IAS 19: Accounting for Employee Benefits

Understand IAS 19, the accounting standard for employee benefits, its key treatments, disclosure requirements, and whether it applies in the UK.

International Accounting Standards 19 (IAS 19)

IAS 19 is the international accounting standard that deals with employee benefits. Issued by the International Accounting Standards Board (IASB), it sets out how employers should account for all types of employee benefits, including pensions, annual leave, bonuses, and termination payments. The aim is to ensure that the cost of providing these benefits is recognised in the correct period, offering a fair and consistent picture of a company’s financial obligations.

This standard is particularly important for large companies with defined benefit pension schemes, where long-term liabilities can have a significant impact on financial statements.

What Are the Key Accounting Treatments in IAS 19?

IAS 19 classifies employee benefits into four main categories and outlines how each should be recognised and measured:

1. Short-term employee benefits are benefits due within 12 months of the reporting period, such as wages, annual leave, sick pay, and bonuses. These are recognised as an expense when the service is provided and measured at the undiscounted amount expected to be paid.

2. Post-employment benefits, such as pensions, are where IAS 19 gets more complex—particularly with defined benefit plans. Employers must account for the net defined benefit liability or asset, which reflects the present value of the obligation less the fair value of plan assets. Actuarial assumptions, like mortality and discount rates, play a major role in these valuations.

3. Other long-term benefits, such as long-service leave or sabbaticals, are treated similarly to post-employment benefits but typically involve less complexity due to the absence of separate plan assets.

4. Termination benefits are recognised at the earlier of when the employer can no longer withdraw the offer, or when restructuring costs involving employee termination are recognised. These are accounted for immediately, not over time.

A significant part of IAS 19 involves ensuring that costs are matched to the period in which employees earn the benefits—not necessarily when they’re paid.

What Are the Disclosure Requirements?

IAS 19 requires detailed disclosures, particularly for defined benefit plans. These disclosures help users of financial statements understand the nature and financial impact of employee benefits.

Companies must disclose:

  • A general description of the plan and its risks

  • The amounts recognised in the statement of financial position and in the profit or loss statement

  • A reconciliation of the net defined benefit liability or asset from the start to the end of the period

  • Key actuarial assumptions used (such as discount rates, inflation, and life expectancy)

  • Sensitivity analysis for each significant actuarial assumption

  • The effect of the defined benefit plan on the company’s future cash flows

These disclosures are vital for transparency, especially where pensions or long-term benefits can materially affect the financial health of the business.

Do I Have to Follow IAS 19 in the UK?

Whether you need to follow IAS 19 in the UK depends on the financial reporting framework your company uses. If your business prepares accounts under IFRS—as required for UK-listed companies—you must comply with IAS 19.

However, if your business uses UK GAAP, the equivalent requirements fall under FRS 102, which incorporates many of the same principles but simplifies some areas. For example, FRS 102 allows more straightforward accounting treatments for certain employee benefits and does not require the same level of disclosure detail.

Private companies not listed on the stock exchange generally follow FRS 102 unless they choose to adopt full IFRS voluntarily.

Conclusion

IAS 19 provides a structured approach to accounting for employee benefits, ensuring that costs are properly recognised and transparently disclosed. Whether you're dealing with short-term pay, long-service leave, or defined benefit pension schemes, the standard aims to present the financial obligations to employees accurately within your accounts. In the UK, IAS 19 applies to IFRS preparers, while FRS 102 serves as the equivalent under UK GAAP. Regardless of the framework, understanding how employee benefits are treated is critical for clear and compliant financial reporting.