IPSAS 39
Active
Employee Benefits
Requires an entity to recognise a liability when an employee has provided service in exchange for benefits and an expense when the entity consumes the economic resources – covering all four categories of employee benefits: short-term, post-employment, other long-term and termination benefits. Effective 1 January 2018. (IAS 19 equivalent; supersedes IPSAS 25.)
Active Standard
IPSAS 39 Employee Benefits is the current, active standard issued by the IPSASB for recognising and measuring employee benefits – short-term, post-employment, other long-term and termination benefits. Effective for periods beginning on or after 1 January 2018 (earlier application encouraged). Paras. 1–170. It supersedes IPSAS 25 (Employee Benefits).
IPSAS 39 is the IPSASB's adaptation of IAS 19 Employee Benefit Plans for the public sector – adding the service-potential concept, a single discount-rate approach, and public-sector commentary on unfunded pension obligations and severance.
1
Objective, Scope & the Four Categories of Employee Benefits (paras. 1–7)
Objective
Requires an entity to recognize (a) a LIABILITY when an employee has provided service in exchange for future benefits, and (b) an EXPENSE when the entity consumes the economic benefits/service potential from that service.
Scope
Applies to ALL employee benefits EXCEPT share-based transactions (governed by the relevant share-based payment standard) Excludes reporting BY retirement benefit plans themselves (IPSAS 49) and non-employment-related social security programs
"Employees" includes KEY MANAGEMENT PERSONNEL as defined in IPSAS 20, and covers full-time, part-time, permanent, casual, and temporary service (para. 7).
The four categories (para. 5)
CategoryExamples
Short-termWages, paid annual/sick leave, bonuses, non-monetary benefits – settled within 12 months
Post-employmentPensions, lump sums, post-employment medical/life insurance
Other long-termLong-service/sabbatical leave, jubilee benefits, long-term disability
TerminationBenefits from ending employment – entity-initiated or employee-accepted offer
Employee benefits arise from FORMAL plans/agreements, LEGISLATIVE requirements (national/state/industry/multi-employer plans, social security), OR informal practices creating a CONSTRUCTIVE obligation – where the entity has no realistic alternative but to pay (para. 4).
2
Definitions (para. 9)
Core terms (para. 9)
Employee benefit
Benefit provided to an employee in exchange for service rendered.
Liability
Obligation to transfer resources (cash/compensation) to settle an employee benefit.
3
Short-Term Employee Benefits – Recognition (paras. 11–12)
Recognise now (para. 11)
For short-term benefits (expected within 12 months of service), the entity recognises the undiscounted amount as an expense when the employee renders service – no actuarial valuation is required.
BenefitMeasurement
Wages/salaryUndiscounted, service period
Paid leaveUndiscounted accrued
4
Short-Term Paid Absences & Profit-Sharing/Bonus Plans (paras. 13–24)
Accruals (para. 13)
Paid absence and profit-sharing/bonus plans that are expected to be settled within 12 months ARE short-term benefits – recognised at the undiscounted expected cost at the period end. Where the plan has no substantive restrictions, the expected amount includes the best estimate of the obligation.
A formal, substantive profit-sharing plan may make the obligation unconditional even if not yet approved.
5
Post-Employment Benefits – Defined Contribution vs Defined Benefit (paras. 52–56)
The big split (para. 52)
TypeAccounting
Defined contributionPay contribution; no further obligation
Defined benefitActuarial valuation; recognise service cost + net interest
A plan is defined-benefit if the benefit depends on final salary, years of service, or similar – not a fixed contribution.
6
Defined Benefit Plans – the Four-Step Accounting Process (paras. 59–63)
Step it out (para. 59)
Four steps: (1) measure the deficit/surplus and service cost at the reporting date (projected unit credit); (2) recognise service cost and net interest in profit or loss; (3) recognise actuarial gains/losses in other comprehensive income (except remeasurement of the effect of a change in the benefit guarantee); (4) deduct a fortiandi and consider the asset ceiling.
Projected unit credit valuationService cost + net interest → P&LActuarial gains/losses → OCIAsset-ceiling test
7
Actuarial Valuation – the Projected Unit Credit Method (paras. 68–76)
PUC mechanics (para. 68)
The projected unit credit method attributes the present value of the defined-benefit obligation to periods of service, using an age-weighting or benefit-ratio approach. It requires: a discount rate, salary projections (for salary-based plans), and an estimate of future benefits payable at normal retirement.
The valuation reflects current compensation levels and projected salary escalation up to normal retirement age.
