This free, guided checker walks your finance team through the key decision points for IAS 19 Termination Benefits and Restructuring Linkage. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
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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Termination benefits arise from an entity's decision to terminate employment before the normal retirement date, or an employee's decision to accept an offer of benefits in exchange for termination, rather than from ordinary resignation or reaching normal retirement (IAS 19.8; IAS 19.159-160). Test what event obliges the payment. The common trap is classifying enhanced retirement or in-service retention benefits, which are post-employment or other long-term benefits, as termination benefits.
Apply the appropriate IAS 19 category - short-term, post-employment, or other long-term benefits - rather than the termination benefit requirements (IAS 19.8; IAS 19.159).
Official guidance: IFRS issued standards
Restructuring that includes employee terminations can trigger both an IAS 37 restructuring provision and IAS 19 termination benefits; the standards interact but address different obligations (IAS 37.70; IAS 19.165(b)). Identify whether a qualifying restructuring - a sale or closure of a business line, a location closure, or a fundamental reorganisation - exists before testing commitment. The common trap is recognising a provision for a restructuring that is still only a plan.
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Official guidance: IFRS issued standards
A constructive obligation to restructure arises only when the entity has a detailed formal plan identifying the business affected, the principal locations, the function and approximate number of employees to be compensated, the expenditures, and the timing, and has raised a valid expectation in those affected by starting to implement the plan or announcing its main features (IAS 37.72). A board decision alone is not enough (IAS 37.75). The common trap is recognising a provision before the plan is announced or implementation begins.
Do not recognise a restructuring provision or termination benefits until a constructive obligation exists under IAS 37.72.
Official guidance: IFRS issued standards
Under current IAS 19 the entity recognises termination benefits at the earlier of when it can no longer withdraw the offer and when it recognises related restructuring costs under IAS 37 (IAS 19.165). For benefits under a plan the entity initiates, it can no longer withdraw once it has communicated to affected employees a plan meeting the IAS 19.167 criteria. The common trap is deferring recognition past the communication of a committed plan.
Defer recognition until the entity can no longer withdraw the offer or recognises related restructuring costs (IAS 19.165).
Official guidance: IFRS issued standards
If the termination benefits are expected to be settled wholly before twelve months after the end of the reporting period, apply the short-term employee benefit requirements; otherwise apply the other long-term employee benefit requirements (IAS 19.170). Base the split on expected settlement timing, not the offer date. The common trap is discounting benefits due within twelve months or leaving deferred benefits undiscounted.
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Official guidance: IFRS issued standards
Termination benefits expected to be settled wholly within twelve months are measured under the short-term employee benefit requirements, at the undiscounted amount expected to be paid (IAS 19.169; IAS 19.170; IAS 19.11). Recognise them when the entity can no longer withdraw the offer. The common trap is applying a discount rate to benefits due within twelve months.
Remeasure the short-term termination benefits at the undiscounted amount expected to be paid (IAS 19.169; IAS 19.170).
Official guidance: IFRS issued standards
Termination benefits not expected to be settled wholly within twelve months are measured under the other long-term employee benefit requirements, or, if they enhance post-employment benefits, under the post-employment requirements (IAS 19.169; IAS 19.170). This can require discounting and, for defined benefit enhancements, the projected unit credit method. The common trap is measuring a deferred severance stream at its undiscounted face amount.
Apply the other long-term or post-employment measurement model to benefits not settled within twelve months (IAS 19.169; IAS 19.170).
Official guidance: IFRS issued standards
A restructuring provision includes only the direct expenditures necessarily entailed by the restructuring, such as lease exit costs and contract termination penalties, and excludes costs of ongoing activities (IAS 37.80). Employee termination benefits are recognised and measured under IAS 19, not duplicated in the IAS 37 provision (IAS 19.165(b)). The common trap is double counting severance in both the provision and the employee benefit liability.
Allocate termination benefits to IAS 19 and other restructuring costs to the IAS 37 provision without duplication (IAS 37.80; IAS 19.165).
Official guidance: IFRS issued standards
Termination benefits are recognised as an expense and liability at the earlier of when the entity can no longer withdraw the offer and when it recognises related restructuring costs, not spread over any future service period, because they are not provided in exchange for service (IAS 19.165; IAS 19.169). The common trap is deferring the cost over an employee's remaining service.
Recognise the termination benefit expense at the IAS 19.165 recognition date, not over future service (IAS 19.165).
Official guidance: IFRS issued standards
IAS 19 does not prescribe specific termination benefit disclosures, but other standards do: present material items separately (IAS 1.97), disclose key management personnel benefits (IAS 24.17), and, where a restructuring provision exists, disclose it (IAS 37.84-85). Make termination benefits identifiable in the notes. The common trap is burying a material severance charge in a general employee-cost line.
Prepare separate, identifiable termination benefit disclosure within the employee benefit notes (IAS 19.171; IAS 1.97).
Official guidance: IFRS issued standards
When a restructuring provision and termination benefits are recognised together, reconcile the IAS 37 provision roll-forward - opening balance, additional provisions, amounts used, unused amounts reversed, and the unwinding of discount - to the IAS 19 termination benefit expense and cash settlements (IAS 37.84). The common trap is charging severance payments against the provision without tracking the IAS 19 liability separately.
Termination benefit accounting and the IAS 37 restructuring linkage appear complete (IAS 19.165; IAS 37.84). Reconcile the restructuring provision to the termination benefit accruals and settlement payments (IAS 37.84).
Official guidance: IFRS issued standards
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