IAS 19

Employee Benefits

1Objective and scope

IAS 19 prescribes the accounting and disclosure for employee benefits: short-term benefits (wages, paid annual leave, bonuses), post-employment benefits (pensions), other long-term benefits (long-service leave, long-term disability), and termination benefits.

2Key definitions

Defined contribution plan

A post-employment benefit plan under which the entity pays fixed contributions and has no legal or constructive obligation to pay further amounts if the fund cannot pay all benefits. The employee bears the investment and actuarial risk.

Defined benefit plan

Any post-employment benefit plan that is not a defined contribution plan; the entity's obligation is to provide the agreed benefits, so it bears the investment and actuarial risk.

Current service cost

The increase in the present value of the defined benefit obligation from employee service in the current period.

Remeasurements

Actuarial gains and losses, the return on plan assets (excluding amounts in net interest), and any change in the effect of the asset ceiling - recognised in other comprehensive income and never reclassified to profit or loss.

3Recognition and measurement

Short-term benefits are recognised, undiscounted, as an expense as the employee renders the service. For defined contribution plans, the expense recognised each period is simply the contribution payable for that period - there is nothing further to actuarially value.

For defined benefit plans, the obligation is measured using the Projected Unit Credit Method, and the net defined benefit liability (or asset) recognised in the statement of financial position is the present value of the defined benefit obligation less the fair value of plan assets. The total defined benefit cost is split into three components:

Component	Where recognised
Service cost (current service cost + past service cost + any gain/loss on settlement)	Profit or loss
Net interest on the net defined benefit liability (asset), calculated using the discount rate	Profit or loss
Remeasurements (actuarial gains/losses, return on plan assets excluding interest, asset ceiling effects)	Other comprehensive income, never recycled to profit or loss

Other long-term employee benefits (e.g. long-service awards) use a simplified version of the same method, but all components - including remeasurements - are recognised in profit or loss; there is no OCI split for these. Termination benefits are recognised at the earlier of when the entity can no longer withdraw the offer, and when it recognises any related restructuring costs.

4Presentation and disclosure

Characteristics of the defined benefit plans and the risks associated with them
A reconciliation of the opening and closing balances of the defined benefit obligation and of plan assets, showing each component separately
The amounts recognised in profit or loss and in other comprehensive income
A sensitivity analysis for each significant actuarial assumption (e.g. discount rate, mortality)

5Examinable focus

What KASNEB tests

Preparing the defined benefit obligation and plan assets reconciliations, splitting the net cost into service cost, net interest, and remeasurements, and correctly routing remeasurements to OCI (never profit or loss) is the standard IAS 19 numerical question. Also expect a written distinction between defined contribution and defined benefit accounting: the former simply expenses the contribution, the latter requires a full actuarial valuation.