Accounting for Employee Entitlements

1 Australian Accounting StandardAAS 30 March 1994 Accounting forEmployee EntitlementsPrepared by the Public Sector Accounting Standards Board of theAustralian Accounting Research Foundation and by the AustralianAccounting Standards BoardIssued by theAustralian Accounting Research Foundationon behalf of the Australian Society of CertifiedPractising Accountants and The Instituteof Chartered Accountants in AustraliaThe Australian Accounting Research Foundation was established by theAustralian Society of Certified Practising Accountants and The Institute ofChartered Accountants in Australia and undertakes a range of technical andresearch activities on behalf of the Accounting profession as a whole. A majorresponsibility of the Foundation is the development of Statements of AccountingConcepts and Australian Accounting of this Standard are available for purchase from the offices of theAustralian Accounting Research Foundation, 211 Hawthorn Road, Caulfield,Victoria 3162, 1994 Australian Accounting Research Foundation.

2 The copying of thisStandard is only permitted in certain circumstances. Enquires should bedirected to the offices of the Australian Accounting Research 1034-3717- 4 -CONTENTSP aragraphsPREFACEACCOUNTING Standards and Commentary ..2 Application and Operative Date ..3-5 Statement of Purpose ..6-7 Application of Materiality ..8-9 Definitions ..10 Employees, employers and Employee Entitlements ..11-12 Recognition of Employee entitlement Expenses, Liabilities,Assets and Revenues ..13-20 Measurement of Liabilities, Expenses, Assets andRevenues ..21-30 Wages, salaries and annual leave ..31-32 Non-monetary benefits ..33-34 Long service leave ..35-41 Sick leave ..42-46 Post-employment benefits other than superannuation ..47 Post-employment medical benefits.

3 48 Termination, retirement, retrenchment orredundancy payments ..49-50 Disclosures ..51-56 Netting of Revenues, Expenses, Assets and Liabilities ..57-59 Comparative Information ..60-61 Transitional Provisions ..62 COMPATIBILITY WITH INTERNATIONAL ANDNEW ZEALAND Accounting STANDARDSDEVELOPMENT OF THE STANDARD- 5 -PREFACEA pplication of the StandardThis Standard applies to each private sector reporting entity, each public sectorreporting entity employing any accrual basis of Accounting and each other publicsector reporting entity to the extent practicable in relation to its first reportingperiod that ends on or after 30 June 1995 and later reporting periods. TheStandard may be applied to earlier reporting Features of the StandardThe Standard:(a)defines "employees", "employers" and " Employee Entitlements ";(b)requires that employees' Entitlements to wages and salaries, annualleave, long service leave, sick leave, non-monetary benefits, medicalbenefits, retirement, termination, retrenchment and redundancypayments be recognised as liabilities in an employer's financialstatements where the employer has a present obligation based onservices rendered by employees up to the reporting date.

4 (c)requires wages and salaries, annual leave and sick leave (irrespective ofwhether they are expected to be settled within twelve months of thereporting date) and other Employee entitlement liabilities expected to besettled within twelve months of the reporting date to be measured attheir nominal amounts (based on current remuneration rates andundiscounted cash flows);(d)requires other (long-term) Employee entitlement liabilities to bemeasured at their present value;(e)requires disclosure of a range of relevant matters, including certaindisclosures about an employer's superannuation obligations andownership-based remuneration schemes; but(f)does not specify recognition and measurement requirements in relationto an employer's superannuation obligation to employees and toemployee compensation in the form of ownership-based remunerationschemes (see below).

5 - 6 -Exclusion of Recognition and Measurement Requirements for Superannuationand Ownership-Based Remuneration SchemesThe Public Sector Accounting Standards Board (PSASB) and the AustralianAccounting Standards Board (AASB) are continuing their consideration of theissues relating to the recognition and measurement of an employer'ssuperannuation obligations. Many responses to Exposure Draft ED 53" Accounting for Employee Entitlements " addressed this aspect of the ExposureDraft and raised a number of issues which have warranted further considerationby the Boards. Before completing their deliberations, the Boards intend to holda Public Hearing to provide further opportunity for input from interested analysis of the responses received at the Public Hearing, the Boardswill finalise Accounting standards for the recognition and measurement of anemployer's superannuation obligations and will amend this Boards intend to deal separately with requirements for the recognition andmeasurement of ownership-based remuneration 7 -AUSTRALIAN Accounting STANDARDAAS 30 " Accounting FOR EMPLOYEEENTITLEMENTS"Citation1 This Standard may be cited as Australian Accounting Standard AAS 30" Accounting for Employee Entitlements ".

