Accounting Standard (AS) 15 - Employee Benefits

[Accounting Standards]

Accounting Standard (AS) 15

(revised 2005)

Employee Benefits

(This Accounting Standard includes paragraphs set in

bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type
indicate the main principles. This Accounting Standard should be read in
the context of its objective and the Preface to the Statements of Accounting
Standards

1 .)

Accounting Standard (AS) 15,

Employee Benefits (revised 2005), issued
by the Council of the Institute of Chartered Accountants of India, comes
into effect in respect of accounting periods commencing on or after April
1,
2006 and is mandatory in nature2 from that date:
(a) in its entirety, for the enterprises which fall in any one or more of
the following categories, at any time during the accounting period:
(i) Enterprises whose equity or debt securities are listed whether in
India or outside India.

[Accounting Standards]

Accounting Standard (AS) 15

(issued 1995)

Accounting forRetirementBenefits in
the Financial Statements of Employers

(This Accounting Standard includes paragraphs 27-31 set in

bold italic

type and paragraphs 1-26 set in plain type, which have equal authority.
Paragraphs in bold italic type indicate the main principles. This
Accounting Standard should be read in the context of the Preface to the
Statements of Accounting Standards

1.)

The following is the text ofAccounting Standard (AS) 15,

‘Accounting

for Retirement Benefits in the Financial Statements of

Employers’, issued
by the Council of the Institute of Chartered Accountants of India.
The Standard will come into effect in respect of accounting periods
commencing on or after 1.4.1995 and will be mandatory in nature.2 The

‘

Statement on the Treatment of Retirement Gratuity in Accounts’ issued by
the Institute will stand withdrawn from the aforesaid date.

[Accounting Standards]

ASB Guidance on Implementing
AS 15, Employee Benefits (revised 2005)

This Guidance on Implementing Accounting Standard (AS) 15, Employee Benefits
(revised 2005), issued by the Accounting Standards Board of the Institute of Chartered
Accountants of India, does not form part of the Standard. The purpose of this
Guidance is to illustrate and to assist in clarifying the application of the Standard.
1. What are the kinds of employees covered in the revised AS 15 and whether a
formal employer-employee relationship is necessary or not, for benefits to be
covered under the Standard?

The Standard does not define the term “employee”. Paragraph 6 of the Standard
states that ‘an employee may provide services to an enterprise on a full

-time, parttime,
permanent, casual or temporary basis and the term would also include the
whole-time directors and other management personnel. The Standard is applicable
to all forms of employer-employee relationships. There is no requirement for a
formal employer-employee relationship. Several factors need to be considered to
determine the nature of relationship.

Generally ‘outsourcing contracts’ may not meet the definition of employer

employee
relationship. However, such contracts need to be carefully examined to
distinguish between a “contract of service” and a “contract for services”. A
‘contract for services’ implies a contract for rendering services, e.g., professional

or technical services which is subject to limited direction and control whereas a

‘contract of service’ impl

ies a relationship of an employer and employee and the
person is obliged to obey orders in the work to be performed and as to its mode
and manner of performance.

[Accounting Standards]

ANNOUNCEMENT

Limited Revision to
Accounting Standard (AS) 15,

Employee Benefits (revised 2005)

The Council of the Institute of Chartered Accountants of India has decided to make limited
revision to Accounting Standard (AS) 15,

Employee Benefits (revised 2005), with a view to
provide the following:
(i) Under the Transitional Provisions, an option has been given to charge
additional liability arising upon the first application of the Standard as an
expense over a period upto 5 years. On the lines of IAS 19, the Transitional
Provisions of revised AS 15 require disclosure of un-recognised amount.
(ii) An entity may disclose the amounts required by paragraph 120(n) as the
amount determined for each accounting period prospectively from the
transitional date.
The modifications in the Standard are indicated in track-changes mode (the additions are
shown as under-lined and deletions are shown in strike-through form) as below:
1. The following paragraph has been inserted after paragraph 92:

“92A.

Paragraph 145(b)(iii) explains the need to consider any unrecognised part of

the transitional liability in accounting for subsequent actuarial gains.”

[Accounting Standards]

Deferment of Applicability of Accounting Standard (AS) 15, Employee benefits (revised 2005)

The Council of the Institute of Chartered Accountants of India (ICAI), at its 265th meeting held on February 3-4, 2007, decided to defer the date of applicability of Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the ICAI, keeping in view the practical difficulties and general hardship being faced by industry. As per the decision, AS 15 comes into effect in respect of accounting periods commencing on or after December 7, 2006 (instead of April 1, 2006, as stated in the said Standard) and is mandatory in nature from that date. Earlier application of the Standard is encouraged.

[Accounting Standards]

Option to an entity to adopt alternative treatment allowed by way of amendment to the Transitional Provisions of Accounting Standard (AS) 15, Employee Benefits (revised 2005)

An amendment by way of limited revision to Accounting Standard (AS) 15, Employee Benefits (revised 2005), has been made with a view to provide, inter alia, an option to an enterprise to charge additional liability arising upon the first application of the Standard as an expense over a period upto five years with a disclosure of un-recognised amount.
The Council of the Institute of Chartered Accountants of India has decided to give a one time option to the enterprises which have followed the treatment prescribed under the Transitional Provisions prior to the above-stated amendment to adopt the alternative treatment, allowed by way of the said amendment, from the date the Transitional Provision was so applied. An enterprise is, however, allowed to exercise this option only during the first accounting year commencing on or after 7th December, 2006. In case an enterprise chooses to adopt the option, the earlier accounting treatment followed in this respect should be reversed.