HKFRS 9 - Financial Instruments
1. Introduction to HKAS 19
HKAS 19 *Employee Benefits* prescribes the accounting and disclosure by employers for employee benefits. The Standard does not deal with reporting by employee benefit plans (see HKAS 26 *Accounting and Reporting by Retirement Benefit Plans*).
1.1 Four Categories of Employee Benefits
The Standard identifies four categories of employee benefits:
(a) Short-term employee benefits - expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services:
(b) Post-employment benefits - payable after completion of employment:
(c) Other long-term employee benefits - not expected to be settled wholly before twelve months after the end of the annual reporting period:
(d) Termination benefits - provided in exchange for termination of employment
1.2 Objective (Paragraph 1)
The objective is to prescribe accounting and disclosure for employee benefits. The Standard requires an entity to recognise:
1.3 Scope (Paragraphs 2-7)
2. Definitions (Paragraph 8)
2.1 Key Definitions
| 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 | Employee 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 | Employee 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 employee benefits, post-employment benefits and termination benefits |
| Termination benefits | Employee benefits provided in exchange for termination of employment as a result of either: (a) entity's decision to terminate before normal retirement date; or (b) employee's decision to accept an offer of benefits in exchange for termination |
2.2 Plan Classification Definitions
| Term | Definition |
|---|---|
| Defined contribution plans | Post-employment benefit plans under which an entity pays fixed contributions into a separate 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 |
| Multi-employer plans | Defined contribution or defined benefit plans (other than state plans) that: (a) pool assets contributed by various entities not under common control; and (b) use those assets to provide benefits to employees of more than one entity |
2.3 Net Defined Benefit Liability (Asset) Definitions
| Term | Definition |
|---|---|
| Net defined benefit liability (asset) | The deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling |
| Deficit or surplus | Present value of the defined benefit obligation less fair value of plan assets (if any) |
| Asset ceiling | Present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan |
| Present value of a defined benefit obligation | Present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in current and prior periods |
2.4 Plan Assets Definition
Plan assets comprise:
2.5 Defined Benefit Cost Definitions
| Term | Definition |
|---|---|
| Service cost | Comprises: (a) current service cost - increase in present value of defined benefit obligation from employee service in current period; (b) past service cost - change in present value of defined benefit obligation for prior period service from plan amendment or curtailment; (c) any gain or loss on settlement |
| Net interest on the net defined benefit liability (asset) | The change during the period in the net defined benefit liability (asset) that arises from the passage of time |
| Remeasurements of the net defined benefit liability (asset) | Comprise: (a) actuarial gains and losses; (b) return on plan assets excluding amounts included in net interest; (c) any change in effect of asset ceiling excluding amounts included in net interest |
| Actuarial gains and losses | Changes in present value of defined benefit obligation from: (a) experience adjustments; (b) effects of changes in actuarial assumptions |
| Return on plan assets | Interest, dividends and other income from plan assets, plus realised and unrealised gains/losses, less: (a) costs of managing plan assets; (b) tax payable by the plan itself (other than tax included in actuarial assumptions) |
| Settlement | A transaction that eliminates all further legal or constructive obligations for part or all of the benefits under a defined benefit plan (other than a payment of benefits to employees set out in plan terms and included in actuarial assumptions) |
3. Short-Term Employee Benefits (Paragraphs 9-25)
3.1 Recognition and Measurement (Paragraphs 11-12)
Paragraph 11: When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:
- As a liability (accrued expense), after deducting any amount already paid. If amount paid exceeds undiscounted amount, recognise excess as an asset (prepaid expense) to the extent prepayment will lead to reduction in future payments or cash refund
- As an expense, unless another HKFRS requires or permits inclusion in cost of an asset
3.2 Short-Term Paid Absences (Paragraphs 13-18)
Accumulating paid absences - carried forward and can be used in future periods if current period's entitlement is not fully used:
Non-accumulating paid absences - lapse if not fully used; do not entitle employees to cash payment on leaving:
Example (Paragraphs 16-17):
An entity has 100 employees, each entitled to five working days of paid sick leave per year. Unused sick leave may be carried forward for one calendar year (LIFO basis). At 31 December 20X1, average unused entitlement is two days per employee. The entity expects 92 employees will take no more than five days in 20X2, and eight employees will take an average of six and a half days each. The entity expects to pay an additional twelve days of sick pay (1.5 days × 8 employees). Therefore, recognise a liability equal to twelve days of sick pay.
