IASB Clarifies Employee Contributions for Defined Benefits

Monday, December 2, 2013 Print Email

On the 21st of last month, the IASB, International Accounting Standards Board, published their amendments to the IAS 19 Employee Benefits. This was to both clarify and simplify, in some cases, the requirements when it comes to accounting the contributions made by employees or other third parties, into pre-defined benefit plans. The current requirements of IAS 19 are than an entity must take account of all contributions made from third parties or employees when it comes to accounting for benefit plans which are clearly defined.

Those contributions which are linked to service must be counted as a reduction of the overall service cost . This effectively means that it is a negative benefit when calculating the overall obligation needed to the defined benefit. The accountancy consequences are, understandably, complex, and the IFRS Interpretations Committee, in light of the following submissions they received, have recommended that IAS 19 be amended by the IASB to simplify current requirements.

These amendments have now been published and refer to contributions from third parties or employees which are service linked;

Should the amount of the contributions be independent from the number of years in service, these contributions could, but are not compulsory, be recognized as a reduction in the service costs during the period of time in which the service is rendered rather than being attributed to distinct periods of service.

If the contribution amount is dependent on the length of service, the contributions must be attributed to the period of service using the same method as required by IAS 19.70 to ascertain the gross benefit. This involves either using the contribution formula of the defined benefit plan or the straight line.

The new IAS 19 requirements are now available for those who wish to adopt the early.

Source: Ready Ratios

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