Question

Staff retention - cash payments to be made to staff within next six months and a second payment in 18 months as a retention payment, given expected group level ownership change, with conditions of staying a number of years in return for payment. This scheme has been approved and communicated to staff.

Q Should liability be immediately recognised through p&l, at time of payment or over the number of years to which the retention payment applies? Also is there any argument for recognising a provision immediately for full amount? Thanks

Answer 1

My view is that you can not make can not make a provision. A provision by definition is a liability of uncertain timing or amount. However here both the timing and the amount are certain. This has to be accrued as per IAS 37.11(b) which states

"accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions."

You can also note IAS 37.81(a) which prohibits recognition of some staff costs in relation to a restructuring  plan if applicable to you.