3.3 Profit-Sharing and Bonus Plans (Paragraphs 19-24)
Paragraph 19: An entity shall recognise the expected cost of profit-sharing and bonus payments when, and only when:
- The entity has a present legal or constructive obligation to make such payments as a result of past events; and
- A reliable estimate of the obligation can be made
Key points:
Example (Paragraph 20):
A profit-sharing plan requires an entity to pay a specified proportion of its profit for the year to employees who serve throughout the year. If no employees leave, total payments would be 3% of profit. The entity estimates staff turnover will reduce payments to 2.5% of profit. The entity recognises a liability and expense of 2.5% of profit.
3.4 Disclosure (Paragraph 25)
No specific disclosures required by HKAS 19, but other HKFRSs may require disclosures (e.g., HKAS 24 for key management personnel, HKFRS 18 for employee benefits expense).
4. Post-Employment Benefits: Distinction Between Defined Contribution and Defined Benefit Plans (Paragraphs 26-49)
4.1 Classification Principles (Paragraphs 26-31)
Post-employment benefit plans are classified based on economic substance of the plan as derived from its principal terms and conditions.
Defined Contribution Plans:
Defined Benefit Plans:
Examples where entity's obligation is not limited (Paragraph 29):
4.2 Multi-Employer Plans (Paragraphs 32-39)
Paragraph 32: An entity shall classify a multi-employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan (including any constructive obligation that goes beyond the formal terms).
Accounting for multi-employer defined benefit plans:
When sufficient information may not be available (Paragraph 36):
Contractual agreement (Paragraph 37):
If there is a contractual agreement determining how surplus will be distributed or deficit funded, the entity accounting for the plan as a defined contribution plan shall recognise the asset or liability arising from the contractual agreement and the resulting income or expense in profit or loss.
Group administration plans (Paragraph 38):
Distinct from multi-employer plans - merely an aggregation of single employer plans combined to pool assets for investment purposes. Claims of different employers are segregated. Classify as defined contribution or defined benefit in accordance with plan terms.
Wind-up or withdrawal (Paragraph 39):
Apply HKAS 37 *Provisions, Contingent Liabilities and Contingent Assets*.
4.3 Defined Benefit Plans Sharing Risks Between Entities Under Common Control (Paragraphs 40-42)
4.4 State Plans (Paragraphs 43-45)
4.5 Insured Benefits (Paragraphs 46-49)
Qualifying insurance policies:
Insurance policy in name of specified participant:
5. Post-Employment Benefits: Defined Contribution Plans (Paragraphs 50-54)
5.1 Recognition and Measurement (Paragraphs 51-52)
Paragraph 51: When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service:
- As a liability (accrued expense), after deducting any contribution already paid. If contribution paid exceeds contribution due, recognise excess as an asset (prepaid expense) to the extent prepayment will lead to reduction in future payments or cash refund
- As an expense, unless another HKFRS requires or permits inclusion in cost of an asset
Paragraph 52: When contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the annual reporting period in which employees render the related service, they shall be discounted using the discount rate specified in paragraph 83.
5.2 Disclosure (Paragraphs 53-54)
6. Post-Employment Benefits: Defined Benefit Plans (Paragraphs 55-152)
6.1 Overview (Paragraphs 55-60)
Accounting for defined benefit plans is complex because:
Steps in accounting for defined benefit plans (Paragraph 57):
(a) Determining the deficit or surplus:
(b) Determining the net defined benefit liability (asset):
(c) Determining amounts to be recognised in profit or loss:
(d) Determining remeasurements to be recognised in other comprehensive income:
6.2 Accounting for the Constructive Obligation (Paragraphs 61-62)
Paragraph 61: An entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity's informal practices.
