Accounting Standard 15 - Employee Benefits addresses the various types of benefits offered by employees and various sorts of compensation Provided by an organisation in exchange for services performed by employees.
However, it does not include compensation for inventory. AS 15 is applicable for level one - 1 enterprises, entities with fifty or more workers. However, some exemptions for entities that are not included in the above category. This article will explain everything you should be aware of concerning Accounting Standard 15 Employee Benefits.
Did You Know?
A lot of employers suit employee contributions but at a level of point. It’s considered on the basis of how much you contribute every year. Not taking advantage of an employee match is similar to leaving “free cash” on a footpath.
Also Read: All You Need to Know About Fringe Benefit Tax
What Are AS 15 Employee Benefits?
Accounting Standard 15 Employee Benefits is concerned with all employee benefit forms offered to an organisation to compensate for services that employees render but does not include the compensation for inventory.
Enterprises and entities with at least 50 employees are applicable by AS 15.
At the age of 15, an employee is an individual who renders services to an organisation on a part-time or full-time basis. Temporary and permanent employees. This includes whole-time directors and any other manager also.
If you are wondering about AS 15 Applicability, check the next section to know more.
AS 15 Applicability
1). Accounting Standard 15 applies to the following companies at any point in an accounting cycle.
- Enterprises with debt or equity securities are mentioned, no matter in India or in a foreign country.
- Banks include Cooperative Banks.
- The companies that are in debt or in-listed process are listed
- Financial Institutions
- Enterprises that are involved in the insurance business
- Enterprises that include commercial, industrial and business reporting companies that have loans, including deposits from the public sector greater than ₹10 Crores at any point during the accounting period.
- All businesses, comprising commercial, industrial and business reporting companies, have annual revenues of greater than ₹50 crores during the previous accounting period. Based on their verified accounting statements
- Holding and subsidiaries from any of the entities mentioned earlier at any point during the period of accounting.
2). Every business that does not fall within the ones described under point one has at least 50 employees in total employment throughout the entire year. However, there are some exceptions to these enterprises that are listed as AS 15 (Revised 2005).
3). Businesses that are not one of the categories in the above paragraph employ 50 or fewer people throughout the entire year. There are exceptions to these enterprises listed as AS 15 (Revised 2005).
According to Accounting Standard 15, the employee provides services to an organisation on either a full-time/part-time permanent, temporary or casual basis.
Check the additional AC15 employee benefits by referring to the following section.
What Are the Additional AC15 Employee Benefits?
WhIn addition, AS 15 includes the employee benefits, which are:
1). Other Long-Term Employee Benefits: These involve sabbatical leaves, jubilee, or other long-term benefits, such as disability for a long time. Additionally, if these benefits aren’t fully paid within one year from the expiry date, the bonuses, profit-sharing or deferred compensation and other bonus payments will be paid.
2). Short-Term Employee Benefits: They include salaries, wages and social security contributions (for example, a contribution towards an insurance firm by an employer to fund medical treatment of employees), bonuses and profit-sharing, paid annual leaves and non-monetary benefits (these comprise a housing, vehicles medical care, free or subsidised products/services) for employees currently employed.
3). Post-Employment Benefits: Include pensions, gratuities and various retirement benefits. Life insurance after employment and post-employment medical care.
4). Termination Benefits: These are benefits that an employee receives after he quits the company.
Employee Benefits
According to AS 15, an employee is a person who provides services to an organisation on a full-time or part-time permanency, casual, or temporary basis. Employees include full-time managers and directors too.
These are some of the options available to establish a relationship with your employee:
- Employment contracts
- The employer provides direction and all the tools necessary to succeed.
- For legal/tax/social safety purposes, individuals are considered employees
- Services must be rendered at the location of an employer.
Short-Term Benefits
As per AS 15, The short-term employee benefits comprise:
- Salary, wages and social security
- Bonuses and profit-sharing are payable within a year from the conclusion of the time when employees offer related services.
