Calculation of the provision for employee benefits in accordance with IAS 19 based on actuarial method

A company can provide a wide range of different types of benefits to its employees, for example:

  • benefits for work and life jubilees
  • retirement benefits
  • benefits paid on the occasion of wedding or birth of a child
  • payments when an employee or his family members die

A provision amounting to the best estimate of the liability should be disclosed in the company's balance sheet. Its creation accounted for in the income statement burdens costs evenly, always in the period when the employee deserves the benefit. This procedure is in line with the accrual accounting principle.

The International Accounting Standard IAS 19 defines employee benefits for which a provision should be made, and defines its calculation. In most cases, provisions according to IAS 19 meet the definition of provisions set out in the Czech accounting regulations, and therefore should be recognized also in the Czech financial statements.

The calculation is significantly affected by the parameters selected for its calculation, in particular:

  • probability that the benefit will be paid (mortality, fluctuations)
  • time value of money

We will be happy to go through the individual benefits provided by your company and help you to choose the optimal input parameters for calculating the provision. Based on the selected parameters, we will be able to calculate the provision and prepare a report summarizing its calculation, including an overview of factors influencing the year-on-year change. Our calculation includes social and health insurance costs as required by the Czech accounting regulations, or we can adjust it to any relevant foreign legislative frameworks.