• when the employee accepts the offer; and
• when a restriction (e.g. a legal, regulatory or contractual requirement or other
restriction) on the entity’s ability to withdraw the offer takes effect. This would be
when the offer is made, if the restriction existed at the time of the offer. [IAS 19.166].
For termination benefits payable as a result of an entity’s decision to terminate an
employee’s employment, the entity can no longer withdraw the offer when the entity
has communicated to the affected employees a plan of termination meeting all of the
following criteria:
• actions required to complete the plan indicate that it is unlikely that significant
changes to the plan will be made;
• the plan identifies the number of employees whose employment is to be terminated,
their job classifications or functions and their locations (but the plan need not
identify each individual employee) and the expected completion date; and
• the plan establishes the termination benefits that employees will receive in
sufficient detail that employees can determine the type and amount of benefits
they will receive were their employment to be terminated. [IAS 19.167].
The standard notes that when an entity recognises termination benefits, it may also have
to account for a plan amendment or a curtailment of other employee benefits (discussed
at 10.2 above). [IAS 19.168].
14.3 Measurement
IAS 19 requires that on initial recognition and subsequent remeasurement, termination
benefits should be measured in accordance with the nature of the employee benefit. If
the termination benefits are an enhancement to post-employment benefits, the entity
applies the requirements for post-employment benefits. Otherwise:
• if the termination benefits are expected to be settled wholly before twelve months
after the end of the annual reporting period in which the termination benefit is
recognised, the requirements for short-term employee benefits should be applied
(discussed at 12 above); and
Employee
benefits
2827
• if the termination benefits are not expected to be settled wholly before twelve
months after the end of the annual reporting period, the requirements for other
long-term employee benefits should be applied (discussed at 13 above). [IAS 19.169].
Because termination benefits are not provided in exchange for service, the standard
notes that its rules relating to the attribution of the benefit to periods of service are not
relevant (discussed at 7.4 above). [IAS 19.170].
IAS 19 illustrates the accounting for termination benefits with an example.
Example 31.10: Termination benefits
Background
As a result of a recent acquisition, an entity plans to close a factory in ten months and, at that time, terminate
the employment of all of the remaining employees at the factory. Because the entity needs the expertise of
the employees at the factory to complete some contracts, it announces a plan of termination as follows.
Each employee who stays and renders service until the closure of the factory will receive on the termination
date a cash payment of $30,000. Employees leaving before closure of the factory will receive $10,000.
There are 120 employees at the factory. At the time of announcing the plan, the entity expects 20 of them to
leave before closure. Therefore, the total expected cash outflows under the plan are $3,200,000 (i.e. 20 ×
$10,000 + 100 × $30,000). As required by the standard, the entity accounts for benefits provided in exchange
for termination of employment as termination benefits and accounts for benefits provided in exchange for
services as short-term employee benefits.
Termination benefits
The benefit provided in exchange for termination of employment is $10,000. This is the amount that an entity
would have to pay for terminating the employment regardless of whether the employees stay and render
service until closure of the factory or they leave before closure. Even though the employees can leave before
closure, the termination of all employees’ employment is a result of the entity’s decision to close the factory
and terminate their employment (i.e. all employees will leave employment when the factory closes).
Therefore the entity recognises a liability of $1,200,000 (i.e. 120 × $10,000) for the termination benefits
provided in accordance with the employee benefit plan at the earlier of when the plan of termination is
announced and when the entity recognises the restructuring costs associated with the closure of the factory.
Benefits provided in exchange for service
The incremental benefits that employees will receive if they provide services for the full ten-month period
are in exchange for services provided over that period. The entity accounts for them as short-term employee
benefits because the entity expects to settle them before twelve months after the end of the annual reporting
period. In this example, discounting is not required, so an expense of $200,000 (i.e. $2,000,000 ÷ 10) is
recognised in each month during the service period of ten months, with a corresponding increase in the
carrying amount of the liability.