- Paid absences for short-term, such as paid yearly leaves, where these absences are anticipated to occur within 12 months from the expiration date in which employees perform the employee the service.
- Non-monetary benefits include medical insurance, vehicles, housing and free or subsidised services/goods for employed employees.
Wondering about the post-employment benefits? Check the next section to know more.
Post-Employment Benefits
As previously mentioned, Post-Employment Benefits contain:
- Retirement Benefits, e.g. pension and AS 15 gratuity.
- Other benefits include post-employment medical treatment or post-employment life insurance.
These benefits are now extended to employees through arrangements referred to as plans of post-employment benefit.
Any business can apply an accounting standard of 15 in all these arrangements, regardless of whether the arrangement involves the creation of an independent entity to take in contributions and payout benefits.
Additionally, these benefit plans are segmented as follows:
- Defined Benefit Plans
- Defined Contribution Plans
This classification is contingent upon the basis of the plan’s economics as determined by its primary clauses and details.
Also Read: Medical Allowance: Its Exemption Rate, Limit and How To Calculate
Other Long-Term Benefits
Other long-term benefits are nothing more than the employee benefits that don't become due in full within 12 months after the date where employees offer the service.
These advantages include:
- Long-term compensation for absences like long-service leave or sabbatical leaves
- Jubilee or some other benefits for long-service
- The long-term benefits of disability
- Bonus and profit-sharing are due for 12 months or more following the conclusion of the time when the employees were offered the service.
- Delayed compensation that is paid for 12 months or more following the conclusion of the period is earned.
Termination Benefits
According to AS 15, Termination Benefits are employee benefits which are due in connection with:
- The decision of an organisation to end an employee's work before the usual retirement date
- Employee's choice to quit voluntarily to avoid such benefits.
AS 15 takes termination benefits differently from other employee benefits. This is because the reason for the obligation to pay is termination, not service.
Actuarial Assumptions and Treatment
Aspects of Actuarial Logic
The assumptions based on actuarial analysis are the best estimates an organisation can make of the variables that will determine the price of offering benefits after employment. These assumptions include:
(i) The demographic assumptions regarding the future needs of employees, both former and current, that are entitled to benefits. They include:
- Mortality that occurs during and after work.
- The percentage of employees are eligible for the benefits provided under the plan.
- Employee turnover rates include disability, early retirement and early retirement.
- Medical plans have claim rates.
(ii) Financial assumptions that address factors such as:
- Discount rate
- The cost of future medical care and medical benefits
- Future levels of salary and benefit
- The expected rate of return for plan assets
Accounting Treatment
The accounting procedure for employee benefits should be recognised on the balance sheet for the business. The amount that is to be classified as a defined benefit liability must be the net sum of the following sums:
- Present value of defined benefit obligations as of the balance sheet, minus
- The cost of past services not yet recognised, minus
- Fair value as of the date of the balance sheet for any plan assets (if there are any) from which obligations are to be paid directly
If the fair value of plan assets is greater than its liability, it will result in Net Assets. According to AS 15, the business must evaluate the resultant asset in such a situation. It should use the lesser of the amount estimated or the value of any benefits that are available through benefits from the plans or contributions as according to the ICAI. " The standard defines the various elements of the defined employee cost:
- Cost of service at present
- Interest Cost
- Gains and losses from actuarial calculations
- The expected return for any plan assets
- Past cost of service f. Any effects of adjustments or settlements."
Conclusion
AS 15 now requires additional disclosure that allows participants to assess the nature of defined benefit plans and their financial impact throughout the time.
Additionally, disclosure is required for reconciling the closing and opening balances of the current defined benefits’ value and the fair value of the plan's assets.
Furthermore, specific declarations are also required about the actuarial assumptions used and other relevant matters. That's all under AS 15 for now. Now keep track of your cashflow and manage your incomes and expenses with ease by using the Cashbook app by Khatabook.