8
Actuarial Assumptions & the Discount Rate (paras. 77, 85–88)
Rate choice (para. 77)
Assumptions are the unbiased market-imputed rates (primarily high-quality corporate bonds or government bonds, whichever best reflects the benefit structure). Salary escalation, retirement rates, mortality and benefit changes must be the BEST estimates. The discount rate is reviewed each reporting date.
Discount rate
Rate used to present-value the defined-benefit obligation; reflects current market assessment.
9
Past Service Cost, Curtailments & Settlements (paras. 101–110)
Events vs ongoing cost
EventRecognition
Past service costStraight-line over remaining service
CurtailmentActuarial gain/loss (OCI)
SettlementRecognise difference in P&L
A settlement requires a substantive plan termination (or asset transfer) and a transfer of substantially all risks.
10
Plan Assets, Net Interest & the Asset Ceiling (paras. 125–132)
Net asset check (para. 125)
Net interest is the discount rate × (opening liability − present value of contributions/payments). Plan assets are measured at FV less costs to sell. The entity recognises an asset for an economic benefit ONLY if, and to the extent, it is MORE LIKELY THAN NOT that the benefit will be realised – capped by the asset ceiling (the excess of the liability over the cost of settling it).
PV liability vs FV plan assetsNet interest = rate × (L1 − PV(cash flows))Asset ceiling caps any asset
11
Presentation – Offsetting & Component Placement (paras. 133–136)
On the face (para. 133)
The defined-benefit obligation is presented NET of plan assets and the employee's contribution receivable. Service cost and net interest go to profit or loss; actuarial gains/losses and the remeasurement of the effect of a change in the benefit guarantee go to OCI (revaluation component). Offsets only per IPSAS 28.
Public sector: non-pension post-employment (e.g. health) may be presented separately or aggregated by class.
12
Disclosure Requirements – Defined Benefit Plans (paras. 137–149)
Headline disclosures (para. 137)
MatterDisclosed
Nature of planBenefit formula, years of benefit, participants
ReconciliationOpening → contributions → benefits paid → closing FV
Rates/assumptionsDiscount rate, salary escalation, mortality
13
Other Long-Term Employee Benefits (paras. 155–161)
Beyond pensions (para. 155)
Other long-term benefits (e.g. long-service leave, non-retiree health, sick pay beyond 12 months) are measured at the PRESENT VALUE of the expected cost – actuarial valuation required where the benefit depends on salary or service. Recognise net interest and actuarial remeasurements as for defined benefits.
If the obligation cannot be reliably measured, recognise a liability only when a payment is probable and the amount can be estimated.
14
Termination Benefits (paras. 162–170)
Redundancy (para. 162)
A termination benefit is recognised as an expense when the entity has a detailed formal plan or a detailed informal management plan and the plan has been announced, communicated or otherwise committed. Measured at the present value of expected cost; disclosed if material.
TriggerTreatment
Detailed plan / plan announcedLiability recognised
No planOnly on probability of payment
15
Effective Date & Amendment Timeline (paras. 176–176D)
Timeline
DateEvent
Jul 2016Issued
1 Jan 2018Effective date
2025Amended (latest)
IPSAS 39 superseded IPSAS 25 (Employee Benefits); transition applies IPSAS 33 first-time-adoption guidance where relevant.
16
Relationship to IAS 19
Mapping (para. 177)
IPSAS 39 tracks IAS 19 – four-step measurement, projected unit credit, the asset ceiling, net interest, and OCI treatment of actuarial gains/losses – but with public-sector commentary on unfunded pension obligations, the service-potential concept, and government-specific discount-rate guidance.
IAS 19 defined benefitIPSAS 39 same + service potentialIAS 19 asset ceilingIPSAS 39 sameIAS 19 terminationIPSAS 39 same
17
Statement / Process Mapping
Where it flows
ProcessLedger
Actuarial valuationPension Actuary → Defined-Benefit Module
Interest accrualNet interest → P&L
Actuarial gains/lossesOCI → Revaluation component
DisclosureDisclosure Engine → IPSAS 7200
18
Related Standards – Cross-Reference Map
See also
StandardRelation
IPSAS 26Impairment of benefit assets
IPSAS 33First-time adoption transition
IPSAS 25 (withdrawn)Superseded by 39
IAS 19Direct equivalent
19
Quick-Reference Glossary
Defined benefit
Benefit based on salary/service; actuarial valuation.
Projected unit credit
Actuarial method attributing PV to service.
Net interest
Discount rate × (opening liability − PV cash flows).
Asset ceiling
Max recognition of economic benefit asset.
Service cost
Actuarial present value of accrued benefit.
Past service cost
Benefit from plan changes; straight-line recognised.