognition of holiday pay that
FRS 102 covers the following types of may cause problems for those companies
employee benefits: who are currently not accruing for that
expenditure at their period end. It is
• Short-term employee benefits that are particularly important for those reporting
expected to be settled before 12 months entities that have a holiday year end which
after the end of the reporting period in differs from their accounting year end
which the employee renders the service. and for those companies which permit
employees to carry forward holidays into
• Post-employment benefits payable the following year
to employees after completion of
employment i.e. pensions and possibly Example - holiday pay
medical care.
A company has a year-end of 31 March
• Other long-term employee benefits other 2016 and is mandated to report under FRS
than short-term employee benefits; and 102 for its accounting year commencing on
1 April 2015. The holiday year runs from 1
• Termination benefits as a result of January to 31 December each year and as at
an entity’s decision to terminate an 31 March 2016 its employees have accrued
employee’s employment before the holiday entitlement which will either be
normal retirement date or an employee’s paid to them or taken as unused leave in
decision to accept voluntary redundancy the following financial year.
in exchange for those benefits.
Continued on Page 10
Assume there is only one employee in the to the international equivalent, IAS 19 Annual expense for defined benefit plans
company that is entitled to 28 days leave ‘Employee Benefits’.
in the year but has not carried forward The requirements in FRS 102 relating to the
any days from the previous year and has There are no changes to the way in which annual expense are based on the revisions
also not been on holiday in the January to a defined contribution pension plan will to IAS 19 ‘Employee Benefits’ which
March quarter. That individual has earned be accounted for as the actuarial and occurred in 2011 and was implemented in
one quarter of their holiday rights to 31st investment risks do not fall on the part of the 2013. The cost that should be included in
March 2016 and is therefore entitled to 25% reporting entity. Companies will, therefore, profit or loss will be made up of:
x 28 days leave = 7 days multiplied by their continue to simply charge the contributions
daily wage rate, say €400 thus creating an payable to profit and loss as they arise. • The change in the net defined benefit
expense and accrual of €2,800 for that year. liability arising from employee service
Defined benefit plans are inherently more rendered during the reporting period in
Holiday pay may prove to be tricky complex to account for. As investment risk profit or loss (i.e. current service cost);
particularly for companies who do not keep and actuarial risk do, in substance, fall on • Net interest expense/income on the net
accurate records of annual leave. In my the part of the reporting entity then the defined benefit liability/asset during the
own college it is particularly a problem in company must account for the defined reporting period; and
accruing for academic staff holiday pay as benefit plan in its financial statements. • The cost of any plan introductions,
academic contracts have no specific holiday There are exceptions, however, when a benefit changes, curtailments and
leave – the employee works for the number defined benefit plan is accounted for as settlements
of hours required to do the job!! a defined contribution plan. That occurs
in a multi-employer scheme where none However, remeasurements (actuarial gains
Profit-sharing and bonus plans of the employers are able to identify their and losses) on the net defined benefit
share of any actuarial deficit or surplus so liability/asset must be reported in other
Some companies operate profit-sharing they are permitted to charge instead the comprehensive income via reserves.
and bonus arrangements for their contributions payable but they must state
employees. When such arrangements are in their disclosures the overall deficit of the The net interest expense/income on
in place the entity must make provision for scheme and also include a description of the net defined benefit liability/asset is
such amounts, but only when: the extent to which the entity can be liable calculated by multiplying the net defined
to the plan for other entities obligations benefit liability/asset by the discount
• There is a present legal or constructive under the terms and conditions of the rate as determined at the start of the
obligation to make such payments as a multi-employer scheme. accounting period. In doing this calculation,
result of past events; and the entity must consider any changes
• A reliable estimate of the obligation can Actuaries in the net defined benefit liability during
be made. the period as a result of contribution and
Unlike FRS 17 there is no requirement benefit payments. This revised treatment,
These two above may seem familiar to to engage an independent actuary to which replaces the finance charge and
many as they relate to the provisions and perform the actuarial valuation needed expected return on plan assets, where
contingencies section. Essentially, such to calculate the defined benefit obligation income is credited with the expected long-
amounts should only be provided if the nor does FRS 102 require a comprehensive term yield on the assets in the fund, may
entity has an obligation at the balance valuation to be done annually provided the increase the annual benefit expense and
sheet date to make such payments actuarial assumptions have not changed have a potential impact on earnings as
and these payments are made in the significantly. This paragraph recognises most companies are currently in deficit on
subsequent accounting period. One would that where no significant changes have their pension schemes and the interest
expect that these accruals have been occurred, the defined benefit obligation can income on assets will probably be less than
included already in reporting entities be measured by adjusting the prior period the previous expected return on assets.
balance sheets. measurement for changes in employee
demographics (for example employee Presentational differences
Retirement benefits (Pensions and numbers and salary levels).
medical care) Section 28 does not include the same
However, as the assumptions and requirement to present the surplus or deficit
FRS 102 provides guidance relating to both calculations can be quite complex it would in a defined benefit pension plan on the face
defined contribution and defined benefit be doubtful if reporting entities could avail of of the balance sheet after ‘other net assets’
pension plans. The accounting treatment this simplification and also if they are under as FRS 17 currently does. As a consequence,
already adopted in FRS 17 ‘Retirement the audit threshold would an independent a deficit in a defined benefit pension plan
Benefits’ is largely retained, particularly the auditor be happy with the directors or their could be included within ‘provisions’ and
need to write-off deficits and surpluses on staff undertaking this exercise? surpluses could go within ‘other assets’ i.e.
defined benefit schemes immediately to treated as normal liabilities or assets.
reserves and through other comprehensive
income but there are some subtle changes
to Section 28 as a result of the changes