HKAS 19 - Employee Benefits (Condensed)
| Section | Key Concept | Brief Description |
|---|---|---|
| Introduction & Objective | Categories of Employee Benefits | Four categories: short-term, post-employment, other long-term, termination benefits. Objective: recognise liability when service rendered, expense when benefit consumed. |
| Scope & Definitions | Scope & Key Terms | Applies to all employee benefits except share-based payments (HKFRS 2). Defines plans (defined contribution vs. defined benefit) and key components (service cost, net interest, remeasurements). |
| Short-term Employee Benefits | Recognition & Measurement | Recognise undiscounted amount as liability/expense when service rendered. Includes accumulating/non-accumulating absences, profit-sharing, bonuses. |
| Post-employment Benefits: Classification | Defined Contribution vs. Defined Benefit | Classify based on economic substance. Defined contribution: entity's obligation limited to contributions. Defined benefit: entity bears actuarial/investment risk. |
| Post-employment Benefits: Defined Benefit Plans | Recognition & Measurement Steps | Use projected unit credit method. Determine deficit/surplus, then net defined benefit liability (asset). Recognise service cost & net interest in P/L, remeasurements in OCI. |
| Other Long-term Employee Benefits | Simplified Treatment | Examples: long-service leave, disability benefits. Recognise all components (service cost, net interest, remeasurements) in profit or loss. |
| Termination Benefits | Recognition & Measurement | Recognise at earlier of: entity cannot withdraw offer, or restructuring costs recognised. Measure based on nature (short-term, long-term, or post-employment). |
Introduction & Objective
Four Categories of Employee Benefits
| Category | Examples | Settlement Period |
|---|---|---|
| Short-term employee benefits | Wages, salaries, paid leave, profit-sharing, bonuses, non-monetary benefits (medical, housing, cars) | Expected to be settled wholly before 12 months after the end of the annual reporting period in which employees render service |
| Post-employment benefits | Pensions, lump sums on retirement, post-employment life insurance, medical care | Payable after completion of employment |
| Other long-term employee benefits | Long-service leave, sabbatical leave, jubilee benefits, long-term disability benefits | Not expected to be settled within 12 months |
| Termination benefits | Benefits payable due to entity's decision to terminate employment or employee's acceptance of voluntary redundancy | Result from termination of employment |
Objective (Paragraph 1)
The objective is to prescribe accounting and disclosure for employee benefits. The Standard requires an entity to recognise:
- (a) A liability when an employee has provided service in exchange for employee benefits to be paid in the future.
- (b) An expense when the entity consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.
Scope & Definitions
Scope (Paragraphs 2-7)
This Standard shall be applied by an employer in accounting for all employee benefits, except those to which HKFRS 2 Share-based Payment applies. It does not deal with reporting by employee benefit plans (see HKAS 26). Employee benefits include those provided under formal plans, legislative requirements, or informal practices that give rise to a constructive obligation. Benefits may be provided to employees, their dependants, or beneficiaries, and may be settled by payments or provision of goods/services. Employees include directors and other management personnel, whether full-time, part-time, permanent, casual, or temporary.
Key Definitions (Paragraph 8)
| Term | Definition |
|---|---|
| Employee benefits | All forms of consideration given by an entity in exchange for service rendered by employees or for termination of employment. |
| Short-term employee benefits | Benefits (other than termination benefits) expected to be settled wholly before twelve months after the end of the annual reporting period in which employees render the related service. |
| Post-employment benefits | Benefits (other than termination benefits and short-term employee benefits) payable after completion of employment. |
| Other long-term employee benefits | All employee benefits other than short-term, post-employment, and termination benefits. |
| Termination benefits | Benefits provided in exchange for termination of employment as a result of either an entity's decision to terminate employment before normal retirement date or an employee's decision to accept an offer of benefits. |
| Defined contribution plans | Post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. |
| Defined benefit plans | Post-employment benefit plans other than defined contribution plans. |
| Net defined benefit liability (asset) | The deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. |
| Service cost | Current service cost + past service cost + any gain or loss on settlement. |
| Remeasurements of the net defined benefit liability (asset) | Actuarial gains and losses + return on plan assets (excluding amounts in net interest) + any change in effect of asset ceiling (excluding amounts in net interest). |
Short-term Employee Benefits
Recognition and Measurement (Paragraph 11)
When an employee has rendered service during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid:
- (a) As a liability (accrued expense), after deducting any amount already paid. If amount paid exceeds the undiscounted amount, recognise an asset (prepaid expense).
- (b) As an expense, unless another HKFRS requires inclusion in cost of an asset.
Short-term Paid Absences (Paragraphs 13-18)
| Type | Recognition Timing | Measurement |
|---|---|---|
| Accumulating paid absences | When employees render service that increases their entitlement to future paid absences. | Measure as the additional amount the entity expects to pay as a result of unused entitlement accumulated at the end of the reporting period. |
| Non-accumulating paid absences | When the absences occur. | Recognise when the absence event occurs. |
Profit-sharing and Bonus Plans (Paragraphs 19-24)
Recognise expected cost of profit-sharing and bonus payments when, and only when:
- (a) The entity has a present legal or constructive obligation to make such payments as a result of past events.
- (b) A reliable estimate of the obligation can be made.
The cost of profit-sharing and bonus plans is recognised as an expense, not as a distribution of profit. If payments are not expected to be settled wholly before twelve months after the end of the reporting period, they are other long-term employee benefits.