6.3 Statement of Financial Position (Paragraphs 63-65)
Paragraph 63: An entity shall recognise the net defined benefit liability (asset) in the statement of financial position.
Paragraph 64: When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of:
- The surplus in the defined benefit plan; and
- The asset ceiling (present value of economic benefits available in the form of refunds or reductions in future contributions)
Net defined benefit asset may arise when:
Entity recognises net defined benefit asset because:
6.4 Recognition and Measurement: Present Value of Defined Benefit Obligations and Current Service Cost (Paragraphs 66-98)
6.4.1 Actuarial Valuation Method (Paragraphs 67-69)
Paragraph 67: An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost.
Projected unit credit method:
Example (Paragraph 68):
A lump sum benefit payable on termination of service equal to 1% of final salary for each year of service. Salary in year 1 is CU10,000, assumed to increase at 7% (compound) each year. Discount rate is 10% per year. Employee expected to leave at end of year 5.
| Year | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Benefit attributed to prior years | CU0 | CU131 | CU262 | CU393 | CU524 |
| Benefit attributed to current year | CU131 | CU131 | CU131 | CU131 | CU131 |
| Benefit attributed to current and prior years | CU131 | CU262 | CU393 | CU524 | CU655 |
| Opening obligation | - | CU89 | CU196 | CU324 | CU476 |
| Interest at 10% | - | CU9 | CU20 | CU33 | CU48 |
| Current service cost | CU89 | CU98 | CU108 | CU119 | CU131 |
| Closing obligation | CU89 | CU196 | CU324 | CU476 | CU655 |
Paragraph 69: An entity discounts the whole of a post-employment benefit obligation, even if part of the obligation is expected to be settled before twelve months after the reporting period.
6.4.2 Attributing Benefit to Periods of Service (Paragraphs 70-74)
Paragraph 70: In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an entity shall attribute benefit to periods of service under the plan's benefit formula. However, if an employee's service in later years will lead to a materially higher level of benefit than in earlier years, an entity shall attribute benefit on a straight-line basis from:
- The date when service by the employee first leads to benefits under the plan (whether or not the benefits are conditional on further service) until
- The date when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases
Key principles:
Examples (Paragraphs 71-73):
*Example 1:* Plan provides lump sum benefit of CU100 payable on retirement for each year of service.
*Example 2:* Plan provides monthly pension of 0.2% of final salary for each year of service, payable from age 65.
*Example 3:* Plan pays benefit of CU100 for each year of service, vesting after ten years.
*Example 4:* Plan pays lump sum benefit of CU1,000 vesting after ten years, with no further benefit for subsequent service.
*Example 5:* Post-employment medical plan reimburses 40% of medical costs if employee leaves after more than ten and less than twenty years of service, and 50% if employee leaves after twenty or more years.
Paragraph 74 - Constant proportion of final salary:
Where the amount of a benefit is a constant proportion of final salary for each year of service:
6.4.3 Actuarial Assumptions (Paragraphs 75-98)
Paragraph 75: Actuarial assumptions shall be unbiased and mutually compatible.
Paragraph 76: Actuarial assumptions comprise:
- (a) Demographic assumptions - mortality, rates of employee turnover, disability and early retirement, proportion of plan members with dependants, proportion selecting each payment option, claim rates under medical plans
- (b) Financial assumptions - discount rate, benefit levels and future salary, future medical costs, taxes payable by the plan
Paragraph 77: Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative.
Paragraph 78: Actuarial assumptions are mutually compatible if they reflect the economic relationships between factors such as inflation, rates of salary increase and discount rates.
Paragraph 80: Financial assumptions shall be based on market expectations, at the end of the reporting period, for the period over which the obligations are to be settled.
Mortality (Paragraphs 81-82):
Discount Rate (Paragraphs 83-86):
Paragraph 83: The rate used to discount post-employment benefit obligations shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. For currencies for which there is no deep market in such bonds, use market yields on government bonds denominated in that currency. The currency and term of the bonds shall be consistent with the currency and estimated term of the post-employment benefit obligations.
