The CA Hub

Liabilities & leases · IAS 19

IAS 19 Employee Benefits

Summary, key points, exam traps and a worked example — written for ICAP, ACCA, ICAI, CIMA and ICAEW students.

On this page
  1. Objective
  2. Scope
  3. Key definitions
  4. Recognition & measurement
  5. Key disclosures
  6. Common exam traps
  7. Worked example
  8. Related standards
  9. Practise MCQs

Objective

Requires an entity to recognise a liability when employees have provided service for benefits to be paid later, and an expense when the entity consumes that service.

Scope

  • All employee benefits except share-based payments (IFRS 2).
  • Covers short-term benefits, post-employment benefits (pensions), other long-term benefits and termination benefits.

Key definitions

Defined contribution plan
A plan where the entity pays fixed contributions and has no further obligation if the fund is insufficient; actuarial and investment risk fall on the employee.
Defined benefit plan
Any post-employment plan that is not defined contribution; the entity bears the actuarial and investment risk.
Net defined benefit liability (asset)
Present value of the defined benefit obligation less the fair value of plan assets, adjusted for any asset ceiling.
Remeasurements
Actuarial gains and losses, the return on plan assets excluding amounts in net interest, and changes in the asset ceiling effect.

Recognition & measurement

Short-term benefits

  • Recognise undiscounted cost as service is rendered (wages, paid leave, bonuses).
  • Accumulating paid absences are recognised as service builds entitlement; non-accumulating ones when the absence occurs.
  • Profit-sharing and bonuses are recognised when there is a legal or constructive obligation and a reliable estimate.

Defined contribution plans

  • Expense the contribution payable for the period's service; accrue any unpaid amount.

Defined benefit plans

  • Measure the obligation using the projected unit credit method and actuarial assumptions.
  • Discount using market yields on high-quality corporate bonds (or government bonds where no deep market exists) at the reporting date.
  • Service cost (current service cost, past service cost, settlement gains or losses) goes to profit or loss.
  • Net interest on the net liability or asset (using the discount rate) goes to profit or loss.
  • Remeasurements go to OCI and are never reclassified to profit or loss.
  • Past service cost from plan amendments or curtailments is recognised immediately, not spread.
  • A net surplus is limited to the asset ceiling (economic benefits available as refunds or reduced contributions).

Other benefits

  • Other long-term benefits (e.g. long-service leave) are measured like defined benefit plans, but remeasurements go to profit or loss.
  • Termination benefits are recognised at the earlier of when the offer can no longer be withdrawn and when related restructuring costs are recognised under IAS 37.

Key disclosures

  • Characteristics of defined benefit plans and the risks they expose the entity to.
  • Reconciliations of the obligation, plan assets and the net liability.
  • Significant actuarial assumptions and a sensitivity analysis.
  • Amount, timing and uncertainty of future cash flows.

Common exam traps

  • Remeasurements go to OCI for post-employment plans, but to profit or loss for other long-term benefits.
  • Interest is calculated on the net liability, using the discount rate; the 'expected return' concept no longer exists.
  • Contributions paid and benefits paid out are not expenses; benefits paid reduce both the obligation and plan assets.

Worked example: Net defined benefit liability

Scenario. Opening obligation $1,000k, plan assets $800k. Discount rate 5%. Current service cost $120k. Employer contributions $150k paid at the year end. Actuary's closing net liability is $220k.

  1. Opening net liability = 1,000 − 800 = $200k.
  2. Net interest = 200 × 5% = $10k (profit or loss).
  3. Expected closing net liability = 200 + 120 + 10 − 150 = $180k.
  4. Actual closing net liability is $220k, so the remeasurement loss = $40k (OCI).

Answer: Profit or loss charge $130k (120 + 10); OCI loss $40k; closing liability $220k.

Practise MCQs on this standard

Test your understanding of IAS 19 with free chapter-wise MCQs and explanations in these question banks.

CAF-6 Corporate ReportingICAP CAFACCA FR Financial ReportingACCACA Inter P1 Advanced AccountingICAI CA Intermediate

ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.

Read the official IAS 19 text on ifrs.org