does company have to make provision for unused annual leave even if it does not pay for it?

Question

Our company does not pay employees for unused annual leaves. Instead, they will allow employees to offset the balance when they resign from the company. According to our auditor, even we don't pay cash to the employees, we still have to make provision for it in our financial report. Is it correct? Kindly assist.

Thank you

Rgds
Wieske

Answer 1

As per the labor rules in your country, is it required to pay for unused annual leaves? If it is not then I don't see any such requirement. Also is it required to carry forward the unused leave to the following year?

By the way as a general rule, whenever your auditor says something which you doubt about, ask him to show the relevant IFRS standard/provision. And then read it yourself and see whether you are satisfied.

Comments

Hi Jane

Thanks for your reply. No, it is not required to pay for the unused leave balance since the employees are allowed to offset it with their notice period. So it is a bit weird if we don't have to pay for it, but we still have to make provision.I checked IFRS 19 about staff benefits and it did not say anything about the case that my company has. Anyway, I checked with my ex auditor from KPMG and he showed me a screenshot that said we still had to make provision even if we did not pay for it.  Strange though..

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If they can offset it against their notice period. Is the assumption then that you will have to pay for someone to cover for that absence and therefore there is a monetary value attached to that right of the employee? Otherwise  you are double counting the cost. If they leave early, Co pay less, if you dont recruit anybody else, you will release the accrual