Post-employment Benefits: Distinction Between Defined Contribution Plans and Defined Benefit Plans
Classification (Paragraphs 27-30)
Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan.
| Feature | Defined Contribution Plans | Defined Benefit Plans |
|---|---|---|
| Entity's obligation | Limited to the amount it agrees to contribute. | To provide agreed benefits. |
| Actuarial risk | Falls on the employee. | Falls on the entity. |
| Investment risk | Falls on the employee. | Falls on the entity. |
Multi-employer Plans (Paragraphs 32-39)
An entity shall classify a multi-employer plan as a defined contribution or defined benefit plan under the terms of the plan (including any constructive obligation). If an entity participates in a multi-employer defined benefit plan, it shall account for its proportionate share of the defined benefit obligation, plan assets, and cost. When sufficient information is not available for defined benefit accounting, account for the plan as if it were a defined contribution plan and disclose information required by paragraph 148.
State Plans (Paragraphs 43-45)
Account for a state plan in the same way as a multi-employer plan. State plans are normally defined contribution plans because the entity has no legal or constructive obligation to pay future benefits beyond contributions due.
Insured Benefits (Paragraphs 46-49)
An entity shall treat an insurance-funded plan as a defined contribution plan unless the entity retains a legal or constructive obligation to pay benefits directly or pay further amounts if the insurer does not pay. If the entity retains a legal or constructive obligation, account for a qualifying insurance policy as a plan asset; recognise other insurance policies as reimbursement rights.
Post-employment Benefits: Defined Benefit Plans
Recognition and Measurement Steps (Paragraph 57)
Accounting for defined benefit plans involves the following steps:
- Determining the deficit or surplus:
- Use the projected unit credit method to estimate the ultimate cost.
- Discount the benefit to determine present value of defined benefit obligation and current service cost.
- Deduct fair value of plan assets from present value of defined benefit obligation.
- Determining the net defined benefit liability (asset): The deficit or surplus adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.
- Determining amounts to be recognised in profit or loss:
- Current service cost
- Past service cost and gain/loss on settlement
- Net interest on the net defined benefit liability (asset)
- Determining remeasurements to be recognised in other comprehensive income:
- Actuarial gains and losses
- Return on plan assets (excluding amounts in net interest)
- Any change in effect of asset ceiling (excluding amounts in net interest)
Statement of Financial Position (Paragraphs 63-65)
Recognise the net defined benefit liability (asset) in the statement of financial position. When there is a surplus, measure the net defined benefit asset at the lower of:
- (a) The surplus in the defined benefit plan.
- (b) The asset ceiling, determined using the discount rate specified in paragraph 83.
Actuarial Valuation Method (Paragraphs 67-98)
Use the projected unit credit method to determine the present value of defined benefit obligations, current service cost, and past service cost. Actuarial assumptions shall be unbiased and mutually compatible. The discount rate shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. For currencies with no deep market in such bonds, use government bonds.
Components of Defined Benefit Cost (Paragraphs 120-130)
| Component | Recognition Location |
|---|---|
| Service cost | Profit or loss |
| Net interest on the net defined benefit liability (asset) | Profit or loss |
| Remeasurements | Other comprehensive income (cannot be reclassified to profit or loss in a subsequent period) |
Other Long-term Employee Benefits
Examples (Paragraph 153)
Other long-term employee benefits include:
- Long-term paid absences (long-service or sabbatical leave)
- Jubilee or other long-service benefits
- Long-term disability benefits
- Profit-sharing and bonuses (if not expected to be settled within 12 months)
- Deferred remuneration
Recognition and Measurement (Paragraphs 155-156)
Apply paragraphs 56-98 and 113-115 for recognising and measuring the surplus or deficit. Recognise the net total of the following in profit or loss:
- (a) Service cost
- (b) Net interest on the net defined benefit liability (asset)
- (c) Remeasurements of the net defined benefit liability (asset)
Termination Benefits
Definition and Scope (Paragraphs 159-160)
Termination benefits result from either an entity's decision to terminate employment or an employee's decision to accept an offer of benefits. They do not include benefits resulting from termination at the employee's request without an entity's offer, or from mandatory retirement requirements.
Recognition (Paragraphs 165-167)
Recognise a liability and expense for termination benefits at the earlier of:
- (a) When the entity can no longer withdraw the offer.
- (b) When the entity recognises costs for a restructuring involving termination benefits.
For benefits payable as a result of an employee's decision to accept an offer, the entity can no longer withdraw the offer at the earlier of when the employee accepts the offer or when a restriction on the entity's ability to withdraw takes effect. For benefits payable as a result of an entity's decision to terminate employment, the entity can no longer withdraw the offer when a plan of termination meeting all criteria has been communicated.
Measurement (Paragraph 169)
Measure termination benefits in accordance with the nature of the benefit:
| Nature of Benefit | Measurement Requirements |
|---|---|
| Enhancement to post-employment benefits | Apply post-employment benefit requirements |
| Expected to be settled wholly within 12 months | Apply short-term employee benefit requirements |
| Not expected to be settled within 12 months | Apply other long-term employee benefit requirements |
Termination benefits: CU10,000 per employee = CU1,200,000 (120 ร CU10,000). Recognised at earlier of plan announcement or recognition of restructuring costs.
Benefits for service: Incremental CU20,000 per employee for 100 employees = CU2,000,000. Recognised as short-term employee benefits over 10 months (CU200,000 per month).
โ Ready to Test?
50 MCQs โข 1.25 min each โข 62.5 min total
๐ Start Q&A โ๐ Full Reference Version๐จ๏ธ Save as PDF