Key points:
Salaries, Benefits and Medical Costs (Paragraphs 87-98):
Paragraph 87: An entity shall measure its defined benefit obligations on a basis that reflects:
- The benefits set out in the terms of the plan (or resulting from any constructive obligation) at the end of the reporting period
- Any estimated future salary increases that affect the benefits payable
- The effect of any limit on the employer's share of the cost of future benefits
- Contributions from employees or third parties that reduce the ultimate cost to the entity
- Estimated future changes in the level of any state benefits that affect benefits payable under a defined benefit plan (if enacted before the end of the reporting period or if historical data/reliable evidence indicate predictable changes)
Future benefit changes (Paragraphs 88-89):
Employee and third-party contributions (Paragraphs 92-94):
Medical costs (Paragraphs 96-98):
6.5 Past Service Cost and Gains and Losses on Settlement (Paragraphs 99-112)
6.5.1 General Principles (Paragraphs 99-101A)
Paragraph 99: When determining past service cost, or a gain or loss on settlement, an entity shall remeasure the net defined benefit liability (asset) using the current fair value of plan assets and current actuarial assumptions, including current market interest rates and other current market prices, reflecting:
- The benefits offered under the plan and the plan assets before the plan amendment, curtailment or settlement
- The benefits offered under the plan and the plan assets after the plan amendment, curtailment or settlement
Paragraph 100: An entity need not distinguish between past service cost resulting from a plan amendment, past service cost resulting from a curtailment and a gain or loss on settlement if these transactions occur together.
Paragraph 101A: When a plan amendment, curtailment or settlement occurs, an entity shall recognise and measure any past service cost, or a gain or loss on settlement, in accordance with paragraphs 99-101 and 102-112. In doing so, an entity shall not consider the effect of the asset ceiling. An entity shall then determine the effect of the asset ceiling after the plan amendment, curtailment or settlement and shall recognise any change in that effect in accordance with paragraph 57(d).
6.5.2 Past Service Cost (Paragraphs 102-108)
Paragraph 102: Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment.
Paragraph 103: An entity shall recognise past service cost as an expense at the earlier of:
- When the plan amendment or curtailment occurs
- When the entity recognises related restructuring costs (HKAS 37) or termination benefits (paragraph 165)
Plan amendment (Paragraph 104): Occurs when an entity introduces, withdraws, or changes a defined benefit plan or the benefits payable under an existing plan.
Curtailment (Paragraph 105): Occurs when an entity significantly reduces the number of employees covered by a plan (e.g., closing a plant, discontinuing an operation, terminating or suspending a plan).
Past service cost may be positive or negative (Paragraph 106):
Single net change (Paragraph 107): Where an entity reduces benefits and simultaneously increases other benefits for the same employees, treat as a single net change.
Exclusions from past service cost (Paragraph 108):
6.5.3 Gains and Losses on Settlement (Paragraphs 109-112)
Paragraph 109: The gain or loss on a settlement is the difference between:
- The present value of the defined benefit obligation being settled, as determined on the date of settlement
- The settlement price, including any plan assets transferred and any payments made directly by the entity in connection with the settlement
Paragraph 110: An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs.
Settlement occurs when (Paragraph 111):
Insurance policy acquisition (Paragraph 112):
6.6 Recognition and Measurement: Plan Assets (Paragraphs 113-119)
6.6.1 Fair Value of Plan Assets (Paragraphs 113-115)
Paragraph 113: The fair value of any plan assets is deducted from the present value of the defined benefit obligation in determining the deficit or surplus.
Exclusions from plan assets (Paragraph 114):
Qualifying insurance policies (Paragraph 115):
6.6.2 Reimbursements (Paragraphs 116-119)
Paragraph 116: When, and only when, it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, an entity shall:
- Recognise its right to reimbursement as a separate asset. Measure the asset at fair value.
- Disaggregate and recognise changes in the fair value of its right to reimbursement in the same way as for changes in the fair value of plan assets. The components of defined benefit cost may be recognised net of amounts relating to changes in the carrying amount of the right to reimbursement.
