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AASB 119 - Employee Benefits

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Text of the Standard 
Summary 
AIFRS compared to IFRS and old AGAAP 
Interpretations and guidance 
Questions and answers 
Articles 

 
Comparison between AASB 119 and IAS 19 
Comparison by Jeffrey Knapp 
 
Background 
 
AASB 119 ‘Employee Benefits’ is the Australian equivalent to IAS 19 of the same name. It was made by the AASB on 15 July 2004 as part the AASB’s program to adopt International Financial Reporting Standards by 2005. 
 
A revised AASB 119 was made by the AASB on 22 December 2004 and applies to annual reporting periods beginning 1 January 2006. The revised AASB 119 incorporates the IASB’s December 2004 amendments to IAS 19 in respect of actuarial gains and losses, group plans and disclosures. Entities that prepare financial reports under the Corporations Act may elect to apply the revised December 2004 version of AASB 119 to earlier annual financial reporting periods beginning on or after 1 January 2005. 
 
The published version of AASB 119 in this text is the July 2004 version applying to annual reporting periods 1 January 2005 as part of the stable platform of Australian equivalents to International Financial Reporting Standards. The revised version of AASB 119 applicable from 2006 is available on the AASB’s website – refer http://www.aasb.com.au. 
 
AASB 119 Compared to IAS 19 
 
Additions 
 
Paragraph Description 
 
Aus 1.1 Which entities AASB 119 applies to, ie. reporting entities and general purpose financial reports. 
 
Aus 1.2 The application date of AASB 119, ie. annual reporting periods beginning 1 January 2005. 
 
Aus 1.3 Prohibits early application of AASB 119. 
 
Aus 1.4 Makes the requirements of AASB 119 subject to AASB 1031 ‘Materiality’. 
 
Aus 1.5 Explains which Australian Standards have been superseded by AASB 119. 
 
Aus 1.6 Clarifies that the superseded Australian Standards remain in force until AASB 119 applies. 
 
Aus 1.7 Notice of the new Standard published on 22 July 2004. 
 
Aus 55.1 The calculation of a defined benefit liability by an entity includes any taxes payable by a defined benefit fund on behalf members that are funded by the entity. 
 
Aus 55.2 Example to illustrate the application of paragraph 55.1. 
 
Aus 78.1 The discount rate used in the measurement of post-employment benefit obligations must be the market yield on government bonds rather than high quality corporate bonds because the market in the latter is not sufficiently active and liquid. 
 
Aus 92.1 An entity must recognise actuarial gains and losses from measuring its defined benefit liability as income or expense immediately. The only exception to this rule is set out at paragraph 58A. 
 
Aus 121.1 Disclosure required of the details of arrangements for employer contributions for funding each defined benefit plan including the surplus or deficit, the current contribution recommendations, and the economic assumptions and funding method used to make recommendations. 
 
Aus 121.2 Disclosure required of the nature of any asset or liability recognised in the balance sheet including any legal liability to make up a deficit or the manner in which the entity may benefit from a surplus. 
 
Deletions 
 
Paragraph Description 
 
54(b) The amount recognised as a defined benefit liability should be net of any actuarial gains and losses not recognised in accordance with paragraphs 92-93. 
 
58A(b) Recognition of the net actuarial gains of the current period if the amount determined under paragraph 54 is negative (an asset). 
 
92 Requirement to recognise a portion of actuarial gains and losses as income or expense known as the corridor approach. 
 
93 Further explanation of the corridor approach. 
 
95 Systematic methods of faster recognition of actuarial gains and losses relative to the corridor approach are also permitted. 
 
108(c) Acquisition accounting the assets and liabilities arising from post-employment benefits includes amounts unrecognised by virtue of the transitional provision at paragraph 155(b).  
 
120(c)(iv) An enterprise should disclose the net actuarial gains or losses not recognised in the balance sheet. 
 
127(a) Reference to the corridor approach. 
 
153 IAS 8 applies where an entity first adopts IAS 19 for employee benefits other than those relating to defined benefit plans. 
 
154 How to measure the transitional liability for defined benefit plans on first adopting IAS 19. 
 
155 How to account for a transitional liability that is greater than the liability that would have been recognised at the same date under the previous accounting policy. 
 
156 How to account for a transitional liability that is less than the liability that would have been recognised at the same date under the previous accounting policy. 
 
157 Effective date of IAS 19. 
 
158 Reference to superseded IAS 19. 
 
159 Operative date for revised definition of plant assets in paragraph 7 
 
159A Operative date of the amendment to paragraph 58A. 
 
160 IAS 8 applies to changes in accounting policies resulting from the application of paragraphs 159 and 159A. 
 
 
 
Differences Between AASB 119 and AASB 1028 
Comparison from the Australian Accounting Standards Board 
 
This section identifies differences between AASB 1028 Employee Benefits and AASB 119 Employee Benefits under the following headings. 
 
A: Incompatibilities between AASB 1028 and AASB 119 
B: AASB 1028 is more detailed or restrictive  
 
The analysis of differences between AASB 119 and AASB 1028 is included because this Standard has been issued prior to the operative date of AASB 119 as issued in July 2004, and may be early adopted for that period. 
 
The analysis of differences should not be taken as providing an exhaustive list of differences. 
 
