This free, guided checker walks your finance team through the key decision points for IAS 19 Short-term Employee Benefits and Compensated Absences. 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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Short-term employee benefits are wages, salaries, social security contributions, paid absences, and profit-sharing or bonus plans expected to be settled wholly within twelve months after the end of the period in which the service is rendered (IAS 19.9). Test each benefit against its expected settlement date, not the grant date, and note that 'wholly' means any portion settling later moves the entire benefit out of the short-term category. Reclassify only when expectations of settlement timing change, not for a temporary payment delay (IAS 19.10).
Benefits settled beyond twelve months fall under post-employment, other long-term, or termination benefit accounting, not the short-term rules (IAS 19.8).
Official guidance: IFRS issued standards
Recognise the undiscounted amount of short-term benefits for service already rendered as an accrued liability, after deducting amounts already paid, and as an expense unless another IFRS requires the cost to be capitalised (IAS 19.11). Run the test by reconciling the payroll register to the first pay run after period end and checking the cut-off date. The common miss is omitting employer social security and other payroll on-costs from the accrual.
Recognise the undiscounted amount for service already rendered as an accrued liability and expense at period end (IAS 19.11).
Official guidance: IFRS issued standards
The test is whether unused entitlement carries forward. Accumulating absences can be carried forward and used in later periods, so the entity recognises the obligation as employees render service that increases their entitlement (IAS 19.13(a), IAS 19.15). Non-accumulating absences (such as many sick-pay schemes) lapse if unused, so no liability accrues and the cost is recognised only when the absence occurs (IAS 19.13(b), IAS 19.18). Review the leave policy for its carry-forward and payout-on-termination terms.
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Official guidance: IFRS issued standards
Classify each accumulating plan as vesting (unused leave is paid in cash on termination) or non-vesting (unused leave is forfeited on leaving). Both create a liability that builds as employees render service, but the non-vesting measurement reflects the possibility that some employees will leave before using the accumulated entitlement (IAS 19.16). The trap is assuming a non-vesting plan carries no obligation; it still accrues for the leave expected to be taken.
Classify each accumulating absence plan as vesting or non-vesting before measuring the obligation (IAS 19.15).
Official guidance: IFRS issued standards
For vesting accumulating absences, measure the obligation at the additional undiscounted amount the entity expects to pay for the unused entitlement accumulated at the reporting date (IAS 19.16). Base the estimate on expected utilisation and current pay rates plus employer on-costs. Do not discount, because settlement is expected within twelve months.
Measure the liability as the additional undiscounted amount expected to be paid for unused vesting entitlement (IAS 19.16).
Official guidance: IFRS issued standards
A profit-sharing or bonus plan is a short-term benefit only when the entity expects to settle it wholly within twelve months after the end of the period in which the service is rendered (IAS 19.19). Check the plan's payment timing against the reporting date; a bonus expected to be paid more than twelve months later is an other long-term employee benefit measured with discounting (IAS 19.8, IAS 19.153). Distinguish contractual formula plans from discretionary pools, because that affects whether a present obligation exists.
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Official guidance: IFRS issued standards
Recognise a bonus only when a present legal or constructive obligation exists from past service (IAS 19.19(a), IAS 19.20). A legal obligation comes from a contractual formula; a constructive obligation arises where an established past practice of paying bonuses leaves the entity no realistic alternative but to pay (IAS 19.22). Weigh plan documents, the history of payments, and any communication to employees; a genuine and exercisable board discretion to cancel before payment can negate the obligation.
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Official guidance: IFRS issued standards
Once an obligation exists, accrue the best estimate of the amount payable for service rendered to date (IAS 19.19(b)). A reliable estimate is available when the plan contains a formula, the amount is determined before the financial statements are authorised for issue, or past practice evidences the amount (IAS 19.23). Measure a constructive-obligation amount net of the effect of employees expected to leave without a bonus (IAS 19.22), and do not discount because settlement falls within twelve months.
Accrue the bonus at the best estimate of the expected payment for service rendered to date (IAS 19.19).
Official guidance: IFRS issued standards
Short-term benefit liabilities are stated at the undiscounted amount expected to be paid, because settlement falls within twelve months (IAS 19.11, IAS 19.16). Scan the accrual workings for any present-value factor applied to a short-term obligation, which IAS 19 does not permit. If a benefit in fact settles beyond twelve months, the fix is not to discount it as short-term but to reclassify it as an other long-term employee benefit, which is then discounted (IAS 19.153).
Remove discounting; short-term benefit liabilities are measured at undiscounted amounts (IAS 19.11).
Official guidance: IFRS issued standards
Charge short-term benefit cost to profit or loss unless another standard requires it to be included in the cost of an asset (IAS 19.11). Directly attributable labour is capitalised into inventory (IAS 2.12), property, plant and equipment under construction (IAS 16.17), or qualifying development (IAS 38.66); everything else is expensed. Trace capitalised labour to timesheets and project records, and confirm general overhead and idle time are not capitalised.
Reallocate benefit cost between expense and capitalised asset categories as required by IAS 2, IAS 16, or IAS 38 (IAS 19.11).
Official guidance: IFRS issued standards
IAS 19 does not mandate short-term-benefit-specific disclosures (IAS 19.25); short-term benefit cost is presented within employee benefit expense under IAS 1.104, and key management short-term benefits are disclosed under IAS 24.17. Confirm the amounts reconcile to payroll and accrual schedules.
Short-term employee benefit recognition, measurement, and presentation are complete (IAS 19.25, IAS 1.104). Complete the employee benefit note and expense-by-nature analysis for short-term benefit categories (IAS 1.104, IAS 24.17).
Official guidance: IFRS issued standards
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