IMPLEMENTATION OF IFRS International Accounting Standard (IAS) 19

							Accountability and Accountancy Services Division
Brigitte Worth

Central Finance Group
Rathgael House
Balloo Road
BANGOR BT19 7NA
Tel No: 028 9185 8025 (x 68025)
Fax No: 028 9185 8211
Email: brigitte.worth@dfpni.gov.uk




                                                 Copy Distribution List Below:

TO:         RESOURCE ACCOUNTING CONTACTS

FROM:       BRIGITTE WORTH

DATE:       20 FEBRUARY 2009

IMPLEMENTATION OF            INTERNATIONAL         FINANCIAL      REPORTING
STANDARDS (IFRS):

International Accounting Standard (IAS) 19 Employee Benefits

Purpose

1.       You will be aware that the Treasury Officer of Accounts agreed AASD
         would take the lead in agreeing a methodology and developing
         solutions to common issues.


2.       The purpose of this letter is to advice you of the approach AASD has
         agreed with the Northern Ireland Audit Office (NIAO) regarding the
         implementation of IAS 19.


Action

3.       You are asked to note the contents of this letter and to circulate both
         the letter and the more detailed attachment to relevant officials,
         including those in agencies and arms length bodies, to assist with the
         implementation of IFRS in line with DAO (DFP) 06/08.
Background


4.        AASD produced an initial draft solution and circulated this amongst
          Resource Accounting Contacts in Departments, seeking comments.
          This was then discussed with the NIAO and further amendments
          made to the proposal. AASD provided regular updates to the Audit &
          Accountability Forum and IFRS Project Managers Working Group. A
          summary of the requirements of IAS 19 is included at Annex A.


Summary of Agreed Approach – NICS1


5.        AASD organised for NISRA to carry out a short internet based survey
          in January 2009 within each Department. The responses were
          analysed by NISRA and the average annual leave balances at 31
          March 2008 determined for each Department. NISRA has also
          agreed to provide the average salary per grade for each Department.
          This information will be provided to Departmental contacts by AASD.


6.        Departments and Agencies using the agreed approach should
          calculate any asset/liability in accordance with the methodology set
          out in Annex B


Suggested Approach – Arms length bodies (ALB’s)2


7.        A suggested method for ALB’s to which the FReM applies is set out
          in Annex C. As this is only a suggested methodology, bodies should
          discuss at an early stage with their auditors whether their methods
          are acceptable.        AASD was unable to obtain agreement for a
          common approach for ALB’s as, due to the range of bodies and their
          sizes, NIAO felt these bodies would need to consider their own
          specific circumstances.

1
  For the purposes of this paper NICS is deemed Government Departments and their Executive
Agencies only.
2
  Arms length bodies are defined for the purposes of this paper as bodies in the wider public
sector that apply the FReM, other than Government Departments and their Executive Agencies.
Contacts

8.    Peter O’Sullivan and I are happy to discuss specific IFRS issues,
      although we would appreciate it if agencies and NDPBs would first
      contact their sponsor Departments. Please contact me on 028 9185
      8025 (x68025), or email: Brigitte.Worth@dfpni.gov.uk or Peter on 028
      9185 8133 (x68133) or email: Peter.O'Sullivan@dfpni.gov.uk.




Brigitte Worth
BRIGITTE WORTH
FINANCIAL REPORTING AND ACCOUNTABILITY BRANCH


                                                   cc:   David Thomson
                                                         Peter O’Sullivan
                                                         Louise Mason
                                                         Finance Directors
                                                  ANNEX A – IAS 19 Summary


Accrued Holiday Entitlements Methodology


IAS 19 covers all forms of consideration in exchange for service rendered to
an organisation. However, the methodologies in this document are primarily
concerned with accrued holiday entitlements.


It should be noted that organisations are not required to adopt one of
these methodologies should they agree a more suitable alternative with
their auditors. Similarly, organisations can recognise accruals for holiday
entitlements where these are not material, should they choose to do so.


Guidance provided in IAS 19


The Standard states: When an employee has rendered service to an entity
during an accounting period, the entity shall recognise the undiscounted
amount of short-term employee benefits expected to be paid in exchange for
that service:


1. As a liability (after deducting any amount already paid)
2. As an expense, unless another Standard requires or permits the inclusion
of the benefits in the cost of an asset (e.g. capitalisation under IAS 16)


The standard further states that absences are categorised as either
accumulating or non-accumulating, where non-accumulating benefits do not
carry forward if an employee does not use them. No accrual is required for
non-accumulating benefits and this will normally include sick pay.