15 DISCLOSURE
REQUIREMENTS
15.1 Defined
contribution
plans
IAS 19 requires the disclosure of the expense recognised for defined contribution plans.
It also notes that IAS 24 requires disclosure of the contributions in respect of key
management personnel. [IAS 19.53, 54].
2828 Chapter 31
15.2 Defined benefit plans
IAS 19 requires extensive disclosure in relation to defined benefit plans, as set out below.
The standard requires an entity to 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; and
(c) describes how its defined benefit plans may affect the amount, timing and
uncertainty of the entity’s future cash flows. [IAS 19.135].
To achieve the above, the standard sets out a long and detailed list of narrative and
numerical disclosure requirements (considered further below).
The Board also noted that entities must comply with the general materiality
requirements of IAS 1 (discussed in Chapter 3 at 4.1.5), including the requirement to
disclose additional information if necessary, and that the financial statements need not
contain disclosures that are not material. [IAS 19.BC209].
One of the Board’s objectives in regard to disclosure was to ensure that financial statements
provide relevant information that is not obscured by excessive detail. [IAS 19.BC207].
These references to excessive detail and non-disclosure of immaterial items suggest the
Board is expecting entities to apply judgement regarding the level of detail to be
provided rather than giving everything set out in the standard.
To meet the objectives above, the standard requires consideration of all the following:
(a) the level of detail necessary to satisfy the disclosure requirements;
(b) how much emphasis to place on each of the various requirements;
(c) how much aggregation or disaggregation to undertake; and
(d) whet
her users of financial statements need additional information to evaluate the
quantitative information disclosed. [IAS 19.136].
If the disclosures provided in accordance with the requirements of IAS 19 and other
IFRSs are insufficient to meet the objectives above, an entity should disclose additional
information necessary to meet those objectives. For example, an entity may present an
analysis of the present value of the defined benefit obligation that distinguishes the
nature, characteristics and risks of the obligation. Such a disclosure could distinguish:
(a) between amounts owing to active members, deferred members, and pensioners;
(b) between vested benefits and accrued but not vested benefits; and
(c) between conditional benefits, amounts attributable to future salary increases and
other benefits. [IAS 19.137].
An assessment should be made as to whether all or some disclosures should be disaggregated
to distinguish plans or groups of plans with materially different risks. For example, an entity
may disaggregate disclosure about plans showing one or more of the following features:
(a) different geographical locations;
(b) different characteristics such as flat salary pension plans, final salary pension plans
or post-employment medical plans;
(c) different
regulatory
environments;
Employee
benefits
2829
(d) different reporting segments; and
(e) different funding arrangements (e.g. wholly unfunded, wholly funded or partly
funded). [IAS 19.138].
15.2.1
Characteristics of defined benefit plans and risks associated with
them
IAS 19 requires disclosure of:
(a) information about the characteristics of its defined benefit plans, including:
(i)
the nature of the benefits provided by the plan (e.g. final salary defined benefit
plan or contribution-based plan with guarantee);
(ii) a description of the regulatory framework in which the plan operates, for
example the level of any minimum funding requirements, and any effect of
the regulatory framework on the plan, such as the asset ceiling;
(iii) a description of any other entity’s responsibilities for the governance of the plan,
for example responsibilities of trustees or of board members of the plan; and
(b) a description of the risks to which the plan exposes the entity, focused on any unusual,
entity-specific or plan-specific risks, and of any significant concentrations of risk. For
example, if plan assets are invested primarily in one class of investments, e.g. property,
the plan may expose the entity to a concentration of property market risk; and
(c) a description of any plan amendments, curtailments and settlements. [IAS 19.139].
15.2.2
Explanation of amounts in the financial statements
The disclosures should provide a reconciliation from the opening balance to the closing
balance for each of the following, if applicable:
(a) the net defined benefit liability (asset), showing separate reconciliations for:
(i) plan
assets;
(ii) the present value of the defined benefit obligation; and
(iii) the effect of the asset ceiling; and
(b) any reimbursement rights. If there are reimbursement rights a description of the
relationship between them and the related obligation should be given. [IAS 19.140].
