Essay: Employee Benefits In Australian Companies - A Literature Review.

Instructions for Preparation of Assignment:

1. Students are required to form groups of and inform their lecturer of their group memberships from Week 4, while students that enrol late will register their groups by Week.
2. Each group will be randomly allocated a topic from Week 1 – Week 11 of the unit (refer to unit outline) by their lecturer in the class in Week 4.
3. Please note there is a change in the group assignment submission from that stated in the unit outline. There will be no in-class group presentations. All presentations are video presentations, and are due with your group’s written submission.
4. Two links will be created, one for video link and another for document link. One member from each group will submit one link for video (you can develop video and create a YouTube link for the lecturer) and another link for document submission under group assignment folder.
5. Each group will prepare a short duration slide and every member will present their part and explain their understanding. Each member to present for at least 1 minute. The duration of the presentation to be 6 - 7 minutes maximum.

You are required to prepare a report about your findings from the literature research, and discuss how it is useful for financial reporting in Australian companies. The report should cover the following:

1. An explanation of the reasons (at least 3) why your group has selected the two research articles relating to your topic.
2. An explanation of the purpose of the two studies and what research question(s) they set out to explore about the topic.
3. A discussion about the similarities and differences in the findings of the two studies.
4. For each of the two studies, provide two (2) major implications of their research findings that will be useful to inform each of the following external reporting stakeholders:
5. i) accountants in Australian companies;
6. ii) accounting regulators; andiii) one specific external user of financial reports (needs to be identified in your answer).

Article 1: Reasons for selecting

The report contains an overall study of the two journal articles selected on the topic accounting for Employee Benefits. International Accounting Standard Board has formulated a standard IAS 19 Employee Benefits which lay down some provisions requirements to be followed while accounting for all type of employee benefits. The benefits include all type of services that are provided to the employee in exchange of its services or at time of termination of employment. There are different types of benefits such as short term and long term benefits, termination benefits, post employment benefits. As per the standard, the company is require to recognize the cost of providing employee benefits in the year in which the benefit is earned by the employee.

The report studies the two journal article based on this topic named as:

• A comparative analysis for the accounting reporting of ‘employee benefits’ between IFRS and other accounting standards: a case study for the biggest listed entities in Greece.
• Discretionary accounting choices: the case of IAS 19 pension accounting.

Both of the articles are taken from American Journal of Economics and Business Administration and Accounting and Business Research respectively. The reasons for choosing them, their purpose and research question, similarities and differences in the finding and their implications all are discussed in the report. In the last, a conclusion is given which summarizes all the findings of the report.

Part A

• The main reason for selecting the article is that it provides insights about the accounting treatment done in context of Employee Benefits. It focuses on making a comparison between the accounting made as per International Financial Reporting Standards and other standards. The study takes into account the comparison between IFRS and Greek Generally Accepted Accounting Principles (GGAAP) along with IAS 19 and US Financial Accounting Standards (USFAS) 87.
• The outcomes of the article mainly focused on figuring out the right accounting for the Employee Benefits that has to be followed by the entities operating in Greece and in other parts of the world. It find put the appropriate adjustments that has to be made at time of presenting and making accounting treatment of the benefits provided to the employees in the financial statements.
• The third reason for choosing this article is that it explains in detail about the different types of benefit plans an employee can avail in accordance with IFRS and international practices. In addition, it completely addresses questions like to what extent a company should present employee benefits in its final accounts. On a whole, it focuses on the similarities and differences between the various accounting standards.

Article 2: Reasons for selecting

• One of the reasons for selecting this article is that it solely focuses on treatment of defined benefit pension plan which is one of the categories in the benefits available to the employee. It figures out the different methods used by the companies to account for the pension benefit plan.
• The article focuses on the discretionary choices selected by the stock listed companies operating in UK, France and Germany for the purpose of accounting for defined benefit pension plans in accordance with the provisions of IAS 19.
• The research conducted in context of Pension accounting provide insights about the early adoption of equity method by the companies and the choice of the companies for presenting interest cost and expected return in their operating and financial income.

Part B

Purpose and research question of both the articles are as follows:

Article 1

The main purpose of the study is to illustrate a comparative analysis between IFRS and other accounting standards in context of accounting treatment for Employee Benefits. The aim is to conduct an empirical analysis of 20 biggest listed companies in the Athens Stock Exchange (FTSE 20 index of the ASE). The objective of the study is to provide insights about the presentation of various employee benefits in the financial statements of the entities after the adoption of IFRS and specifically after the introduction of IAS 19.