However, accruals do need to be recognised (where material) for
accumulating benefits such as annual leave and flexi leave that has been
earned by the year end, but has not yet been taken. Annex B sets out the
agreed methodology for the NICS whilst Annex C sets out suggested
methodologies for ALB’s to whom the FReM applies.
                                                               ANNEX B - NICS

Agreed Methodology

The NISRA survey information was gathered by grade. Departments should
calculate the year end accrual by applying average salaries for those grades
to the average leave for each grade. The value per day should be calculated
on the basis of a 365 day year (i.e. salary/ 12 /no of days in month multiplied
by the number of days accrued). We have been informed that this is the rate
at which leave would be paid on a member of staff leaving the service.


Going forward, it is expected that the annual leave information will be
obtained from HR Connect and the average salary information provided by
NISRA will be applied to the HR Connect figures.


Flexi Leave
NIAO have agreed that flexi leave may be excluded on the basis that it is
immaterial, but bodies should be mindful of the following points:


   NIAO expect to rely on systems in Departments to enforce the flexi rules,
    which will provide assurance as to the survey findings and also on the
    position going forward.


   Where a flexi balance is not included in the accounts NIAO will treat that
    as an unadjusted error in future IFRS audits which will therefore eat into
    the amount of error that they could live with in the account and not qualify.


   HR Connect will not provide information on flexi-leave and NISRA have
    indicated that it will not be feasible to undertake a similar survey in the
    future.


Departments will therefore need to assess their own position on the inclusion
of flexi leave. Where a department wants to include flexi leave, as for annual
leave, the value should be calculated on the basis of a 365 day year (i.e.
salary/ 12 /no of days in month multiplied by the number of days flexi accrued)


One method that could be adopted to minimise the level of unadjusted error is
to include a value for flexi leave based on the estimate of untaken flexi leave
per person in the NISRA survey and adjust future years accruals for changes
in average salary and employee numbers only.
                                                            ANNEX C – ALB’s


SUGGESTED METHODOLOGY 1


1. Compute the average salary per day per staff member.


A simple example is where the total costs for the year is divided by the
average persons employed throughout the year to give an average cost per
employee. This can then be divided by 365 (days) to give an average costs
per employee per day (ignore leap years).


Caution should be taken when extracting salary costs from ledgers, to ensure
that one off non recurrent payments are excluded e.g. one off pension
contributions, compensation payments or overtime etc.


2. Estimate of outstanding leave balance at 31 March


In the absence of computerised leave system, some form of sample can be
used to determine outstanding leave balances at 31 March. The size of the
sample will depend on a number of factors including the size of organisation
and ability of the organisation to collect sufficient information. Regardless of
the sample size, it should be representative of the organisation as a whole.


3. Determine the Estimated Accrual


Multiply the average number of days leave outstanding by the number of
employees and the average salary per day to determine the estimated
accrual.
SUGGESTED METHODOLOGY 2


1. Determine Likely Maximum Value of Untaken Leave


This method can be used to demonstrate that the likely maximum amount of
leave outstanding, when a value is placed on it, is not material to an
organisation’s accounts. For example annual leave in the NICS the maximum
number of days outstanding will be the maximum of 9 days carried forward at
31 January plus 5 days earned in February and March (assuming the
maximum 30 day annual leave allowance) – i.e. 14 days. Bodies will need to
apply their own limits/conditions where these differ from the NICS.


This can then be multiplied by the average salary and number of employees
determined above to obtain the likely maximum value of untaken leave.


GENERAL ADVICE


If, following discussions with the auditors it is determined that this amount is
immaterial to the organisation’s accounts, then it will not be necessary to
include an annual leave accrual. However organisations will wish to consider
inclusion of an accrual to obtain the necessary technical adjustment on the
implementation of IFRS.


Further, as for Departments and agencies, it is likely that the value of a
possible annual leave accrual will be included as an unadjusted error in future
IFRS audits, which would therefore reduce the amount of error that could be
present in the accounts without them being qualified.


Regardless of the methodology an organisation plans to use, it would be
sensible to confirm that their auditors are content with the proposed method
and an early stage.