ACCOUNTING STANDARD (AS) 15 An Actuarial Perspective AICG ACTUARY INDIA CONSULTING GROUP

APPLICABILITY OF AS-15 Valuation by an Actuary with FULL disclosures is required for the following: 1.If Equity or Debt securities are listed or are in the process of being listed 2.In Insurance business 3.Turnover > than Rs. 50 crores 4.Borrowings > than Rs. 10 crores 5.Banks (incl. co-operative banks) 6.Financial Institutions 7.Holding or subsidiary of any one of the above 8.Not a Small and Medium Sized Company (Non SMC) AICG

APPLICABILITY OF AS-15 Valuation by an Actuary with LIMITED disclosures is required for the following: 1. If any of the criteria in the previous slide does not apply, then company will be a Small and Medium Sized Company (SME) If such a company has more than 50 Employees then : Valuation by an Actuary is required with limited disclosures.  If the company has less than 50 employees then the company can provide the valuations on simple arithmetic/discontinuance basis. AICG

COMPONENTS OF AS-15 I. Short Term Benefits II. Post Employment Benefits III. Long Term Benefits IV. Termination Benefits AICG

I. SHORT TERM BENEFITS 1. Salary Wages and Social Security : Expenses (Liability/Asset) incurred when services are provided. 2. Paid Annual Leave (Compensated Absences) : Services are classified into a) Accumulating( e.g. Vacation or Sickness) : This benefit is classified into vesting and non-vesting benefits. Vesting benefits are expensed (Liability/Asset) as and when the services are rendered. Non vesting benefits are expensed (Liability/Asset) taking into account the probability that the leave may be availed. b) Non- Accumulating ( e.g. Maternity) : Expensed (Liability/Asset) only when the absences occurs AICG

I. SHORT TERM BENEFITS 3. Profit Sharing and Bonuses: Expensed (Liability/Asset) when a present liability exists as a result of past events & a reliable estimate of the obligation is made. 4. Non Monetary benefits (such as cars, housing or subsidized goods): Expensed (Liability/Asset) when services are rendered. AICG

II. POST EMPLOYMENT BENEFITS 1. Defined Contribution (Provident Fund & Superannuation) : These plans are mostly funded. It can be either controlled by an external fund manager or in some cases be managed by a trust set up by the company itself. Amount to be contributed by or on behalf of the employee is pre specified. The amount of benefit that will be made available at the time of maturity will not be certain. The actuarial gains and Loss will be borne by the employee. Thus actuarial valuation NOT required. AICG

II. POST EMPLOYMENT BENEFITS 2. Defined Benefits (Gratuity, Pensions & Medical Care): These types of benefits can be funded or non-funded. Non funded assets are further classified into Provided (specific assets are set aside) and Non-Provided plans. AICG

II. 2) DEFINED BENEFITS CONTD. Recognition and Measurement At Balance sheet date: 1. Liability = Present value of the defined benefit obligation – (Past service cost not recognized + Fair value of plan Assets) 2. Asset = If the value above is negative, it indicates Present value of refunds or reduction of future contributions. Profit & Loss Statement: 1. Current service cost. 2. Interest Cost. 3. Expected return on plan Assets. 4. Actuarial gains & losses. 5. Past service cost. 6. Effect of curtailments or settlements. AICG

II. 2) DEFINED BENEFITS CONTD. Steps Involved 1. Using Actuarial techniques to find out how much benefit is attributable to the current and prior periods (Attributing to benefits of service) and to make estimates about demographic variables (such as employee turnover and mortality, claim rate under medical plans) and financial variables such as future increase in salaries, medical costs, discount rates, expected rate of return on plan Assets) that will influence the cost of benefit. 2. Discounting the benefits using unit credit method to determine the present value of the defined benefit and current service cost (actuarial valuation method). Discount rate is determined by reference to market yields at the Balance sheet date on Government Bonds. 3. Determine fair value of plan Assets 4. Determine Actuarial gains and losses ( resulting from increase or decrease in the present value of a defined benefit obligation or fair value of any plan assets. 5. Determine past service cost if the plan has been introduced or changed. Past service cost is recognized as an expense on a straight line basis over the average period until the benefits have become vested. If the benefits are already vested then the past service costs are recognized immediately. 6. Determine the gain or loss when a plan Is being curtailed or settled. AICG

II. 2) DEFINED BENEFITS CONTD. NOTE SMC not to follow the recognition and measurement principles laid above, except that the management should actuarially determine and provide for the accrued liability in respect of the defined benefit plans as follows: 1. The method used for actuarial valuation should be projected cash flow method. 2. The discount rate used should be determined by reference to the market yields at the balance sheet date on government bonds. 3. Only disclosure of actuarial assumption to be made. AICG

III. LONG TERM BENEFITS AICG Recognition and Measurement At Balance sheet date: 1. Liability = Present Value of the Defined benefit obligation – Fair Value of Plan Assets. Profit & Loss Statement: 1. Current service cost. 2. Interest Cost. 3. Return on plan Assets. 4. Actuarial gains & losses. 5. Past service cost. 6. Effect of curtailments or settlements.

IV. TERMINATION BENEFITS 1. Termination of Employment 2. Voluntary retirement  Recognition and Measurement Recognized as an expense immediately when: a) Enterprise as a current obligation as a result of a past event. b) Outflow of resources required to settle obligation. c) Reliable estimate of the obligation can be made. d) When termination falls after 12 months of the balance sheet date it must be discounted to present value. AICG

THANK YOU For Actuarial Advisory Services visit AICG