Termination Benefits IAS 19 or IAS 37

[CPA Kevin Matt]

Hi,

I am a bit confused about which standard to apply for recognizing termination benefits which is part of a restructuring program. While both standard would lead to a booking of an expense in the PNL but I am confused how to label it: Employee expense or Restructuring provision? I am referring to voluntarily termination benefits as part of a restructuring program. Can someone please help? Thanks.

[JRSB]

Seems like a restructuring provision (with disclosure) will do the trick. Presumably this is one element of various costs to be incurred as part of that restructuring.

IAS 19 scope says it includes items where an obligation arises and where there is no realistic alternative but to pay the benefit. Whereas your restructuring provision may not be communicated to specific people or could be where the restructuring plan has been announced but no obligation to individual people has arisen

[Ketan Marwah]

Hi,

Coincidentally happened to look at this thread. I have a different opinion thus thought of activating the post again as it quite a frequently asked question:

IAS 19 scope says it includes items where an obligation arises and where there is no realistic alternative but to pay the benefit.

Provision is also a liability so in that respect there is no difference between the two. A present obligation (IAS 37.15-22) arises from past events that result in an entity having no realistic alternative but to settle that obligation.

Whereas your restructuring provision may not be communicated to specific people or could be where the restructuring plan has been announced but no obligation to individual people has arisen

Company doesn't have to individually inform each employee about their termination. Instead, they can communicate the plan to a group of employees that includes those who will be affected. For example, if a decision about the termination plan has been approved by a body that includes employee representatives, like a supervisory board, it creates an obligation even if the affected employees haven't been directly informed yet.

In summary therefore, employee termination benefits are in the scope of IAS 19 rather than IAS 37. Termination benefits for employees made redundant as part of the restructuring are recognised in accordance with the specific requirements of IAS 19 Employee Benefits.The associated costs are recognized when the company can no longer withdraw the offer of those benefits. This may be earlier than when other restructuring costs are recognized, and typically before the benefits are paid.