Key points:
6.7 Components of Defined Benefit Cost (Paragraphs 120-130)
6.7.1 Recognition (Paragraphs 120-122)
Paragraph 120: An entity shall recognise the components of defined benefit cost, except to the extent that another HKFRS requires or permits their inclusion in the cost of an asset, as follows:
- (a) Service cost - in profit or loss
- (b) Net interest on the net defined benefit liability (asset) - in profit or loss
- (c) Remeasurements of the net defined benefit liability (asset) - in other comprehensive income
Paragraph 122: Remeasurements of the net defined benefit liability (asset) recognised in other comprehensive income shall not be reclassified to profit or loss in a subsequent period. However, the entity may transfer those amounts recognised in other comprehensive income within equity.
6.7.2 Current Service Cost (Paragraph 122A)
Paragraph 122A: An entity shall determine current service cost using actuarial assumptions determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, it shall determine current service cost for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using the actuarial assumptions used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b).
6.7.3 Net Interest (Paragraphs 123-126)
Paragraph 123: An entity shall determine net interest on the net defined benefit liability (asset) by multiplying the net defined benefit liability (asset) by the discount rate specified in paragraph 83.
Paragraph 123A: To determine net interest, an entity shall use the net defined benefit liability (asset) and the discount rate determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine net interest for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using:
- The net defined benefit liability (asset) determined in accordance with paragraph 99(b)
- The discount rate used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b)
In applying paragraph 123A, the entity shall also take into account any changes in the net defined benefit liability (asset) during the period resulting from contributions or benefit payments.
Components of net interest (Paragraph 124):
Interest income on plan assets (Paragraph 125):
Interest on effect of asset ceiling (Paragraph 126):
6.7.4 Remeasurements (Paragraphs 127-130)
Paragraph 127: Remeasurements of the net defined benefit liability (asset) comprise:
- (a) Actuarial gains and losses (paragraphs 128-129)
- (b) The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) (paragraph 130)
- (c) Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset) (paragraph 126)
Causes of actuarial gains and losses (Paragraph 128):
Exclusions from actuarial gains and losses (Paragraph 129):
Return on plan assets (Paragraph 130):
6.8 Presentation (Paragraphs 131-134)
Offset (Paragraphs 131-132):
Paragraph 131: An entity shall offset an asset relating to one plan against a liability relating to another plan when, and only when, the entity:
- Has a legally enforceable right to use a surplus in one plan to settle obligations under the other plan
- Intends either to settle the obligations on a net basis, or to realise the surplus in one plan and settle its obligation under the other plan simultaneously
Current/non-current distinction (Paragraph 133):
Components of defined benefit cost (Paragraph 134):
6.9 Disclosure (Paragraphs 135-152)
6.9.1 Overall Objectives (Paragraphs 135-138)
Paragraph 135: An entity shall disclose information that:
- (a) Explains the characteristics of its defined benefit plans and risks associated with them
- (b) Identifies and explains the amounts in its financial statements arising from its defined benefit plans
- (c) Describes how its defined benefit plans may affect the amount, timing and uncertainty of the entity's future cash flows
Considerations for meeting objectives (Paragraph 136):
Additional information (Paragraph 137):
Disaggregation (Paragraph 138):
6.9.2 Characteristics and Risks (Paragraph 139)
Disclose:
6.9.3 Explanation of Amounts (Paragraphs 140-144)
Reconciliations (Paragraph 140):
Provide reconciliation from opening to closing balance for:
Items in each reconciliation (Paragraph 141):
Plan assets (Paragraphs 142-143):
Actuarial assumptions (Paragraph 144):
6.9.4 Amount, Timing and Uncertainty of Future Cash Flows (Paragraphs 145-147)
Sensitivity analysis (Paragraph 145):
Asset-liability matching strategies (Paragraph 146):
Effect on future cash flows (Paragraph 147):
6.9.5 Multi-Employer Plans (Paragraph 148)
If entity participates in a multi-employer defined benefit plan, disclose:
6.9.6 Plans Sharing Risks Between Entities Under Common Control (Paragraphs 149-150)
Disclose:
Information may be disclosed by cross-reference to another group entity's financial statements if those statements separately identify and disclose the required information and are available on the same terms.
