1. The following terms are used in this Statement with the meanings
specified:
Employee benefits are all forms of consideration given by an enterprise
in exchange for service rendered by employees.
Short-term employee benefits are employee benefits (other than
termination benefits) which fall due wholly within twelve months after
the end of the period in which the employees render the related service.
Post-employment benefits are employee benefits (other than termination
benefits) which are payable after the completion of employment.
Post-employment benefit plans are formal or informal arrangements
under which an enterprise provides post-employment benefits for one or
more employees.
Defined contribution plans are post-employment benefit plans under
which an enterprise pays fixed contributions into a separate entity (a
fund) and will have no obligation to pay further contributions if the
fund does not hold sufficient assets to pay all employee benefits relating
to employee service in the current and prior periods.
Defined benefit plans are post-employment benefit plans other than
defined contribution plans.
Multi-employer plans are defined contribution plans (other than state
plans) or defined benefit plans (other than state plans) that:
(a) pool the assets contributed by various enterprises that are not
under common control; and
(b) use those assets to provide benefits to employees of more than
one enterprise, on the basis that contribution and benefit levels
are determined without regard to the identity of the enterprise
that employs the employees concerned.
Other long-term employee benefits are employee benefits (other than
post-employment benefits and termination benefits) which do not fall
due wholly within twelve months after the end of the period in which the
employees render the related service.
Termination benefits are employee benefits payable as a result of either:
(a) an enterprise’s decision to terminate an employee’s employment
before the normal retirement date; or
(b) an employee’s decision to accept voluntary redundancy in
exchange for those benefits (voluntary retirement).
Vested employee benefits are employee benefits that are not conditional
on future employment.
The present value of a defined benefit obligation is the present value,
without deducting any plan assets, of expected future payments required
to settle the obligation resulting from employee service in the current
and prior periods.
Current service cost is the increase in the present value of the defined
benefit obligation resulting from employee service in the current period.
Interest cost 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.
Plan assets comprise:
(a) assets held by a long-term employee benefit fund; and
(b) qualifying insurance policies.
Assets held by a long-term employee benefit fund are assets (other than
non-transferable financial instruments issued by the reporting enterprise)
that:
(a) are held by an entity (a fund) that is legally separate from the
reporting enterprise and exists solely to pay or fund employee
benefits; and
(b) are available to be used only to pay or fund employee benefits,
are not available to the reporting enterprise’s own creditors (even
in bankruptcy), and cannot be returned to the reporting
enterprise, unless either:
(i) the remaining assets of the fund are sufficient to meet all the
related employee benefit obligations of the plan or the
reporting enterprise;
(ii) the assets are returned to the reporting enterprise to reimburse
it for employee benefits already paid.
A qualifying insurance policy is an insurance policy issued by an insurer
that is not a related party (as defined in AS 18 Related Party Disclosures)
of the reporting enterprise, if the proceeds of the policy:
(a) can be used only to pay or fund employee benefits under a defined
benefit plan; and
(b) are not available to the reporting enterprise’s own creditors (even
in bankruptcy) and cannot be paid to the reporting enterprise,
unless either:
(i) the proceeds represent surplus assets that are not needed for
the policy to meet all the related employee benefit obligations;
or
(ii) the proceeds are returned to the reporting enterprise to
reimburse it for employee benefits already paid.
Fair value is the amount for which an asset could be exchanged or a
liability settled between knowledgeable, willing parties in an arm’s length
transaction.
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 and
less any tax payable by the plan itself.
Actuarial gains and losses comprise:
(a) experience adjustments (the effects of differences between the
previous actuarial assumptions and what has actually occurred);
and
(b) the effects of changes in actuarial assumptions.
Past service cost is the change in the present value of the defined benefit
obligation for employee service in prior periods, resulting in the current
period from the introduction of, or changes to, post-employment benefits
or other long-term employee benefits. Past service cost may be either
positive (where benefits are introduced or improved) or negative (where
existing benefits are reduced).
1. When an employee has rendered service to an enterprise during
an accounting period, the enterprise should recognise the undiscounted
amount of short-term employee benefits expected to be paid in exchange
for that service:
(a) as a liability (accrued expense), after deducting any amount
already paid. If the amount already paid exceeds the undiscounted
amount of the benefits, an enterprise should recognise that excess
as an asset (prepaid expense) to the extent that the prepayment
will lead to, for example, a reduction in future payments or a
cash refund; and
(b) as an expense, unless another Accounting Standard requires or
permits the inclusion of the benefits in the cost of an asset (see,
for example, AS 10 Accounting for Fixed Assets).
