*Source SNG Grant Thornton
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New employee benefits and termination benefits
In response to the COVID-19 pandemic, some entities are providing additional benefits to their employees such as:
• paying them during a temporary shutdown of their operations, or while they are sick or in mandatory quarantine; and/or
• providing other compensation to assist employees with working remotely.
If an entity decides to provide new benefits to its employees (ie those that were not previously offered), it must determine how to account for the benefits. The financial support or benefits offered to employees will likely meet the definition of a liability; therefore, an entity will need to consider when to recognise the liability/expense and how it should be measured.
The entity must first determine whether the benefits provided are a result of past service or if they will be provided as services are rendered because that will impact when the liability is recognised. The specific guidance in IAS 19 ‘Employee Benefits’ must be considered when making this determination. Generally, a liability is incurred once a past transaction has occurred and the entity has lost the discretion to avoid the obligation.
Furthermore, as a result of difficult economic conditions, some entities have or will downsize their workforce. If the entity offers or is required to pay termination benefits to the affected employee(s), management must consider how and when to account for the liability/expense in accordance with IFRS.