The Hindu Business Line : ICAI revises accounting norms on employee benefits

CORPORATES, banks and financial institutions may not be allowed to carry forward beyond March 31, 2010 any unamortised expenditures on termination benefits of employees, including voluntary retirement schemes (VRS), in their balance-sheets.

They can, however, defer for amortisation over the payback period all termination benefit expenses incurred by them on or before March 31, 2009.

In other words, a company can opt to defer and amortise its VRS expenses over the payback period, but will have to complete its amortisation by March 31, 2010.

This proposed accounting treatment for expenses on termination benefits is reflected in the draft of the limited revision of the Accounting Standard on `employee benefits' (AS-15), released by the Institute of Chartered Accountants of India (ICAI) on Tuesday.

"As per international accounting norms, deferred revenue expenditures in balance-sheets are not an asset. The international standards do not encourage the practice of deferred revenue expenditure. We are allowing this relaxation because Indian industry is in restructuring mode and VRS expenses have to be deferred and amortised over a period," an ICAI official said.

As per the current AS-15, an enterprise is allowed to defer any expenditure incurred on termination benefits within three years of the AS-15 (2005) coming into effect. Further, the expenditure so deferred can be amortised over its payback period subject to a maximum of five years.

The proposed limited revision of AS-15 will also require corporates, banks, financial institutions, and insurance enterprises to make more disclosures in their financial statements on defined benefit plans such as gratuity, etc. These are post-employment benefit plans other than defined contribution plans.

The disclosure requirements on defined benefit plans under the Accounting Standard on `employee benefits' are proposed to be enhanced to improve transparency and also bring them in line with corresponding international accounting standard, an ICAI official said.

The main objective behind the enhanced disclosures is to enable the users of financial statements evaluate the nature of the defined benefit plans and the financial effects of changes in those plans during the period.

The additional disclosures to be mandated include reconciliation of the opening and closing balances of the current value of the defined benefit obligation showing separately, if applicable, the effects during the period attributable to actuarial gains and losses, service cost, interest cost, contribution by plan participants, etc.