IAS 19 is an accounting standard issued by the International Accounting Standards Board (IASB) that sets out the requirements for accounting and reporting of employee benefits. Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees or for their termination benefits.
IAS 19 requires an entity to recognize the cost of providing employee benefits in its financial statements, and to disclose information about the nature and extent of its employee benefit obligations. The standard requires an entity to classify employee benefits into two categories:
- Defined Contribution Plans: These are plans under which the entity pays fixed contributions to a separate entity such as a pension fund, and has no legal or constructive obligation to pay further amounts.
- Defined Benefit Plans: These are plans that provide benefits based on factors such as the employee’s length of service and salary level. The entity is responsible for the ultimate cost of providing these benefits, and must use actuarial assumptions to estimate the future cost.
The standard requires an entity to measure the cost of providing employee benefits based on actuarial valuations and to recognize the cost in the income statement over the period in which the employee earns the benefit. In addition, the standard requires an entity to disclose information about the nature and extent of its employee benefit obligations, including the assumptions used in calculating the cost of providing the benefits.
Overall, IAS 19 aims to ensure that entities report the cost of employee benefits in a transparent and consistent manner, providing investors and other stakeholders with useful information about an entity’s financial performance and obligations related to employee benefits.