Applicability of AS 15 - Employee Benefits to Companies

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The scheme for applicability of Accounting Standards to Company shall come into effect in respect of accounting periods commencing on or after April 1, 2021. They need to follow Accounting Standards as per Companies (Accounting Standards) Rules, 2021, as issued by MCA.

Key questions we need to ask to check for compliance/ requirement of Actuarial Valuation in case of companies (irrespective of turnover limit):
1. Gratuity Whether the employee count is 10 or more at any time in the company (irrespective of turnover of the company)? : if the answer is Yes Actuarial Valuation Provision for Gratuity is mandatory as per AS 15, as the Gratuity Act applies and this is a Defined benefit post-employment as per AS15.

2. Leave: Whether leave is allowed to carry forward for more than 12 months after the balance sheet date(irrespective of employee count/ turnover of the company)? : if the answer is Yes Actuarial Valuation Provision or Leave is mandatory as per AS 15, as this is Other long-term employee benefit plan as per AS15. This is required even for sick leave if allowed to carry forward even if encashment is not allowed.
In case of companies, if they are SMC, only exemption is w.r.t. detailed Disclosures but accounting provision isstill required as per Actuarial valuation following Projected Unit Credit Method (PUCM). As given in below screenshot of AS 15.

In case Detailed disclosures are exempted for SMC, such a company should actuarially determine to provide for the accrued liability in respect of defined benefit plans as follows:
- The method used for actuarial valuation should be the Projected Unit Credit Method; and
- The discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard.

An SMC which avails the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an SMC and that it has complied with the AccountingStandards insofar as they are applicable to SMC on the following lines:
The Company is a Small and Medium Sized Company (SMC) as defined in the Companies(Accounting Standards) Rules, 2021 notified under the Companies Act, 2013. Accordingly, the company has complied with the Accounting Standards as applicable to a Small and Medium Sized.

The Payment of Gratuity Act, 1972 is applicable to all entities employing 10 or more employees, they should make provision as per AS 15 as post-employment benefit obligation. In the case of a Non-company (LLP, partnership, proprietor, Trust etc), it is required if level 1/2/3entity i.e. "turnover 10 cr+ or borrowing 2 cr+" and "employees 50+".

Leave Provisions are governed by the respective state's Shop Establishment Act, most of them allow for carrying forward of leave and encashment on separation. They should make provision of leave as per AS 15 as other long-term benefit obligations.

In case Actuarial Valuation is exempted for a specific class of entities, such entities may calculate and account for the accrued liability under the defined benefit plans by reference to some other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year.

Level IV, Level III and Level II entities are referred to as Micro, Small and Medium size entities(MSMEs). An MSME which avails the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an MSME, the Level of MSME and that it has complied with the Accounting Standards insofar as they are applicable to entities falling in Level as the case may be.

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