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| International Accounting Standard(IAS) |
What is the International Accounting Standards (IAS-19)? Describes in details:
IAS-19 (International Accounting Standard 19) is a standard issued by the International Accounting Standards Board (IASB) that provides guidance on the accounting for employee benefits. It outlines how to account for and disclose various types of employee benefits, including pensions, post-employment benefits, and other long-term employee benefits.
Key aspects of IAS 19 include:
1.Types of Employee Benefits:
Short-term Employee Benefits:
These are benefits that are expected to be settled within 12 months after the end of the reporting period, such as wages, salaries, bonuses, and paid vacation.
Post-employment Benefits:
These are benefits provided to employees after they have left the company, typically in the form of pension plans or other retirement benefits.
Other Long-term Employee Benefits:
Benefits that are due to be settled more than 12 months after the reporting period, like long-service leave or long-term disability benefits.
Termination Benefits:
Benefits provided to employees as a result of termination, such as severance pay.
2.Defined Contribution Plans:
Under defined contribution plans, the employer’s obligation is limited to the contributions it makes to a fund or to an insurance company. The cost recognized in the financial statements is based on the contributions due for the period, and no further obligation exists once the contributions are made.
3.Defined Benefit Plans:
Defined benefit plans are more complex, as the employer guarantees a certain level of benefits to employees upon retirement, typically based on salary and years of service. IAS 19 requires companies to estimate the present value of these future benefits using actuarial assumptions.
The company must recognize the net defined benefit liability (or asset) on the balance sheet, which is the difference between the present value of the defined benefit obligation and the fair value of plan assets.
The cost of defined benefit plans is recognized over time through service cost, interest cost, and re-measurements (such as actuarial gains or losses).
4.Actuarial Gains and Losses:
Actuarial gains and losses arise from changes in actuarial assumptions used to calculate the defined benefit obligation. These are recognized in other comprehensive income rather than in the profit or loss, to avoid volatility in profit.
5.Recognition of Expenses:
For defined benefit plans, the expense is recognized over the employees' service periods. It includes the service cost, interest cost, and any re-measurements.
For defined contribution plans, the expense is recognized as the contribution is earned by employees.
6.Disclosures:
IAS 19 requires extensive disclosures to help users of financial statements understand the costs and obligations related to employee benefits. This includes the amounts recognized in the financial statements, assumptions used in calculating benefit obligations, and the nature of the benefit plans.
In short, IAS- 19 ensures that companies account for and disclose their employee benefit obligations transparently, especially for complex defined benefit plans, by providing clear guidance on how to measure, recognize, and report employee benefits in financial statements.