IAS19 – Termination conditions
The Challenge
As of 2005, a significant number of companies have become obliged to include the items related to employee termination benefits in their financial statements as provided for in the combined provisions of art. 2120 of the Italian Civil Code and International Accounting Standard No. 19 (IAS 19: “Employee Benefits”) as transposed by European Commission Regulation No. 1725/2003 of 29 September 2003.
The companies which are obliged to do this are:
• listed companies;
• financial institutions and financial intermediaries subject to the supervision of Banca d’Italia and ISVAP;
• Companies issuing publicly traded financial instruments;
• companies that prepare consolidated financial statements, other than those mentioned in the previous paragraphs and other than those who can prepare the financial statements in abbreviated form under Article 2435 bis of the Italian Civil Code;
• subsidiaries, although not listed on the stock exchange, included in the scope of consolidation.
The Solution
Eurokleis has developed a methodology called Financial proration. This methodology allows for an analytical evaluation of advances on the Severance Fund and any, partial or total membership of Supplementary Pension Funds in a short period of time.
This approach goes beyond the limits of the commonly used methodology known as Linear proration. Linear proration is a particular case of the Financial proration and that, in the event of non-verification of the assumptions of coincidence of interest rates and wage developments and/ or consistency between the Accumulated individual TFR and the corresponding seniority of service, can lead to less reliable results.
Eurokleis offers to its customers a team of professionals and advanced tools in the accounting and actuarial field to provide assistance with adjusting financial statements to the principles of IAS 19. The company equally provides the calculation and certification of the value obtained according to the techniques illustrated.
The aim of the principle is to ensure that the costs of the benefits governed by IAS 19 are recognised by the company when the benefits are measured and valued at the time they are disbursed. In particular, from a methodological point of view, the assessment of the termination conditions must be based on the actuarial and accounting methodology described for the defined benefit plans after the employment relationship. This is calculated on the basis of the benefits collected by the PUCM (Unit Credit Projection Method)
Autori dell’articolo
Antonio Annibali
senior partner - Actuarial Services
Actuary and Professor of Financial and Computer Mathematics
Francesco Bellini
senior partner & founder - Innovation & Finance
Chartered Accountant and Accounting Auditor
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