Every year of service earns an employee a further entitlement to an end-of-service benefit (EOSB). The cash may be paid years later, but the obligation to pay it arises as the service is rendered. Under IAS 19 Employee Benefits, an EOSB arrangement that promises a benefit linked to salary and service is a defined benefit plan. The entity recognises a liability for the present value of that obligation at each reporting date, and charges the cost to the financial statements as the benefit is earned. Recording EOSB only when it is paid does not meet that requirement.

The measurement challenge is that the final cost depends on variables nobody can observe today: when each employee will leave, what their salary will be at that point, and what rate should be used to value a payment due years from now. An actuarial valuation addresses this with explicit, documented assumptions.

What the valuation delivers

• Statement of financial position: the net defined benefit liability at the reporting date.
• Profit or loss: service cost and interest cost for the period.
• Other comprehensive income: remeasurements arising from changes in assumptions and from experience.
• Disclosures: assumptions, reconciliation of the obligation, sensitivity analysis, and maturity profile.

Call to action

Your auditors will ask what supports your EOSB provision. Our actuarial team delivers IAS 19 end-of-service benefit valuations and reports, from data reconciliation through to the disclosures, ready for your audit. Contact us to discuss your year-end EOSB valuation.