AASB 119 “Employee Benefits” prescribes how employee entitlements are to be recognised and measured in financial statements. In summary, AASB 119 requires recognition of:
- Provisions for employee liabilities, in the balance sheet. Long term liabilities, such as long service leave, that are not expected to be paid within 12 months, are to be measured at present value.
- Current service cost and Actuarial gains and losses, in the profit and loss.
- And where assets are reserved for funding employee benefits, such assets are recorded at fair value, and returns on plan assets are recognised as income in the profit and loss.
In accordance with AASB 119 we provide actuarial valuations of long term liabilities that allow for:
- The timing of leave taken while each employee remains employed.
- The timing of leave taken as employees exit service, due to retirement, resignation or death.
- For those employees who have not been working for a sufficient period to be eligible for long service leave, the probability of remaining employed and becoming eligible.
- Salary increases, to arrive at the face value of leave as it is assumed to be taken in the future.
- Discounting the future cost of leave to present values.
We conduct an experience investigation in order to arrive at reasonable assumptions for your workforce. Such an investigation may include analysing: staff turnover to determine appropriate demographic assumptions; rates of taking long service leave or recreation leave; salary and promotion experience for existing staff.
On the sale of a business
Valuations of employee benefits may also be required on the sale of a business. Either party may require a valuation of the liabilities that are to be transferred under the sale. In such circumstances, AASB 119 may provide an independent valuation basis.