Operating lease incentives Accounting treatment of operating leases

Chapter 17 – Employee Benefits Page 224 3 Objectives, Scope and Definitions of IAS 19 IAS 19 should be applied by all entities in accounting for the provision of all employee benefits, except those to which IFRS 2 applies. The standard applies regardless of whether the benefits have been provided as part of a formal contract. [IAS 19.1] Employee benefits are all forms of consideration, for example cash bonuses, retirement benefits and private health care, given to an employee by an entity in exchange for the employee’s services. [IAS 19.7] A number of accounting issues arise due to:  the valuation problems linked to some forms of employee benefits; and  the timing of benefits, which may not always be provided in the same period as the one in which the employee’s services are provided. IAS 19 is structured according to the different forms of employee benefits as follows:  short-term employee benefits;  post-employment benefits;  other long-term employee benefits; and  termination benefits. 4 Short-term Employee Benefits

4.1 All short-term benefits

Short-term employee benefits are employee benefits other than termination benefits that fall due within twelve months from the end of the period in which the employees provide their services. [IAS 19.7] Short-term employee benefits include:  wages, salaries and social security contributions;  short-term absences where the employee continues to be paid, for example paid annual vacation, paid sick leave and paid maternitypaternity leave. To fall within the definition, the absences should be expected to occur within twelve months of the end of the period in which the employee services were provided;  profit-sharing and bonuses payable within twelve months of the end of the period; and  non-monetary benefits, for example private medical care and company cars. As set out in IAS 1 Presentation of financial statements, financial statements should be prepared by applying the accrual concept. The application of the accrual concept in relation to liabilities means that an entity should recognise a liability when it becomes payable rather than when it is actually paid. A short-term benefit should therefore be recognised as an employee provides the services to the entity by reference to which the benefits are payable. The benefit will normally be treated as an expense, and a liability should be recognised for any unpaid balance at the end of the reporting period. [IAS 19.10]