In IAS 19, Employee Benefits, employers must recognize and present a variety of benefits they provide to their employees. Have you ever read about the benefits Google provides its employees, the best employer in the world? There are many perks that come with working here (besides great salaries): free haircuts, gourmet food, high-tech toilets, medical care on-site, travel insurance, fun stuff in the office, paid maternity leave…
The company even established a “death benefit” policy–if an employee died while employed at Google, his or her spouse continues to receive 50% of the employee’s salary for a decade. Consider it from a CFO’s perspective. Salary and free haircuts are easy to account for. Can we account for death benefits? In this case, the employee does not receive the benefit while in service – only afterward.
Moreover, Google has no way of knowing when its employees will die and so when their liabilities will become due. That’s where IAS 19 comes into play. It explains how employee benefits should be accounted for and presented in financial statements.
Why IAS 19?
Accounting and disclosure for employee benefits is the main purpose of IAS 19. Under IAS 19, an accounting services in Dubai must:
- Employees who have rendered service in exchange for future benefits become liable;
- Employee benefits are consumed by the entity when the employee provides service to the entity in exchange for those benefits.
In this case, the matching principle is clearly demonstrated — to recognize an expense in the same period that matching revenue is recognized.
So, Google’s death benefit obligation should be recognized when the employee is actually working (and not after his death); and the expense should be recognized when the employee’s work is consummated.
Classification of Employee Benefits
There are four main categories of employee benefits in IAS 19:
Short-term employee benefits
Benefits payable to employees (apart from termination benefits) that are scheduled to be fully paid no later than 12 months after the end of the reporting period in which the related service was rendered.
Post-employment benefits
Excluding termination benefits and short-term benefits, these are benefits that an employee receives once he or she leaves the company.
Other long-term benefits
The benefits an employee may receive, with the exception of short-term employment benefits, post-employment benefits, and termination benefits.
Termination benefits
Employee benefits provided upon termination of employment through either of the following scenarios:
Termination of an employee’s employment by an entity prior to his or her normal retirement date.
Acceptance of benefits in exchange for termination of employment by an employee.
Short-term Employee Benefits
The following items are covered by the short-term employee benefits (if payable within 12 months after the end of the reporting period):
- Contributions to social security; wage and salary payments.
- Paid vacation and sick days
- Shared profits and bonuses.
Employees can receive nonmonetary benefits (such as health insurance, housing, cars, free or subsidized goods). Well, all of Google’s free haircuts and gourmet meals probably fall under this category.
Short-Term Benefits: How Accounting Services in Dubai Can Account For Them
Unless another IFRS requires or permits the inclusion of short-term employee benefits in an asset’s cost The entity shall recognize short-term employee benefits as a cost to profit or loss.
In the event the employee renders service during an accounting period, the expense must be included in the undiscounted amount of short-term employee benefits expected to be paid to that employee.
The accounting entry is:
Absences that increase short-term payouts should be recognized when employees render services that increase the sum of their paid absence entitlements (in the case of accumulating paid absence entitlements); or when the absences happen (in the case of non-accumulating paid absence entitlements).
A company is required to record the expected cost of profit sharing and bonus payments when, as a result of past events, it has a present legal or constructive obligation to do so. Only when there is no realistic alternative, does the Dubai entity have a present obligation.
Post-Employment Benefits
A post-employment benefit package may include pensions, retirement plans, life insurance and health insurance.
Post-Employment Benefits Come In Two Forms:
Defined Benefit Plans
Your post-employment benefit must be classified correctly to keep your records accurate, as the accounting treatment is totally different for each one.
Defined Contribution Plans
An entity pays a fixed amount of contributions into a separate entity (a fund) for post-employment benefits and will not be obliged to pay further contributions if the fund cannot cover all employee benefits for the current period and other periods.
How Chartered Accountants Can Account for Defined Contribution Plans
Unless another IFRS requires or permits it, contributions payable to a defined contribution plan are recognized as an expense to profit or loss. Contributions that are not likely to be remitted entirely within 12 months of the reporting period shall be discounted.
Experts like Farahat & Co is one of the leading accounting and financial services in Dubai and UAE. accounting experts are skilled in a wide range of accounting services. So, if you are looking for help with implementing the latest accounting standards or want accounting advise, you can visit website for more information.
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