On 16 June 2011 the IASB issued IAS 19 Employee Benefits, which is effective from 1 January 2013. These amendments finalise proposals related to termination benefits in the exposure draft IAS 37 Provisions, Contingent Liabilities and Contingent Assets, published in June 2005.
What did the Board propose?
The following main changes were proposed in the exposure draft published in June 2005:
Definition of termination benefits
The definition of termination benefits in IAS 19 includes employee benefits that are payable as a result of an employee’s decision to accept voluntary redundancy in exchange for those benefits. The Board proposed that the definition should be amended to clarify that benefits that are payable in exchange for an employee’s decision to accept voluntary redundancy are termination benefits only if they are offered for a short period.
IAS 19 states that termination benefits should be recognised when the entity is demonstrably committed either to terminating the employment of employees before the normal retirement date or to providing termination benefits as a result of an offer made in order to encourage voluntary redundancy. The Board proposed that:
- voluntary termination benefits should be recognised when employees accept the entity’s offer of those benefits.
- involuntary termination benefits should be recognised when the entity has communicated its plan of termination to the affected employees and the plan meets specified criteria, unless the involuntary termination benefits are provided in exchange for employees’ future services (ie in substance they are a ‘stay bonus’). In such cases, the liability for those benefits should be recognised over the future service period.
The comment letters were supportive of the proposed amendments.
The Board considered the comments received on the exposure draft’s proposals for termination benefits and made the following tentative decisions:
(a) the definition of termination benefits should not include benefits provided in exchange for future employee service; and
(b) an entity should recognise termination benefits when it no longer has the ability to withdraw an offer of those benefits.
The IASB issued amendments to the termination benefits requirements of IAS 19 in June 2011. Click here for IAS 19 Employee Benefits.
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