One of our KSA investment banking clients wished to consider…Read More
IAS 19 EMPLOYEE BENEFITS VALUATION
Lux performs actuarial valuations of employee benefits, in accordance with International Financial Reporting Standards, including IAS 19, ASC 715, IAS 26 and US GAAP, for many clients.
Our results are presented in an extensive Actuarial Report and are prepared to meet international accounting and actuarial standards for employee benefits. They are also presented in the same format as Financial Statements, making it easy for accountants and auditors to review and adopt.
The specific scope of our valuations includes:
Download our PDF for information on how to comply with IAS 19
IAS 19 is the International Accounting Standard governing employee benefits. Under IAS 19, long-term employee benefits require an actuarial valuation. Such benefits include End of Service Gratuity Benefits or lump sum termination benefits, which must be valued, validated and certified by an actuary.
An IAS 19 actuarial valuation is an assessment of a company’s current and future liabilities generated by employee benefits promises. To conduct this valuation, an agreed set of financial and demographic assumptions are used. These are based on the actuary’s best estimates, preferably supported by historical data. An IAS 19 actuarial valuation requires skilled personnel, both in qualification and in specific experience and application, to meet the stringent reporting requirements. It is necessary to employ professional actuaries to perform this task.
It is important for companies to understand with certainty their end of service gratuity liabilities and to determine whether they are under or over accruing for these employee benefit obligations. It is also important to understand the impact these liabilities will have on a company’s future cashflow.
Any company or entity that chooses to meet IFRS disclosure requirements will have to comply with IAS 19 as one of the underlying requirements. There are a number of reasons why companies comply with IFRS, including the following:
- Mandated by government or company Head Office
- Desire to commit to global financial reporting standards
- To help access world markets
- To prepare to list on the stock market
- Matter of best practice
In the MENA region, companies are working towards meeting global best practice standards as set out in IFRS. Increasingly, auditors and regulators are insisting that companies implement IAS 19.
A company’s adoption of IFRS, including IAS 19, ensures its financial statements are uniform and comparable to its peers.
For long-term employee benefit liabilities, a projection of future cashflow is required up to employees’ estimated time of leaving/retirement/death. The projection should be conducted under multiple economic scenarios, in order to understand associated risks. This modelling of the future is what the actuarial profession specialises in.
By commissioning an IAS 19 actuarial valuation it helps your Company to understand, with certainty, your employee benefit obligations. Such an exercise also serves to identify intrinsic risks and determine associated mitigating actions which Lux can help to implement.
Lux Actuaries is:
- The largest independent actuarial consultancy in the Middle East
- Highly experienced, we have delivered actuarial valuation reports to many prominent companies in the GCC region and globally
- Fully abreast of all key regulatory and IAS 19 requirements
- Committed to international codes of conduct that govern our profession
- Focused on building long-term and valued relationships with our clients, helping them to manage their employee costs and retention
- Committed to exceeding deadline expectations.
As employee benefit specialists, our proven approach means we:
Collect, reconcile and validate employee payroll data, Engage with your team to set the valuation basis, Calculate the actuarial cost of liabilities, Conclude and make recommendations to Senior Management, Present an extensive actuarial report within five to ten working days
Our actuarial report sets out the following:
- Data: this includes full employee and benefit reconciliation
- Assumptions: we set out the impact and materiality or significance of each of our assumptions (demographic and financial)
- Methodology: we detail our approach to deriving the results, in accordance with IAS 19
- Results: we set out the figures you should disclose in the year-end financials, in an easy-to-understand format
- Projections: we roll forward the results and provide a projection of estimated benefits versus expected future cashflows over the remaining lifespan of the benefits scheme, for use in your budgeting process.
We will undertake the actuarial valuation on behalf of your Company, project manage the end-to-end process and ensure that the report is delivered on time and in an easy-to-use format.
We will also consider pragmatic solutions in order to meet your particular requirements concerning the liability to book.
Once a company’s employee benefit liabilities have been valued, consideration should then be given to funding for at least a proportion of these obligations. Funding has the following advantages; 1) funding explicitly matches liabilities to assets and, in the ideal, removes the End of Service Gratuity liability off a company’s Balance Sheet, 2) funding reduces the cash-flow risk of not being able to meet termination payment obligations to ex-employees from strained working capital and 3) funding introduces cost certainty, improving the stability of the Income Statement.
Further benefits are 4) improved credit rating status with the various assessors, including the company’s bank and 5) reduced cost as a result of gaining investment returns on the matching assets.
We offer more than actuarial valuation solutions. As employee benefit specialists we are well equipped to provide our clients with a number of value-added services, such as:
- Validation of internal accounting calculations and reporting
- Advice on scheme design, to match employee benefits liabilities, and/or reward employees via contributory savings
- Guidance on scheme governance and how to mitigate the risks associated with employee benefit liabilities, including funding solutions
- Cost/Benefit analysis of introducing an employee benefits scheme, based on different scenarios
- Advice on asset/liability matching and risk-reducing strategies
- Employee payroll data audits, to verify accuracy and completeness
- Employee communications, including scheme booklets and total reward statements