AS 15 vs IndAS 19: Which one to choose?
Introduction
Both AS 15 and IndAS 19 are accounting standards for employee benefit schemes.
Ind AS refers to Indian Accounting Standards and are an adoption of the IAS (International Accounting Standard). The Ind AS are harmonised with the IFRS (International Financial Reporting Standards) to make reporting by Indian companies more globally accessible. IndAS 19 is adopted from and is similar to IAS 19.
Before Ind AS were introduced, all Indian companies were following Indian GAAP (generally accepted accounting principles). AS 15 is the accounting standard for employment benefit schemes under Indian GAAP published by ICAI.
Applicability
IndAS19 applies to any company that meets either of the following 3 conditions:
- A listed company or in the process
- Net worth >₹250 crores
- Any subsidiary or holding of the above mentioned companies
If your company does not fulfil any of the above criteria, then most likely AS15 is the applicable accounting standard. However, a company can also voluntarily use IndAS for its accounting treatment and in this case IndAS 19 applies.
Need for Actuarial Valuation
Why do IndAS 19 and AS 15 require actuarial valuation?
- AS 15 requires that “it is the responsibility of the reporting enterprise to measure the obligations under the defined benefit plans, it is recognized that for doing so the enterprise would normally use the services of a qualified actuary“.
- Similarly, IndAS 19 “encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations“
- We, at InsurTech Actuary, use the PUC (Projected Unit Credit) method to calculate the defined benefit obligation, as required in both AS 15 and IndAS 19 standards.
- Actuaries may also be required to estimate demographic (employee turnover, mortality, etc.) and financial (discount rate, salary increment rate, etc.) assumptions.
AS 15 vs
IndAS 19
The closing value of the DBO liability under both the schemes is same because the underlying calculation methodology remains the same.
However, there are a few major differences between AS 15 vs IndAS 19, some of which are highlighted below:
Difference 1: Actuarial gain/loss
- AS15 books actuarial gain / loss under P&L, whereas,
- IndAS19 books actuarial gain / loss as OCI (Other Comprehensive Income).
- Exception: Other long-term benefits such as Leave Encashment (LE) schemes
- For LE schemes, we book actuarial gain / loss under P&L
Difference 2: Sensitivity Analysis
- IndAS 19 mandates sensitivity for key risks as part of the actuarial report
- No such requirement under AS15, however, our reports still show the sensitivity (as a value add)
Difference 3: Experience History
- AS 15 requires separate disclosure of actuarial gains/losses on assets and liabilities respectively, for last years mandates sensitivity for key risks as part of the actuarial report.
- This is required for post-employment benefits such as gratuity only and not for Other long-term benefits such as Leave Encashment.
- Not applicable under IndAS 19.
Difference 4: Future Cashflows
- AS 15 requires separate disclosure of actuarial gains/losses on assets and liabilities respectively, for last years mandates sensitivity for key risks as part of the actuarial report.
- This is required for post-employment benefits such as gratuity only and not for Other long-term benefits such as Leave Encashment.
- Not applicable under IndAS 19.
App: Switching from AS 15 to IndAS 19
How to switch from AS15 to IndAS19?
You can easily switch from AS15 to IndAS19 on our app following these simple steps:
- Generate reports for last three valuation dates as per IndAS19 accounting standard.
- If you already have IndAS19 report for last two years, you can simply select the accounting standard as IndAS19 and continue as usual.
For further guidance on how to select accounting standards, contact us.