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IAS 19 Employee Benefits - Coggle Diagram
IAS 19 Employee Benefits
About
- The matching concept in accounting should be considered, recognizing expenses when services are received from employees.
- If expenses haven't been paid yet, a provision/liability should be created according to IAS 37 on the accrual basis of accounting.
- IAS 19 Employee Benefits should be applied by employers.
- Employers incur expenses such as salaries, pension, and medical aid contributions when hiring employees.
Identification
- Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees. Employee benefits include the following:
Post-employment benefits
- Post-employment benefits are employee benefits (other than termination benefits) which are payable after the completion of employment.
Termination benefits
- Termination benefits are employee benefits payable as a result of:
- An entity’s decision to terminate an employee’s employment before the normal retirement date, or
- An employee’s decision to accept voluntary redundancy in exchange for those benefits
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Post-employment benefits
- Distinction between defined contribution plans and defined benefit plans
- Two types of post-employment benefit plans can be distinguished, namely:
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Defined benefit plans
- Defined benefit plans are post-employment benefit plans other than defined contribution plans (par 8).
NB!!! Defined benefit plans fall outside the Acc 3AB curriculum. The calculations and disclosures are very complex. You need to only take note of this type of plan, and understand the basic difference between the defined benefit plan, and the defined contribution plan
- Under a defined contribution plan the entity’s obligation is limited to the amount that it agrees to contribute to the fund. The risk falls on the employee (par 28
- Under a defined benefit plans the entity’s obligation is to provide the agreed benefits to current and former employees. The risk of shortages falls with the entity (employer) (par 30).
- Recognition and Measurement of defined contribution plans
- It is relatively easy to account for transactions regarding defined contribution plans, As the entity’s liability for each period, is the Amount payable for that period.
- The entity shall recognise the contribution payable to a defined contribution plan when an employee has rendered the related service. This should be Recognised as an Expense unless the amount could be capitalised. A Corresponding Liability is recognised. The Liability should be Reduced with any amount paid (par 51).
- There are no Actuarial assumptions, or the possibility of any actuarial gains or losses, as is the case with defined benefit plans. Furthermore, it is not likely that any of the provisions/liabilities in terms of the defined contribution plan will need to be discounted (unless the payment period is longer than 12 months).
- Where contributions do not fall due wholly within twelve months after the end of the period in which the employee renders the related services, the amount should be discounted (par 52).
Disclosure
- Any expenses recognised in terms of any other short-term employee benefits shall also be separately disclosed.
- An entity shall separately disclose the expense amount recognised (in terms of the defined contribution plan) for the period.
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Theory
Vacation leave
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Example: For every 21 days worked, an employee is entitled to 1 day of paid leave.
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After 21 days of service, the employer should provide 1 day of leave at the employee's daily rate.
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Usually, there is no limit, and unused leave can be carried forward to the next year.
If a limit is set, unused leave must be used or taken as leave within the same year.
Otherwise, the employee loses those days.
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Sick Leave
- Due to the uncertainty, companies cannot recognize a Provision for sick leave as it doesn't meet the recognition criteria.
- However, if a company can identify a trend of sick leave over time, it may be possible to make a reliable estimate, leading to the recognition of a provision for sick leave.
- It is difficult to predict when and for how long employees will be ill, making it impossible to determine sick leave in advance.