Each reconciliation listed in (a) and (b) above should show each of the following, if applicable:
(a) current service cost;
(b) interest income or expense (see 10.3 above);
(c) remeasurements of the net defined benefit liability (asset), showing separately:
(i)
the return on plan assets, excluding amounts included in interest in (b) above;
(ii) actuarial gains and losses arising from changes in demographic assumptions;
(iii) actuarial gains and losses arising from changes in financial assumptions; and
(iv) changes in the effect of limiting a net defined benefit asset to the asset ceiling,
excluding amounts included in interest in (b). There should also be disclosure of
how the maximum economic benefit available was determined, i.e. whether
those benefits would be in the form of refunds, reductions in future contributions
or a combination of both;
2830 Chapter 31
(d) past service cost and gains and losses arising from settlements. Past service cost
and gains and losses arising from settlements need not be distinguished if they
occur together (see 10.2 above);
(e) the effect of changes in foreign exchange rates;
(f) contributions to the plan, showing separately those by the employer and by
plan participants;
(g) payments from the plan, showing separately the amount paid in respect of any
settlements; and
(h) the
effects
of
business combinations and disposals. [IAS 19.141].
The following extract from BT Group plc shows how they have presented the
above reconciliations.
Extract 31.2: BT Group plc (2016)
Notes to the consolidated financial statements [extract]
19.
Retirement benefit plans [extract]
Movements in defined benefit plan assets and liabilities
The table below shows the movements on the total plan assets and liabilities for all group schemes in the year and
shows where they are reflected in the financial statements.
Assets
Liabilities Deficit
£m £m £m
At 31 March 2014
40,133
(47,135)
(7,022)
Current service cost (including administration expenses and PPF
levy)
(42) (254) (296)
Interest on pension deficit
1,663
(1,955)
(292)
Past
service
credit
– 5 5
Included in the group income statement
(583)
Return on plan assets above the amount included in the group
income statementa 3,083
–
3,083
Actuarial loss arising from changes in financial assumptionsb –
(4,703)
(4,703)
Actuarial gain arising from changes in demographic assumptionsb
– 126 126
Actuarial gain arising from experience adjustmentsc
– 443 443
Included in the group statement of comprehensive income
(1,051)
Regular contributions by employer
178
–
178
Deficit contributions by employer
876
–
876
Included in the group cash flow statement
1,054
Contributions
by
employees
12
(12)
–
Benefits
paid
(2,231)
2,231
–
Foreign
exchange
(25)
44
19
Other movements
19
At 31 March 2015
43,627
(51,210)
(7,583)
Current service cost (including a
dministration expenses and
PPF
levy) (40) (261) (301)
Interest on pension deficit
1,406
(1,627)
(221)
Included in the group income statement
(522)
Employee
benefits
2831
Return on plan assets below the amount included in the group
income statementa (423)
–
(423)
Actuarial gain arising from changes in financial assumptionsb
– 255 255
Actuarial gain arising from demographic assumptionsb
– 2 2
Actuarial gain arising from experience adjustmentsc
– 921 921
Included in the group statement of comprehensive income
755
Regular contributions by employer
226
–
226
Deficit contributions by employer
880
–
880
Included in the group cash flow statement
1,106
EEPS position at acquisition
585
(698)
(113)
Contributions
by
employees
10
(10)
–
Benefits
paid
(2,321)
2,321
–
Foreign
exchange
18
(43)
(25)
Other movements
(138)
At 31 March 2016
43,968
(50,350)
(6,382)
a
The total actual return on plan assets in 2015/16 was a gain of £983m (2014/15: £4,746m).
b
The actuarial gain or loss arises from changes in the assumptions used to value the defined benefit liabilities at the end of the year compared with the assumptions used at the start of the year. This includes both financial assumptions,
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 564
