Executive Summary
The need for improved accounting and financial reporting remains a top consideration for organizations as they pursue effective assessment of a company’s performance. Globalization is a leading cause in which business performance measurement has required the establishment of standardized protocols that would help companies realize consistency in their reporting. This would include the provisions of IAS and IFRS for employee benefits, which have shown a greater commitment to ensuring that companies create an enabling environment. Each of the standards provides a critical framework in which the realization of organizational goals follows standardized actions and processes to ensure consistency in reporting and evaluating the overall performance. IAS and IFRS provisions on employee benefits are critical in serving the interest of employees, investors, regulators and the company. The importance of the standards in protecting the welfare of the employees is profound, especially by improving accountability levels in which actions preceding a certain decision, such as the voluntary termination of an employee, would be assessed. In this context, it is easy to realize a ground in which resolutions can be identified while maintaining solid relationships between the employer and employees. Understanding the structure and requirements of IAS and IFRS is critical to realizing a supportive work environment.
Introduction
Globalization has emerged as a top consideration in which businesses have emerged to seek standardized operation. This includes the provision of financial reporting to enforce accountability. These concepts are deemed important since they allow comparison of companies to assess their competitiveness relative to how one business varies from another. The information is considered critical with respect to allowing the investors, members of the public and the organization to assess the feasibility of the business operations. Common measurement standards, such as International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS), have consistently evaluated Employee benefits across organizations. These standards have played a critical role in determining a company’s commitment towards realizing the support for improved employee benefits. The IAS, following its amendment in 2011, has consistently provided an update on the requirement of every organization to account for employee benefits by stipulating issues such as salaries, wages, annual leave, termination benefits, and retirement benefits.
On the contrary, the IFRS provides a report by organizations specifying the amounts the employees will receive as benefits in relation to risk and investment within the company. Such obligations are important for realizing transparency while allowing easy assessment of the company across a common measuring grid. IAS and IFRS have gained popularity following their importance and relevance in accounting standards to enhance effective financial reporting. IFRS provides a more comprehensive guideline, while IAS offers guidelines on specific accounting issues. The purpose of this report is to provide a comparative analysis of IAS and IFRS for employee benefits based on the differences, motivation and reasons for differences, impact and consequences, challenges and opportunities, as well as recommendations for improving the outcome of the standard.
Literature Review
A study by Liapis & Thalassinos (2013) asserts the importance of using standardized financial report approaches towards realizing transparency and accountability. This is a critical reference in which IFRS has been cited as a convergence with IAS to provide a framework for improving financial and accounting reporting. The aim is to promote an unbiased understanding of international financial reporting systems that have been adopted as an exchange of globalization, where the competitiveness of companies would be assessed in the context of how well an organization seeks to improve its employees’ welfare. The standards are outlined to provide a uniform assessment of a company’s performance by investors, regulators, and the organization. IFRS has been adopted in over 100 nations to improve global accounting standards as a dialogue that is important towards realizing a globalized market that is easy to track and record progress in financial health. Thus, regulation protocols such as IAS and IFRS are used to bridge the gaps in practice created in relation to the governance of finance issues among interconnected nations. The benefits are also extended to the market, regulators, and the company.
The guidance by IAS 19 provides that an organization is obligated to report the employee benefits in terms of the liability and expense that an employee has while providing services. The employee benefits are categorized into direct payment and the provisions that define the plans that would include retirement based on the commitments the employer has made to the employees. Employees receive various categories of benefits, including short-term or immediate plans, which are accounted for 12 months upon the employee offering the services for the company. As part of the reporting, the company should clarify accrued expenses, in which any amount paid in excess should be considered a prepaid expense. This may include an element of cash refund or future payments. Other types of benefits within the short term include wages and salaries, sick day compensation, bonuses, social security contributions, car and car expenses, housing, and catering. This would also include sickness and life insurance even after the employee’s retirement. Long-term provisions also support employee benefits, including coverage on damages, accidents, and disability stipulated for more than 12 months. Also, termination benefits are a critical consideration in which voluntary actions by the employee to accept their pronouncement of redundancy may also provide a rationale for the employee to receive benefits. This also covers compensation when an employer decides to terminate the service of an employee before the retirement and terms of work have been fully realized. These are important considerations in which the employee’s exploitation is avoided by offering a fairground to cover negotiation in exchange for such disturbances.
