This chapter addresses the requirements of IAS 19 covering all employee benefits other than share-based payments and accounting by employee benefit plans.

Objective

An entity should recognise:

• a liability when an employee provides services in exchange for employee benefits to be paid in future; and
• an expense when the entity consumes the economic benefit arising from the service provided by an employee in exchange for employee benefits.

Scope

IAS 19 applies to accounting of all types of employee benefits, except those to which IFRS 2 applies.

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for termination of employment. Employee benefits include:

• Short-term benefits, such as wages, salaries, holiday pay, sick leave and bonuses expected to be settled within 12 months of the balance sheet date.
• Post-employment benefits, such as pensions and post-retirement medical insurance.
• Long-term benefits, such as long-term incentive plans (LTIPs), long service awards, holiday pay and bonuses expected to be settled more than 12 months after the balance sheet date.
• Termination benefits, such as redundancy payments.

IAS 19 does not deal with reporting by employee benefit plans; this is addressed in IAS 26 or other local GAAP.

IAS 19 covers all employee benefits, including:

• formal plans or agreements;
• under legislative requirements or industry arrangements; and
• informal practices.

Informal practices give rise to a constructive obligation where the entity has no realistic alternative but to pay employee benefits.

Mandatory unfunded scheme Entity F operates in a territory where there is a legal requirement for an employer to provide payments to retired employees based on the duration of their service to the company and their salary during the period of employment. Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees, whether required by legislation or made voluntarily. Post-employment benefits include any consideration given by an employer in exchange for employees’ services that is payable after the completion of employment (other than termination benefits). The payments as a result of the legislative requirements fall within IAS 19’s scope as a defined benefit plan.

Employee benefits can be provided to the employees themselves or to their dependants, as in the case of death-in-service benefit. The standard also applies to benefits that are settled by payment to a third party, such as an insurance company or the state.

For example, an employer might have a policy of settling its pension obligations by purchasing annuities from an insurance company. Although the employer has not provided benefits directly to its employees, this arrangement would fall within IAS 19’s scope.

Employees include directors and other management personnel. Employees can provide services on a full-time, part-time, permanent, casual or temporary basis.