Introduction 
 
AASB 119 and AASB 1028 prescribe the recognition, measurement and disclosure of all forms of consideration given by the entity in exchange for services rendered by an employee, except that both Standards exclude equity compensation benefits and AASB 1028 does not deal with the recognition of post-employment benefits that are superannuation or medical benefits. Reporting by superannuation plans is dealt with in AAS 25 Financial Reporting by Superannuation Plans. 
 
Differences 
 
A. Incompatibilities between AASB 1028 and AASB 119 
 
A.1 Wages and salaries, annual leave and sick leave 
 
AASB 119.7 defines short-term employee benefits as employee benefits that fall due wholly within twelve months after the end of the period in which the employees render the related service. AASB 119.8 provides wages and salaries, annual leave and sick leave as examples of a short-term employee benefits. AASB 119.10 requires liabilities for short-term employee benefits to be measured at nominal amounts and AASB 119.128 requires liabilities for long-term employee benefits to be measured at present value. AASB 1028.5.1 requires wages and salaries, annual leave and sick leave to be measured at nominal amounts in all circumstances. In the unusual case where wages and salaries, annual leave and sick leave are not short-term employee benefits, AASB 119 requires the associated liabilities to be measured at present value whereas AASB 1028 requires the associated liabilities to be measured at the nominal amount. Further, in the context of an acquisition, AASB 1028.5.4 deems the nominal amounts to be the fair values of these employee benefits liabilities. In contrast, in the context of an acquisition, AASB 3 Business Combinations requires discounting unless the difference between the nominal amount and the discounted amount of the liability is not material. 
 
A.2 Discount rate 
 
AASB 119.78 requires that the rate used to discount a long-term employee benefits liability be determined by reference to market yields at the reporting date on high quality corporate bonds. In the absence of a deep market in such bonds, the market yields on government bonds is used. AASB 1028.5.3 requires the discount rate to be the market yields as at the reporting date on national government bonds. A difference will occur where there exists a deep market in high quality corporate bonds with market yields at reporting date that vary from the government bond market yield rates at the same reporting date. AASB 119.Aus78.1 states that Australia does not currently have a sufficiently active and liquid market for high quality corporate bonds. Accordingly, there will not be a difference between the AASB 119 and AASB 1028 discount rate in regard to the discount rate on long-term employee benefits denominated in Australian currency. 
 
A.3 Acquiree recognition of liabilities at the acquisition date 
 
AASB 3.36 states that only identifiable liabilities of the acquiree that existed at the acquisition date and that satisfy the recognition criteria (i.e. probable and reliable measurement) are recognised separately by the acquirer as part of allocating the cost of the business combination. Accordingly, AASB 3.41 requires the acquirer to recognise liabilities for terminating or reducing the activities of the acquiree as part of allocating the cost of the combination only when the acquiree has, at the acquisition date, an existing liability for restructuring recognised in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets. 
 
In contrast, AASB 1028.4.9-4.10 and AASB 1044 Provisions, Contingent Liabilities and Contingent Assets paragraphs 12.2-12.3 require the acquirer to recognise as at the acquisition date (and therefore include in determining goodwill or negative goodwill/discount on acquisition) a liability for terminating or reducing the activities of the acquiree that was not recognised by the acquiree at the acquisition date when certain criteria have been met. Further, the acquiree is also required in accordance with AASB 1028.4.10 and AASB 1044.12.3 to recognise as at the acquisition date any such liability in its separate financial report. Recognition by the acquiree of such a liability in its separate financial report is implicitly prohibited under AASB 119 and AASB 137, as a result of the liability recognition criteria set out in those Standards. 
 
B. AASB 1028 is more detailed or restrictive  
 
B.1 Non-monetary benefits 
 
AASB 1028.4.2.2-4.2.4 includes detailed commentary on the different types of non-monetary benefits including goods and services provided to employees at a discount and employees’ rights to non-monetary benefits, and whether or not these benefits accumulate or accrue in proportion to the employees’ periods of service. In contrast AASB 119.8 comments that short-term employee benefits include non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees. AASB 119 contains the commentary from AASB 1028 as Australian Guidance paragraphs G1-G3. 
 
B.2 Long service leave entitlements 
 
AASB 1028.4.4.9-4.4.13 provides extensive commentary about long service leave entitlements. For example, AASB 1028.4.4.9 comments that the following entitlement categories are common: 
  • unconditional legal entitlement to payment; 
  • conditional legal entitlement to pro rata payments; and 
  • pre-conditional entitlement (prior to the existence of a legal entitlement).
In addition, AASB 1028.4.4.12-4.4.13 discuss the accounting treatment required of employers participating in industry-based long service leave schemes. AASB 119 contains the commentary from AASB 1028 as Australian Guidance paragraphs G4-G8. 
 
B.3 Termination benefits 
 
AASB 1028.4.7-4.8 and AASB 119.133-134 require the same accounting treatment for termination benefits. In general, termination benefits must be recognised as liabilities when the entity has developed a detailed formal plan for the terminations and raised valid expectations in the affected employees that it will carry out the terminations. However, AASB 1028.4.8.4-4.8.9 contains more extensive commentary in relation to “valid expectation” and “constructive obligation” than the commentary in AASB 119. AASB 119 contains the commentary from AASB 1028 as Australian Guidance paragraphs G9-G14.