Governance of employee benefits at the organizational level is based on consistency, especially in the employer’s commitment. This would also include the internal regulations that are legally binding and influential towards guarding the employee’s welfare. Such actions would require an assessment of issues such as workers and insurance rights. Other considerations within the legal framework of employee benefits include professional funds, investment or cash accounts, insurance programs and funds accepted within the organization. The organization must also show its commitment to addressing ethical concerns related to contingent liability while exploring moral obligations where the employer must protect the employee’s welfare. The employee benefit plan’s provisions must be considered an important aspect that covers the definition and execution of the stipulated benefits while following the required accounting standards. This would include the organization being required to provide a framework in which a constructive obligation must be followed considering the established contribution plan.
Analysis And Discussion
Differences between the IAS And IFRS On Employee Benefits
IAS employee benefits do not include accounting and reporting by retirement benefit plans—the standard deals with four employee benefits categories: short-term, post-employment, and termination. With the short-term benefits, IAS recognizes them as an expense to profit or loss. In this case, the expense is recognized in the undiscounted short-term employee benefits. These benefits are expected to be paid once the employee renders their services during an accounting period. These short-term benefits include social security contributions, salaries, annual wages, and paid sick leave. The post-employment benefits depend on a plan’s economic substance and result in the plan being classified as a defined benefit plan or a defined contribution plan. Examples include post-employment life insurance, medical care, pensions and other retirement benefits. IAS also has other long-term disability benefits, long-term disability benefits, jubilee or other long-service benefits and sabbatical leave. With the termination benefits the employee gets in exchange for the termination of their contract.
IFRS requires that an entity recognize a liability when an employee has already offered the service in exchange for the benefits that they get in the future. In this case, the employee services must come first and, later, the benefits paid in the future. It also requires that an entity recognizes an expense when it uses up the economic benefits arising from the employee’s service in exchange for the benefits. With IFRS, short-term employee benefits are recognized when the employee has performed their tasks, and their measurement is in terms of the undiscounted amount of benefits paid in exchange for the service they rendered. These short-term benefits normally are settled within 12 months. On the other hand, for the IAS, the short-term employee benefits are expected to be settled before the twelve months at the end of the annual reporting period when the employees render their services. Unlike the IFRS, IAS benefits do not include termination benefits. Examples of these include bonuses, profit sharing, salaries and wages.
IFRS has post-employment benefits, normally paid after the employee completes the employment. Plans providing these benefits normally are classified as either defined benefit plans or defined contribution plans. With the defined contribution plan, an entity pays fixed contributions to a separate entity, and it is not obliged to make any more contributions if the fund is not in a position to hold sufficient assets to cater for the employee benefits for the services they have rendered while in the current and prior periods. The defined benefit plan is any post-employment benefit plan the employee enjoys other than the defined contribution plan.
References
Brown, P. (2013). International Financial Reporting Standards: what are the benefits? In Financial Accounting and Equity Markets (pp. 297-313). Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9780203067024-19/international-financial-reporting-standards-philip-brown
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Herath, S. K., & Alsulmi, F. H. (2017). International financial reporting standards (IFRS): The benefits, obstacles, and opportunities for implementation in Saudi Arabia. International Journal of Social Science and Business, 2(1), 1-18. https://www.ijssb.com/images/vol2.no.1/1.pdf
Ikpefan, O. A., & Akande, A. O. (2012). International financial reporting standard (IFRS): Benefits, obstacles and intrigues for implementation in Nigeria. Business Intelligence Journal, 5(2), 299-307. https://core.ac.uk/download/pdf/79124646.pdf#page=104
Ismail, R. (2017). An Overview of International Financial Reporting Standards (IFRS). International Journal of Engineering Science Invention, 6(5), 15-24. https://www.researchgate.net/profile/Rehana_Ismail3/publication/328305250_An_Overview_of_International_Financial_Reporting_Standards_IFRS/links/5bc57c92a6fdcc03c788d488/An-Overview-of-International-Financial-Reporting-Standards-IFRS.pdf
Liapis, K. J., & Thalassinos, E. (2013). A Comparative Analysis for the Accounting Reporting of “Employee Benefits” between IFRS and other Accounting Standards: A Case Study for the Biggest Listed Entities in Greece. https://www.um.edu.mt/library/oar/handle/123456789/30932
SINGH, S. K. A Comparative analysis of international Accounting Standards Ias and the Indian Accounting Standards as with special reference to IAS 2 and as 2 ias 7 and as3 as 8 and as 5 ias 10 and AS J IAS 38 and AS 26. https://shodhganga.inflibnet.ac.in/handle/10603/418367
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