End of service accrual accounting calculation - United Arab Emirates

Question

Dear Sir/Madam,

The calculation of the end of service benefit (gratuity) in United Arab Emirates differs based on whether the employee is terminated (full gratuity) or resigned (1/3rd gratuity if 1-3 years of service, 2/3rd gratuity if 3-5 years of service & full gratuity if 5+ years of service) and also on the period of employment (slab wise with no gratuity for less than a year employment).

We normally start accruing from day 1 of employee joining even though there is no benefit payable for less than a year of service.

My question is whether we should be accruing full gratuity assuming the employee will be terminated or we should start accruing based on slabs i.e. up to 3 years 1/3rd gratuity and so on, assuming the employee will resign in future?

Answer 1

IAS 19 no longer allows provision for defined employee plans such as gratuity based on the number of years worked. You need to employ an actuarial valuation method as per IAS 19. Refer IAS 19 which gives what should "actuarial assumptions" comprise of.

Even the formula methods that were allowed in previous standard versions are not considered to be actuarial valuation methods.

Check out these:
http://***.accountantanswer.***/1433/is-formula-method-an-actuarial-technique
http://***.accountantanswer.***/1484/provision-liability-actuarial-valuation-liability-discounted?show=1485#a1485

In practice, what you can do is to get a professional actuarial to develop a (Excel) model that you can use to value the gratuity liability. This model may need to be reviewed periodically.