The research question carried out by the article is in three phases which is as follows:

• The first phase analyzes the different benefits and benefit plans available to the employees. It sets out the question that to what extend employee benefits are presented in companies’ final accounts and how they cover and demonstrate the same for the people working in the organization.
• The second phase figures out the similarities and differences between different accounting standards used for the treatment of employee benefits. The research question is to compare the two main standards that are IAS and IFRS with the US GAAP.
• Third phase provides the outcome of applying IFRS in Greece and identifies the issues arising from the implementation of IAS 19 on the 20 selected companies.

Article 2

The goal of conducting this research is to known about the manner in which listed companies in UK, France and Germany uses the two discretionary choices in context of accounting for defined benefit pension plans under IAS 19.

The research question set out by the article is to analyze the decision of voluntarily adopting the equity method early for accounting the actuarial gains/losses. Another question addressed was to evaluate the choice of companies to reflect net pension interest cost in operating and financial income.

Part C

Similarities in the findings

The main factor which contributed to the similarity in finding of both the articles is that they include the analysis of the listed companies from different countries. The findings of both the articles suggested that companies should properly follow the IAS requirements and adopt IFRS for accounting of employee benefits. It is stated that whether they adopt equity method for pension accounting or present interest cost in income statement, the firms has to follow the proper procedure and work in the legal framework of IFRS. It has been suggested that IFRS brings more transparency and shows greater prudence and has been adopted by many entities.

The findings of article one were based on the comparison done for IFRS and other standards while on the other side article two’s findings were only focused on the pension accounting and benefit plans. Moreover, the sample size and methodology adopted of both the studies was also different which bring a major change in their findings. Overall, findings of article one covers the whole requirements of Employee Benefits whereas article two was only focused on two options selected by the companies of limited countries for accounting the defined benefit pension plans.

Part D

Accountants in Australian companies

• The accountants will get aware about the fact that adoption of IFRS will be more suitable for treating the employee benefits under IAS 19.
• It provide insights to the accountants about the fact that IFRS gives more transparency and more prudence by not allowing the surpluses to be shown in financial statements and quickly recognizing the actuarial losses.

Accounting regulators

• The article make them aware about the IFRS adjustments or amendments made in 2011 which forecasted the curtailment or element of employee benefits plans due to the financial crisis happened at that time.
• Another implication on regulators is that they need to analyse the provision made by the Greek companies for employee benefits.

Investors

• Being the external stakeholder, the article allows the investors to know about the accounting treatment used by the listed companies for their employee benefits.
• Another implication will be the fact that in what manner the IFRS adjustments have impacted the financial position of Greek companies.

Accountants in Australian companies

• The accountants get to know about the fact that the adoption of equity method may allow the companies to reduce their pension liabilities in balance sheet or pension cost in income statement. It was also stated that many companies adopted this method.
• It was found out that the companies operating in France, Germany and UK present both the pension interest costs and expected return on plan assets as per the argument of IASB.

Accounting regulators

• The article provides insights to the regulators that both the discretionary choices adopted by the entities for pension accounting are in the legal framework as stated by IASB and in accordance with the provisions of IAS 19.
• Regulators came to know that as the equity method become mandatory in 2013 but many of the motivated companies used it early in order to have significant advantages of the method.

Investors

• Being an external stakeholder, the investors get aware about the methods used by the entities working in France, UK and Germany for accounting pension benefit of their employees.
• The article also make them aware about the fact that the entities do disclose the two pension cost components which are declared financial in nature by IASB, thus providing fair view of its statements.

Conclusion

The above report concludes that it is very important for the entities to follow a proper procedure and requirements while accounting for employee benefits. The studies highlighted the fact that adoption of IFRS is more suitable for conducting an accounting treatment of the benefits available to the employees. Further, the choices adopted by the companies for pension accounting are also appropriate and as per the IASB guidelines. Overall, it can be concluded that proper guideline of international reporting standards and IAS 19 should be followed while the employee benefits are accounted.  

References

Glaum, M., Tobias Keller  and Donna L. Street, “Discretionary accounting choices: the case of IAS 19 pension accounting”, Accounting and Business Research, Vol. 48, No. 2 (2017): 139-170.

Liapis, K. and El Thalassinos, “A Comparative Analysis for the Accounting Reporting of “Employee Benefits” between IFRS and other Accounting Standards: A Case Study for the Biggest Listed Entities in Greece”, International Journal of Economics and Business Administration, Vol. 1, No. 1 (2013): 91-116.

IAS (2018). “IAS 19 – Employee Benefits”, [Online]. https://www.iasplus.com/en/standards/ias/ias19