Employee benefits typically constitute a significant component of an entity’s expenses, particularly in the services sector. For example, Abacus International Ltd reports in its 2011 financial statements that ‘selling, general and administrative expenses’ of $600 million include ‘employee benefits expense’ of $250 million. Employees are remunerated for the services they provide. Employee remuneration is not limited to wages, which may be paid weekly, fortnightly or monthly, but often includes entitlements to be paid, such as sick leave, annual leave, long service leave and post-employment benefits; that is, contributions for superannuation plans or pension plans.
The measurement of short-term liabilities for employee benefits, such as sick leave and annual leave, is relatively straightforward. However, the measurement of other types of employee benefits, including post-employment benefits, other long-term benefits, such as long service leave, and termination benefits, is more complex because it requires estimation and present value calculations.
Scope And Purpose Of IAS 19 Employee Benefits
IAS 19 Employee Benefits applies to all employee benefits except those to which IFRS 2 Share-based Payment applies. Employee benefits arise from formal agreements, which are often referred to as workplace agreements, between an entity and its individual employees. Alternatively, employee benefits may arise from agreements between an entity and groups of employees or their representatives. These agreements are often referred to as enterprise bargaining agreements.
Employee benefits also include requirements specified by legislation or industry arrangements for employers to contribute to an industry, state or national plan. Informal practices that generate a constructive obligation, such as payment of annual bonuses, also fall within the scope of employee benefits under IAS 19. Share-based employee benefits are beyond the scope of IAS 19.
The purpose of IAS 19 is to prescribe the measurement and recognition of expenses, assets and liabilities arising from services provided by employees. Liabilities arise when employees provide services in exchange for benefits to be provided later by the employer. Accounting for employee benefits is complicated because some benefits may be provided many years after employees have provided services.
The measurement of liabilities for employee benefits is made more difficult because the payment of some employee benefits for past services may be conditional upon the continuation of employment.
