The objective of this Accounting Standard (AS) is to prescribe the accounting and disclosure for employee benefits. According to this AS, employee benefits are all form of consideration given by an enterprise in exchange for service rendered by the employees. Employee benefits include benefits provided to either: employees or their spouses, children or other dependants and may be settled by payments (or the provision of goods or services) made either directly to employees, to their spouses, children or other dependants, or to their legal heirs or nominees; or to others, such as trusts, insurance companies. Employee benefits may be short term employee benefits, post employment benefits, other long term employee benefits and termination benefits.

This AS is applicable in its entirety to Level I enterprises. In case of other than Level I enterprises having 50 or more average number of persons employed during the year, the provisions relating to:

1. recognition and measurement of short term accumulating compensated absences in respect of which employees are not entitled to cash payment for unused leave at the time of leaving service,
2. discounting the amount payable after twelve months of balance sheet as regards defined contribution plans and termination benefits, and 
3. recognition, measurement and disclosure principles in respect of defined benefit plans and other long term employee benefit plan are not applicable

If average number of persons employed during the year is less than 50, then such enterprise can determine and provide the liability and expense as regards defined benefit plans and long term employee benefit by assuming that such benefits are payable to all employees at the end of the accounting year and therefore the recognition, measurement and disclosure principles as laid down in this AS in respect of defined benefit plan and long term employee benefits will not apply to such enterprises.

The accounting treatment of employee benefits depends upon their types as to whether they are short-term benefits, post-employment benefits or other long term benefits.

Accumulated compensated absences should be recognised when employee render service that increases their entitlement to future compensated absences. Non-accumulating compensated absences should be recognised when an employee is actually absent. Profit sharing and bonus plans falling due within 12 months should be recognised when there is a present obligation and a reliable estimate of the obligation can be made.

Defined Contribution plans: In case of defined contribution plans neither actuarial assumptions are required nor discounting is required unless contribution falls due after 12 months. Hence such contribution is recognised as expense.

Defined Benefit plans: The present value of defined benefit obligation less unrecognised past service cost less fair value of plan assets, out of which obligations are to be settled directly, should be treated as a liability (or asset when the result is negative). The net total of following should be recognised as expense: current service cost, interest cost, expected return on plan assets and reimbursement rights, actuarial gains and losses, past service cost, effect of curtailments or settlements and the extent to which asset (i.e. the negative result as aforesaid) exceeds present value of economic benefits in the form of refunds from the plan or reduction in future contribution to the plan.

Other Long Term benefits: The present value of defined benefit obligation at the balance sheet date less fair value of plan assets at balance sheet date, out of which obligations are to be settled directly, should be recognised as a liability. The net total of following should be recognised as expense: current service cost, interest cost, expected return on plan assets and reimbursement rights, actuarial gains and losses, past service cost, effect of curtailments or settlements.

Termination benefits: These should be recognised as expense when there is a present obligation as a result of past event and a reliable estimate can be made thereof provided it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

The discount rate should be determined with reference to market yields on government bonds at the balance sheet date. The past service cost should be recognised as an expense on straight line basis over the average period until the benefits become vested. But it should be expensed immediately if benefits are already vested. Further, the estimate of fair value of plan assets is made by discounting expected future cash flows. Reimbursement should be recognised as a separate asset at fair value and the gain or loss on settlement of a defined benefit plan should be recognised when curtailment or settlement occurs. This AS also stipulates offsetting assets relating to a plan against liability relating to another plan when the surplus in one plan can be used to settle the obligation under the other plans and the obligation is intended to be settled on a net basis. Multi employer plan should be treated as defined benefit plan unless it is not possible to do so for the want of information. Any actuarial gains and losses should be recognised immediately.

The following should be disclosed: Amount recognised as expense in case of defined contribution plan. For defined benefit plans the following should be disclosed:

1. policy for recognizing actuarial gains and losses,
2. general description of type of plan,
3. reconciliation of opening and closing balances of present value of defined benefit obligation, fair value of plan assets, reimbursement right recognised as an asset,
4. amount recognised as expense, etc. Other disclosures as may be required by AS 5 (Revised), AS 18 and AS 29.

The Council of the Institute of Chartered Accountants of India (ICAI), at its 265th meeting held on February 3-4, 2007, decided to defer the date of applicability of Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the ICAI, keeping in view the practical difficulties and general hardship being faced by industry. As per the decision, AS 15 comes into effect in respect of accounting periods commencing on or after December 7, 2006 (instead of April 1, 2006, as stated in the said Standard) and is mandatory in nature from that date. Earlier application of the Standard is encouraged. 

The author is a member of the Institute and the views expressed herein are his personal views and do not necessarily represent the views of the Regional Council.