CA Institute issues ‘exposure draft’ of new accounting standard on employee benefits

Unlisted companies with a networth less than ₹250 crore and non-corporate entities may soon have to cope with new accounting standard on ‘employee benefits’.

This is because the CA Institute has come up with an exposure draft of new Accounting Standard (AS); AS19, ‘Employee Benefits’. The standard is in line with existing Ind AS 19 (converged to IFRS) with the same name.

The CA Institute move comes in the wake of the Centre’s advice to upgrade existing accounting standards applicable to smaller-size firms to the Indian Accounting Standards (Ind AS), which are converged with international financial reporting standards (IFRS)..

In fact, the requirements of proposed AS19 and IndAS 19 are similar. The main exception is for small and medium-size entities that have been given relaxation from application of certain provisions of AS19. Also, certain disclosure requirements of Ind AS are not included in AS19. Once this exposure draft of AS19 is formalised, entities will not be required to apply existing AS15, ‘Employee Benefits’, said accountancy experts.

Main differences

The main difference between AS19 and AS15 is that according to AS19, actuarial gains or losses should be presented in the other comprehensive income. However, AS15 specifies that such type of gains or losses should be recognised in the profit or loss account.

Secondly, under AS19 both whole-time directors and part-time directors would be treated as ‘employee’. Under the existing AS15, only whole-time directors are treated as ‘employee’.

Also, now AS19 would specifically cover employee benefits arising from legal and constructive obligation of an entity. On the other hand, there is no such specific guidance for AS15, said accountancy experts.

Commenting on the development, Sai Venkateshwaran, Partner-Advisory and Head Accounting Advisory Services at KPMG in India, said the new exposure draft will form part of the standards notified under Companies (Accounting Standards) Rules, 2006. This exposure draft is expected to replace the existing Accounting Standard 15 on Employee Benefits (AS 15). The ED on AS 19 is closely aligned to Ind AS 19 and IAS 19, he said.

“While there are a number of areas of differences between the existing AS 15 and the exposure draft on AS 19, the most significant item impacting the reported profits is the change in the manner of accounting for re-measurements of net defined benefit liability/asset,” he said. These will be recognised in other comprehensive income as per ED on AS 19 rather than in the P&L as per AS 15. These re-measurements include the change in fair value of plant assets raising from factors other than time value of money and the actuarial gains and losses, which reflect the impact of changes to demographic and financial assumptions used in determining the present value of defined benefit obligations.

Other changes, including on coverage of benefits under constructive obligations, use of corporate bond rates for discounting and classification of certain short -erm benefits, are unlikely to have a material impact on the reported earnings, if one were to use the experience of companies that transitioned to Ind AS as a benchmark, he added.

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