Actuarial Valuation: What is It?

Actuarial valuation under IAS 19 refers to the process of assessing the present value of future employee benefits that an organization is obligated to pay, such as pensions, end-of-service benefits, and other long-term employee benefits. This valuation is crucial for accurately reflecting the financial position of a company in its financial statements.

Key Components of Actuarial Valuation in IAS 19

1. Projected Unit Credit Method: IAS 19 mandates the use of this method, which treats each period of service as generating an additional unit of benefit entitlement. This approach helps in attributing benefits to the periods of service appropriately, ensuring that the costs are recognized in the period when the employee earns them rather than when they are paid out. In other words, rather than treating the entire amount of benefits as expense when they are paid, the expense is spread out throughout the service year of employees.

   
   

2. Actuarial Assumptions: The valuation relies on various assumptions, including discount rates, salary growth rates, mortality rates, and employee turnover. These assumptions must be unbiased and reflect the best estimates based on market conditions and relevant data. Assumptions are forward-looking in nature, and so it is important to not overly rely on historical data and blindly update the assumptions every year.

3. Recognition of Liabilities: IAS 19 requires that companies recognize a liability for employee benefits when the employee has provided service in exchange for those benefits. This includes not only pensions but also other post-employment benefits and long-term benefits like leave entitlements. In Thailand, this typically includes Legal Severance Pay and Long Service Award.

4. Financial Reporting: The results of the actuarial valuation impact both the income statement and the balance sheet, necessitating detailed disclosures in financial reports. This ensures transparency regarding the company's obligations towards its employees

Actuaries at XEL Group are not only internationally qualified but are directly involved in the actual review and delivery of clients work product. With fast turnaround time and competitive costs, we are confident to be your strong partner. Please reach out to us to find out more