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AASB 119 - Employee Benefits
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Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
Accounting for Sick leave 
as reported in ANT04/2007:  
 
Q: Is it necessary to provide for sick leave? 
 
A: The relevant accounting standard is AASB 119, 'Employee Benefits' which includes requirements to provide for short term compensated absences. Sick leave is an example of one such type of absence.  
 
The relevant paragraphs of AASB 119 are paragraphs 11 to 15 which make it clear that the need to raise a provision depends on the terms and conditions of the relevant obligation to the employee as well as the entity's policies.  
 
A crucial consideration is whether the sick leave "vests", ie whether the employees' unused sick leave entitlement accumulates each year so that they are entitled to a cash payment for unused sick leave on leaving employment. In this case accumulated sick leave must be provided for. 
 
The more complicated and more common situation relates to accumulating non-vesting sick leave. This occurs when the employees' unused sick leave entitlements accumulate and can be carried forward each year but the employees are NOT entitled to a cash payment for unused sick leave on leaving employment. In this case an obligation still arises if the company’s practice is to pay this leave if and when the employee is sick. However the possibility that employees may leave the organisation or not otherwise use their accumulated leave affects the measurement of the obligation (refer AASB 119 paragraph 13).  
 
The example that follows paragraph 15 illustrates these provisions, and includes important guidance for sick leave. This is commonly interpreted to be in line with the old AGAAP UIG Abstract on the issue - in other words accounting for accumulating non-vesting sick leave on a LIFO basis. This means providing for the sick leave anticipated to be taken over and above the sick leave entitlement for each year. For example, if company history indicates that employees do not take more sick leave than they accumulate each year and sick leave is accounted for on a LIFO basis then no provision is required, as they are never using their brought forward accumulated entitlement. 
 
 
Not-for-profits under AIFRS standards 
as reported in ANT 13/2006:  
 
Q: How are “not for profits” (NFPs) affected by the new Australian equivalents to International Financial Reporting Standards (AIFRS) standards? 
 
A: Since the AASB has the power to issue sector neutral standards i.e. standards to cover reporting entities in the private and public sector, “not for profit” reporting entities are covered by and will be required to comply with the new AIFRS. An NFP is defined as “an entity whose principal objective is not the generation of profit”. 
 
As part of the convergence process the AASB has included special requirements for NFP's into the new standards where these are appropriate to allow for this sector's special needs. These are generally special paragraphs inserted with the notation “AUS” prior to the number. These standards also contain the “not for profit” definition. An example is paragraph 9.1 of AASB 102 which allows NFP's to measure inventories held for distribution at the lower of cost and current replacement cost rather than the normal “cost and net realisable value” calculation. 
 
The AASB has also exempted NFP's from two standards, AASB 114 “Segment Reporting” and AASB 120 “Government Grants”. However it has also issued AASB 1004 “Contributions” which deals with the accounting treatment for contributions received by not-for-profits. All the remaining AASB standards and their requirements apply to NFP's in the same way as for profit entities. 
 
The AASB has recently published a staff paper identifying all the NFP requirements that are contained in the standards and explaining the reasons for their existence. It also provides guidance to NFPs with “for profit” subsidiaries by comparing all the relevant different requirements which may impact their consolidation. The paper can be downloaded from the AASB website http://www.aasb.com.au. 
 
 
Application of AASB 120 
as reported in ANT43/2004:  
 
Q: How are “not for profits” (NFPs) affected by the new 2005 standards? 
 
A: Since the AASB has the power to issue sector neutral standards i.e. standards to cover reporting entities in the private and public sector, "not for profit” reporting entities are covered by and will be required to comply with the new 2005 standards. An NFP is defined as "an entity whose principal objective is not the generation of profit." 
 
As part of the convergence process the AASB has included special requirements for NFP's into the new standards where these are appropriate to allow for this sector's special needs. These are generally special paragraphs inserted with the notation "AUS" prior to the number. 
 
The AASB has also exempted NFP's from two standards, AASB 114: Segment Reporting and AASB 120: Government Grants. The Board has however reissued AASB 1004, now called “Contributions” which deals with contributions received by not-for-profits. All the remaining AASB standards and their requirements apply to NFP's in the same way as for profit entities.