6 Accounting Standards and CommentarySTANDARDS2 The Accounting standards set out in this Standard are shown in boldprint. Commentary is shown in normal print immediately after theaccounting standards to which it relates, as an aid to theinterpretation of the Accounting and Operative DateSTANDARDS3 This Standard:(a)applies to general purpose financial reports of:(i)each private sector reporting entity;(ii)each public sector reporting entity using anyaccrual basis of Accounting ; and(iii)each other public sector reporting entity, to theextent practicable;to which Accounting Standards operative under theCorporations Law do not apply, in relation to its firstreporting period that ends on or after 30 June 1995 andlater reporting periods;(b)may be applied by an entity specified in paragraph 3(a) to areporting period that ends before 30 June 1995.

7 - 8 -(c)does not apply to the recognition and measurement ofexpenses, liabilities, assets and revenues arising in respectof Employee Entitlements in the form of superannuation;and(d)does not apply to the recognition and measurement ofexpenses, liabilities, assets, revenues and equity arising inrespect of Employee Entitlements in the form of ownership-based remuneration entity which is not a reporting entity shall, when it prepares afinancial report which it purports to be a general purpose financialreport, apply this Standard as if it is a reporting Standards operative under the Corporations Law apply tocompanies and to other entities required by legislation, ministerialdirective or other government authority to apply such entities which are not required to apply AccountingStandards operative under the Corporations Law are required to applythis of PurposeSTANDARDS6 The purpose of this Standard is to:(a)prescribe the methods to be used when Accounting foremployee Entitlements in the preparation of generalpurpose financial reports.

8 And(b)establish requirements for the disclosure of informationabout Employee Entitlements in the general purposefinancial of Accounting Concepts SAC 2 "Objective of GeneralPurpose Financial Reporting" states that general purpose financialreports shall provide information useful to users for making andevaluating decisions about the allocation of scarce resources. Such- 9 -decision making is likely to involve users in assessing the performance,financial position and financing and investing activities of the reportingentity. The establishment of an Accounting standard for employeeentitlements will assist users in making these assessments by providingrelevant and reliable information about Employee Entitlements in thefinancial report and by ensuring that Employee Entitlements areaccounted for on a consistent of MaterialitySTANDARDS8 The Accounting standards set out in this Standard shall, inaccordance with Australian Accounting Standard AAS 5"Materiality in Financial Statements", apply to the financial reportwhere such application is of material consequence.

9 Informationabout Employee Entitlements is material if its omission, non-disclosure or misstatement has the potential to adversely affect:(a)decisions about the allocation of scarce resources made byusers of the financial report; or(b)the discharge of accountability by the management orgoverning body of the deciding whether an item is material, its nature and amount usuallyneed to be evaluated this Standard:"assets" means service potential or future economic benefitscontrolled by the entity as a result of past transactions or otherpast events;"contributions by owners" means service potential or futureeconomic benefits that have been contributed to the entity byparties external to the entity, other than those which result in- 10 -liabilities of the entity, that establish a financial interest in thenet assets of the entity which:(a)conveys Entitlements both to distributions of servicepotential or future economic benefits by the entityduring its life, such distributions being at the discretionof the ownership group or its representatives, and todistributions of any excess of assets over liabilities in theevent of the entity being wound up; and/or(b)can be sold, transferred or redeemed.

10 "distributions to owners" means service potential or futureeconomic benefits distributed by the entity to all or part of itsownership group, either as a return on investment or as a return ofinvestment;"economic entity" means a group of entities comprising the parententity and each of its subsidiaries;" Employee " means a natural person appointed or engaged under acontract of service, whether on a full-time, part-time, permanent,casual or temporary basis;" Employee Entitlements " means benefit Entitlements whichemployees accumulate as a result of the rendering of their servicesto an employer up to the reporting date, and include, but are notlimited to, wages and salaries (including fringe benefits and non-monetary benefits), annual leave, sick leave, long service leave,superannuation and other post-employment benefits;"employer" means an entity, including an economic entity, whichconsumes the services of employees in exchange for providingemployee Entitlements ;"entity" means any legal, administrative, or fiduciary arrangement,organisational structure or other party (including a person) havingthe capacity to deploy scarce resources in order to achieveobjectives.