Paragraphs 11, 14 and 17 explain how an enterprise should apply this
requirement to short-term employee benefits in the form of compensated
absences and profit-sharing and bonus plans.
2. An enterprise should recognise the expected cost of short-term
employee benefits in the form of compensated absences under paragraph
10 as follows:
(a) in the case of accumulating compensated absences, when the
employees render service that increases their entitlement to future
compensated absences; and
(b) in the case of non-accumulating compensated absences, when
the absences occur.
3. An enterprise should measure the expected cost of accumu-lating
compensated absences as the additional amount that the enterprise expects
to pay as a result of the unused entitlement that has accumulated at the
balance sheet date.
4. An enterprise should recognise the expected cost of profit-sharing
and bonus payments under paragraph 10 when, and only when:
(a) the enterprise has a present obligation to make such payments
as a result of past events; and
(b) a reliable estimate of the obligation can be made.
A present obligation exists when, and only when, the enterprise
has no realistic alternative but to make the payments.
5. An enterprise should classify a multi-employer plan as a defined
contribution plan or a defined benefit plan under the terms of the plan
(including any obligation that goes beyond the formal terms). Where a
multi-employer plan is a defined benefit plan, an enterprise should:
(a) account for its proportionate share of the defined benefit
obligation, plan assets and cost associated with the plan in the
same way as for any other defined benefit plan; and
(b) disclose the information required by paragraph 120.
6. When sufficient information is not available to use defined benefit
accounting for a multi-employer plan that is a defined benefit plan, an
enterprise should:
(a) account for the plan under paragraphs 45-47 as if it were a
defined contribution plan;
(b) disclose:
(i) the fact that the plan is a defined benefit plan; and
(ii) the reason why sufficient information is not available to enable
the enterprise to account for the plan as a defined benefit
plan; and
(c) to the extent that a surplus or deficit in the plan may affect the
amount of future contributions, disclose in addition
(i) any available information about that surplus or deficit;
(ii) the basis used to determine that surplus or deficit; and
(iii) the implications, if any, for the enterprise.
7. An enterprise should account for a state plan in the same way as
for a multi-employer plan
8. An enterprise may pay insurance premiums to fund a postemployment
benefit plan. The enterprise should treat such a plan as a
defined contribution plan unless the enterprise will have (either directly,
or indirectly through the plan) an obligation to either:
(a) pay the employee benefits directly when they fall due
(b) (b) pay further amounts if the insurer does not pay all future
employee benefits relating to employee service in the current
and prior periods.
If the enterprise retains such an obligation, the enterprise should treat
(c) the plan as a defined benefit plan.
9. When an employee has rendered service to an enterprise during a
period, the enterprise should recognise the contribution payable to a
defined contribution plan in exchange for that service:
(a) as a liability (accrued expense), after deducting any contribution
already paid. If the contribution already paid exceeds the
contribution due for service before the balance sheet date, an
enterprise should recognise that excess as an asset (prepaid
expense) to the extent that the prepayment will lead to, for
example, a reduction in future payments or a cash refund; and
(b) as an expense, unless another Accounting Standard requires or
permits the inclusion of the contribution in the cost of an asset
(see, for example, AS 10, Accounting for Fixed Assets).
10. Where contributions to a defined contribution plan do not fall due
wholly within twelve months after the end of the period in which the
employees render the related service, they should be discounted using
the discount rate specified
11. An enterprise should account not only for its legal obligation under
the formal terms of a defined benefit plan, but also for any other
obligation that arises from the enterprise’s informal practices. Informal
practices give rise to an obligation where the enterprise has no realistic
alternative but to pay employee benefits. An example of such an obligation
is where a change in the enterprise’s informal practices would cause
unacceptable damage to its relationship with employees.
12. The amount recognised as a defined benefit liability should be the
net total of the following amounts:
(a) the present value of the defined benefit obligation at the balance
sheet date (see paragraph 65);
(b) minus any past service cost not yet recognised (see paragraph
94);
(c) minus the fair value at the balance sheet date of plan assets
59. The amount determined under paragraph 55 may be negative (an
asset). An enterprise should measure the resulting asset at the lower of:
(a) the amount determined under paragraph 55; and
(b) the present value of any economic benefits available in the form
of refunds from the plan or reductions in future contributions to the plan. The present value of these economic benefits should be
determined using the discount rate specified.
