What are the reasons for the increase in the retirement liability?
This is the usual question we receive from our clients as we enter another season of finalizing the company’s audited financial statements as required by the Securities and Exchange Commission (SEC).
The adoption of the Philippine Accounting Standards (PAS) means that companies need to report Retirement Liabilities in accordance with PAS 19. Retirement Liabilities have a direct impact to a company’s balance sheet hence, it would be good to understand what drives the liability up or down.
The 5 major factors that impact the retirement liability
Discount Rate
This is based on the published Philippine Dealing System Treasury Reference Rates (PDST-R2). The higher the discount rate, the lower the liability, and vice versa.
Salary Projection Rate
The higher the increase in the salary projection rate vs previous year, the higher the liability becomes, and vice versa.
Current Service Cost
This pertains to the additional year of service of the employees. Since the cut-off date of the valuation is a year after (i.e. 12/31/16 to 12/31/17) then the liability would have increased equivalent to 1 year of service.
Movement for the Year
This pertains to the actual “experience” for the year in terms of the actual salary increase, resignations and new hires.
Retirement Fund
If a retirement fund is in place, any additional contributions to the fund will reduce the liability. If a retirement plan is tax-qualified, the contributions are treated as a business tax-deductible expense for the year.
I hope this gives you a better understanding and appreciation of the PAS 19 Valuation report for guidance in the financial decisions for the year ahead.
Raymund Zalamea
Raymund has over 20 years of experience in retirement consulting, entrepreneurship and marketing. He manages both the actuarial and the benefits administration services for Zalamea.
Raymund has also been successful in launching an online employee portal that provides seamless processing of payroll, timekeeping, retirement savings and loans.
7 thoughts on “Retirement Liability Under PAS 19”
who are required for the Valuation report?
All companies who are registered with the SEC are required to be in compliant with the Philippine Accounting Standards (PAS). In most cases, the external auditor requests the client/company to engage an actuarial firm to determine its retirement obligation under PAS 19. Therefore, most companies will need to do the PAS 19 valuation on a yearly basis.
Hi Sir Zalamea gud am. kindly clarify on this please “most companies will need to do the PAS 19 valuation on a yearly basis.” Is it mandatory to have an ANNUAL PAS 19 valuation? What if our company has no actuarial valuation in 2019, what will be the effect on our 2019 AFS?
Hi Sir Zalamea gud am. kindly clarify on this please “most companies will need to do the PAS 19 valuation on a yearly basis.” Is it mandatory to have an ANNUAL PAS 19 valuation? What if our company has no actuarial valuation in 2019, what will be the effect on our 2019 AFS?