Employee benefits (IAS 19)

What IAS 19 covers

IAS 19 Employee Benefits covers short-term benefits, termination benefits and post-employment benefits. In SBR the focus is on defined benefit pension plans, where the employer carries the risk.

Defined contribution plans

The employer pays agreed contributions into a fund. The expense is the contribution payable for the period, and any unpaid amount is a liability. There is nothing more to measure.

Defined benefit plans

The employer promises a pension, often based on salary and years of service. The statement of financial position shows the net defined benefit liability (or asset):

present value of the defined benefit obligation − fair value of plan assets

The movement in the year is split into three parts:

• Profit or loss: current service cost, past service cost, and gains or losses on settlement.
• Profit or loss: net interest, which is the discount rate × the opening net liability (or asset).
• Other comprehensive income: remeasurements, which are actuarial gains and losses and the return on plan assets excluding the amount in net interest.

Setting out your workings

Use a single working that reconciles the obligation and the plan assets from opening to closing balance:

• Obligation: opening + interest + current service cost + past service cost − benefits paid ± remeasurement = closing.
• Plan assets: opening + interest + contributions − benefits paid ± remeasurement = closing.

The remeasurement is the balancing figure once you know the actuary's closing values.

What SBR examiners look for

Questions often add a twist: a plan amendment that creates past service cost, a curtailment after a restructuring, or a surplus where the asset ceiling limits what can be recognised. Explain why each item goes to profit or loss or to OCI.

Common mistakes

• Calculating interest on the obligation and the assets at different rates. IAS 19 uses the same discount rate for both.
• Putting remeasurements in profit or loss.
• Forgetting benefits paid, which reduce both the obligation and the plan assets.