Thailand Enters New Era in Accounting for Employee Benefits

Companies in Thailand are being urged to consult with their auditor and seek advice of an actuarial consultant to ensure they are aware and prepared for any possible change with the implementation of the TAS19 standard.


The TAS19 standard, which became effective for companies’ financial reporting starting on or after 1 January 2011, covers all forms of employee benefits including: short-term benefits, post-employment benefits, long-term employee benefits, and termination benefits.


"It is the accounting for Post-employment benefits and Other long-term employee benefits that sees the greatest changes through TAS 19 with the introduction of actuarial calculations and accruals accounting for Publically Accountable Entities (PAEs)," says Towers Watson in a release.


According to the global professional services company, most companies in Thailand have accounted for the cost of Retirement Benefit schemes in their financial statements on a cash cost basis, showing an expense in the year an actual benefit payout is made and not holding any reserve/liability on their balance sheet.


A few Thai companies were following a simplified accrual approach but rarely using actuarial techniques to assess such liabilities. The use of actuarial valuations was usually only applied by companies who were required to report to an overseas parent company.


Under TAS19, the accounting framework for defined benefit retirement benefit schemes (including Legal Severance Payment Plans) changes significantly. TAS19 introduces the need for all public companies to account for long term employee benefits on an accruals basis and through the recognition of liabilities on their balance sheet calculated using actuarial techniques.


But it’s not just a change in the way expenses and liabilities are measured, the disclosure requirements have been significantly enhanced. This includes reconciliation of the opening and closing balances of the assets (note that most plans in Thailand do not have assets and are therefore unfunded) and liabilities, the elements of P&L Expense as well as details of anything recognized in the Other Comprehensive Income (OCI).


"The objective of TAS19 is to allocate costs to accounting periods in which employees' render services – accruals concept," says Towers Watson.


The actuarial assumptions and the methodology for such valuations have also been prescribed in the standard. The enhanced disclosures will improve transparency and enable consistent comparison of financial statements between different companies.


The role of the actuary has become vital now, not just to calculate the actuarial valuation of the liability in respect of the employee benefit plans, but more so to ensure appropriate assumptions are used and to fully understand the new disclosures, notes Towers Watson.


Towers Watson adds that companies should take great care over ensuring appropriate assumptions are used in the actuarial calculations – this is where the use of an experienced actuarial consultant can help immensely, by carefully analyzing the past experience of the company for salary increases and employee turnover, by considering past trends for Thai industry, and by considering macro economics – all to determine a best estimate for the future.


"Appropriate choice of the assumptions will help reduce volatility in the company’s balance sheet liabilities and annual expense," notes Towers Watson.




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