Overview
IAS 19 sets the principles for recognising and measuring all forms of employee compensation. Benefits must be recognised as employees render service, and long-term obligations must be measured using actuarial techniques.
IAS 19 covers:
- Short-term employee benefits
- Post-employment benefits
- Other long-term employee benefits
- Termination benefits
Categories of Employee Benefits
Short-Term Benefits
Salaries, bonuses, paid leave — recognised undiscounted when service is rendered (IAS 19.11).
Post-Employment Benefits
Two types:
- Defined Contribution Plans — obligation limited to contributions; no actuarial assumptions required; expense equals contribution (IAS 19.51)
- Defined Benefit Plans — obligation based on future payments; requires actuarial valuation; sensitive to discount rate, salary growth, and mortality assumptions (IAS 19.57)
Defined Benefit Obligation (DBO)
IAS 19 requires:
- Projected Unit Credit Method (IAS 19.67)
- Discount rate based on high-quality corporate bonds (IAS 19.83)
- Actuarial assumptions: mortality, employee turnover, salary growth, inflation (IAS 19.76)
- Remeasurements recognised in OCI — not recycled to profit or loss (IAS 19.122)
Components of Pension Expense
| Component | Where Recognised |
|---|
| Service cost (current and past) | P&L |
| Net interest on net defined benefit liability | P&L |
| Remeasurements | OCI (not recycled) |
Remeasurements include:
- Actuarial gains and losses on the DBO
- Return on plan assets (excluding interest)
- Changes in the effect of the asset ceiling (IAS 19.127)
Other Long-Term Benefits
Examples: long-service awards, disability benefits, deferred compensation. Measured like defined benefit plans, but all remeasurements go directly to P&L, not OCI (IAS 19.157).
Termination Benefits
Recognised when (IAS 19.165):
- The entity is demonstrably committed to terminating employment before normal retirement date, or
- The entity offers termination benefits to encourage voluntary redundancy
Measured at the earlier of when the plan is announced or when restructuring provisions are recognised (IAS 19.169).
Disclosures (IAS 19.135–148)
Entities must disclose:
- Characteristics and risks of defined benefit plans
- Reconciliation of the DBO and plan assets
- Actuarial assumptions used (discount rate, salary growth, mortality)
- Sensitivity analysis on key assumptions
- Risk exposures — longevity risk, discount rate risk, inflation risk
- Expected contributions for the next annual period
Summary
IAS 19 ensures transparent reporting of employee benefit obligations by requiring:
- Recognition aligned with service rendered
- Actuarial measurement for long-term benefits
- Clear separation of P&L and OCI components — only P&L items are recycled; OCI remeasurements are permanent
