This free, guided checker walks your finance team through the key decision points for IAS 19 Defined Benefit Employee Benefits. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Defined benefit plans create an obligation to pay future benefits where actuarial and investment risks fall on the entity under IAS 19.8 and IAS 19.57. Read the plan rules, trust deed, and any side letters - a constructive obligation from informal practices can make a nominally defined contribution plan defined benefit under IAS 19.61. The common trap is minimum-return guarantees or back-end benefit formulas that shift risk back to the employer.
Apply defined contribution accounting under IAS 19.51 or short-term benefit accounting under IAS 19.11 rather than defined benefit measurement.
Official guidance: IFRS issued standards
The defined benefit obligation is measured using the projected unit credit method reflecting expected future salary increases and service under IAS 19.67. IAS 19.58-59 require the net liability to be determined with sufficient regularity that amounts do not differ materially from those at the reporting date, so a full valuation may be rolled forward with updated assumptions. Watch for benefit formulas weighted to later years, which IAS 19.70 attributes on a straight-line basis instead.
Obtain an actuarial valuation using the projected unit credit method as required by IAS 19.67 before recognizing defined benefit balances.
Official guidance: IFRS issued standards
Demographic and financial assumptions must be unbiased, mutually compatible, and reflect market expectations at the reporting date under IAS 19.75 and IAS 19.76. Test compatibility by confirming inflation feeds consistently into salary growth, pension increases, and the discount rate, and that mortality tables reflect current plan experience with an allowance for future improvement (IAS 19.81-82). Rolling forward last year's assumptions without a reporting-date refresh is the most common failure.
Update the actuarial assumption set so it is unbiased and mutually compatible as required by IAS 19.75-76 before finalizing the valuation.
Official guidance: IFRS issued standards
The discount rate reflects market yields at the reporting date on high quality corporate bonds denominated in the obligation currency and with terms consistent with the benefit obligation under IAS 19.83-84. Where the market in such bonds is not deep, use government bond yields for that currency. Obtain the yield-curve derivation and duration matching from the actuary and challenge any rate that has not moved with observable market yields.
Reset the discount rate to reporting-date high quality corporate bond yields matched to obligation currency and term as required by IAS 19.83.
Official guidance: IFRS issued standards
Past service costs from plan amendments and curtailment gains or losses are recognized in profit or loss when the amendment or curtailment occurs, at the earlier of the event and recognition of related restructuring costs, under IAS 19.99-105. On any amendment, curtailment, or settlement, IAS 19.99 requires the obligation to be remeasured using current assumptions before computing the effect. Deferred or amortized recognition of past service cost is no longer permitted under IAS 19 as revised.
Recognize past service cost and curtailment effects in profit or loss when the amendment or curtailment occurs, as required by IAS 19.103.
Official guidance: IFRS issued standards
Current service cost and net interest on the net defined benefit liability or asset are recognized in profit or loss under IAS 19.120, with net interest determined by multiplying the net liability by the start-of-period discount rate under IAS 19.123, adjusted for contributions and benefit payments. Interest on plan assets in this computation uses the discount rate, not an expected asset return. Verify the ledger split ties to the components in the actuarial report.
Split the defined benefit cost into service cost and net interest in profit or loss as required by IAS 19.120, computing net interest under IAS 19.123.
Official guidance: IFRS issued standards
Remeasurements comprising actuarial gains and losses, the return on plan assets excluding amounts included in net interest, and changes in the asset ceiling effect are recognized in other comprehensive income under IAS 19.122 and IAS 19.127. They are never reclassified to profit or loss in later periods, although transfers within equity are permitted. The corridor and other deferral methods from the pre-2011 standard are no longer available, so any residual deferral mechanics are an error.
Route all remeasurement components to other comprehensive income without subsequent reclassification, as required by IAS 19.122 and IAS 19.127.
Official guidance: IFRS issued standards
Plan assets are measured at fair value and deducted from the present value of the obligation under IAS 19.113; they exclude unpaid contributions due from the employer and non-transferable financial instruments issued by the entity under IAS 19.114. Only assets held by a legally separate fund that exist solely to pay employee benefits and are protected from the employer's creditors qualify under IAS 19.8. Qualifying insurance policies count; general corporate-owned policies do not.
Adjust plan asset fair value to exclude items not available to settle the obligation, as required by IAS 19.113-114.
Official guidance: IFRS issued standards
When the plan shows a surplus, the net defined benefit asset is limited under IAS 19.64 to the asset ceiling: the present value of economic benefits available as refunds or reductions in future contributions, as defined in IAS 19.8 and interpreted by IFRIC 14. Availability of a refund depends on the plan terms and the trustee's unconditional rights, and a minimum funding requirement can create an additional liability under IFRIC 14. Changes in the ceiling effect are remeasurements recognized in OCI under IAS 19.127(c).
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Official guidance: IFRS issued standards
IAS 19.145 requires disclosure of the sensitivity of the defined benefit obligation to reasonably possible changes in each significant actuarial assumption, such as discount rate, salary growth, and mortality, together with the methods used and any changes from the prior period. The analysis is performed at the reporting date holding other assumptions constant, and its limitations should be stated. Reusing prior-year sensitivities without refreshing them to the current obligation profile is a common deficiency.
Prepare the sensitivity analysis disclosures for each significant actuarial assumption as required by IAS 19.145.
Official guidance: IFRS issued standards
IAS 19.140 requires reconciliations from opening to closing balance for the net defined benefit liability or asset, including separate reconciliations for plan assets, the present value of the obligation, and the asset ceiling effect. IAS 19.141 prescribes the line items: current and past service cost, net interest, remeasurement components, contributions, benefits paid, and business combination or settlement effects. Tie each line to the actuarial report and the general ledger before releasing the note.
Defined benefit measurement, recognition, and the IAS 19.135-147 disclosure package appear complete under IAS 19. Complete the defined benefit obligation and plan asset reconciliations required by IAS 19.140-141 before authorization.
Official guidance: IFRS issued standards
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