6.9.7 Other Disclosure Requirements (Paragraphs 151-152)
7. Other Long-Term Employee Benefits (Paragraphs 153-158)
7.1 Scope (Paragraph 153)
Other long-term employee benefits include items not expected to be settled wholly before twelve months after the end of the annual reporting period in which employees render the related service:
7.2 Recognition and Measurement (Paragraphs 155-157)
Paragraph 155: In recognising and measuring the surplus or deficit in an other long-term employee benefit plan, an entity shall apply paragraphs 56-98 and 113-115. An entity shall apply paragraphs 116-119 in recognising and measuring any reimbursement right.
Paragraph 156: For other long-term employee benefits, an entity shall recognise the net total of the following amounts in profit or loss, except to the extent that another HKFRS requires or permits their inclusion in the cost of an asset:
- Service cost
- Net interest on the net defined benefit liability (asset)
- Remeasurements of the net defined benefit liability (asset)
Key difference from post-employment benefits:
Long-term disability benefit (Paragraph 157):
7.3 Disclosure (Paragraph 158)
No specific disclosures required by HKAS 19, but other HKFRSs may require disclosures (e.g., HKAS 24 for key management personnel, HKFRS 18 for employee benefits expense).
8. Termination Benefits (Paragraphs 159-171)
8.1 Definition and Scope (Paragraphs 159-164)
Termination benefits are employee benefits provided in exchange for the termination of an employee's employment as a result of either:
- An entity's decision to terminate an employee's employment before the normal retirement date; or
- An employee's decision to accept an offer of benefits in exchange for the termination of employment
Key points:
Indicators that benefit is provided in exchange for services (Paragraph 162):
Benefits provided regardless of reason for departure (Paragraph 164):
8.2 Recognition (Paragraphs 165-168)
Paragraph 165: An entity shall recognise a liability and expense for termination benefits at the earlier of:
- When the entity can no longer withdraw the offer of those benefits
- When the entity recognises costs for a restructuring that is within the scope of HKAS 37 and involves the payment of termination benefits
Employee's decision to accept offer (Paragraph 166):
Entity's decision to terminate employment (Paragraph 167):
Related plan amendment or curtailment (Paragraph 168):
8.3 Measurement (Paragraphs 169-170)
Paragraph 169: An entity shall measure termination benefits on initial recognition, and shall measure and recognise subsequent changes, in accordance with the nature of the employee benefit, provided that if the termination benefits are an enhancement to post-employment benefits, the entity shall apply the requirements for post-employment benefits. Otherwise:
- If expected to be settled wholly before twelve months after the end of the annual reporting period in which the termination benefit is recognised: apply requirements for short-term employee benefits
- If not expected to be settled wholly before twelve months: apply requirements for other long-term employee benefits
Paragraph 170: Because termination benefits are not provided in exchange for service, paragraphs 70-74 relating to the attribution of the benefit to periods of service are not relevant.
Example (Paragraphs 159-170):
An entity plans to close a factory in ten months and terminate all remaining employees. Each employee who stays and renders service until closure receives CU30,000 on termination date. Employees leaving before closure receive CU10,000. There are 120 employees; 20 are expected to leave before closure.
8.4 Disclosure (Paragraph 171)
No specific disclosures required by HKAS 19, but other HKFRSs may require disclosures (e.g., HKAS 24 for key management personnel, HKFRS 18 for employee benefits expense).
9. Transition and Effective Date (Paragraphs 172-177)
Key Takeaways Summary
| Category | Recognition | Measurement | Presentation |
|---|---|---|---|
| Short-term employee benefits | When employee renders service | Undiscounted amount | Liability/expense |
| Defined contribution plans | When employee renders service | Contribution payable (discounted if >12 months) | Liability/expense |
| Defined benefit plans | When employee renders service | Projected unit credit method; discounted; actuarial assumptions | Net defined benefit liability (asset) in SFP; service cost and net interest in P&L; remeasurements in OCI |
| Other long-term employee benefits | When employee renders service | Same as defined benefit but remeasurements in P&L | Net total in P&L |
| Termination benefits | Earlier of: cannot withdraw offer or recognise restructuring costs | Based on nature (short-term, other long-term, or post-employment) | Liability and expense |
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