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Accounting Standard AASB 1028June 2001

Employee Benefits


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AASB 1028 2

Obtaining a Copy of this Accounting Standard

Copies of this Standard are available for purchase from the AustralianAccounting Standards Board by contacting:

The Customer Service OfficerAustralian Accounting Standards BoardLevel 3530 Collins StreetMelbourne Victoria 3000

AUSTRALIAPhone: (03) 9617 7637Fax: (03) 9617 7687E-mail: [email protected] site: www.aasb.com.au

Other enquiries:

Phone: (03) 9617 7600Fax: (03) 9617 7608E-mail: [email protected]

COPYRIGHT

2001 Australian Accounting Standards Board. The copying of thisStandard is only permitted in certain circumstances. Enquiries should bedirected to the Australian Accounting Standards Board.

ISSN 1036-4803


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AASB 1028 3 CONTENTS

CONTENTS

MAIN FEATURES OF THE STANDARD page 5

Section and page number

1 Application 7

2 Operative Date 8

3 Purpose of Standard 9

4 Recognition 9Liabilities and Expenses Arising in Respect

of Employee Benefits 9Wages and Salaries, including Non-

Monetary Benefits 11Compensated Absences 13

Annual Leave 14Sick Leave 14

Long Service Leave 15Profit Sharing and Bonus Plans 16Termination Benefits 18

Liabilities for Termination BenefitsRecognised as a Part of anAcquisition of an Entity orOperation 20

Post-Employment Benefits 24Assets and Revenues Arising in Respect of

Employee Benefits 24Recognition on a Net Basis 25

Revenues and Expenses 25Assets and Liabilities 26

Non-Recognition of Assets andLiabilities 26

5 Measurement 27Nominal Basis of Measurement 27Present Value Basis of Measurement 28Discount Rate 28


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AASB 1028 4 CONTENTS

6 Disclosures 30The Nature and Terms of Employee Benefit

Arrangements 30Details of Amounts Recognised in

the Financial Statements 31Equity-Based Compensation Benefits 31

Equity-Based Instruments at theBeginning of the ReportingPeriod 32

Equity-Based InstrumentsGranted/Distributed During the

Reporting Period 33Share Options and other Equity-

Based Instruments ExercisedDuring the ReportingPeriod 35

Share Options and other Equity-Based Instruments Lapsed Duringthe Reporting Period 36

Equity-Based Instruments at the Endof the Reporting Period 36

Superannuation 407 Transitional Arrangements 41

8 Definitions 42

APPENDIX 1A Summary of Disclosure Requirements for Equity-

Based Compensation Benefits 50

APPENDIX 2An Illustration of Disclosure Requirements for Equity-

Based Compensation Benefits 52

CONFORMITY WITH INTERNATIONAL AND NEW

ZEALAND ACCOUNTING STANDARDS 56BACKGROUND TO REVISION 59

Defined words appear in italics each time they appear. Thedefinitions are in Section 8. Standards are printed in bold typeand commentary in light type.


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AASB 1028 5 FEATURES

MAIN FEATURES OF THE STANDARD

The Standard:

(a) prescribes general recognition criteria for employee benefits(excluding certain equity-based compensation benefits, and post-employment benefits that are superannuation or medical benefits).In addition to prescribing general recognition criteria, the Standardprescribes specific recognition criteria for wages and salaries(including non-monetary benefits), compensated absences, profit

sharing and bonus plans (including certain equity-basedcompensation benefits), termination benefits and certain post-employment benefits;

(b) requires liabilities that arise in respect of wages and salaries(including non-monetary benefits), annual leave, and sick leave(regardless of whether they are expected to be settled within 12months of the reporting date) and other employee benefits expectedto be settled within 12 months of the reporting date to be measuredat their nominal amounts;

(c) requires employee benefit liabilities (other than wages and salaries,annual leave and sick leave) expected to be settled more than12 months after the reporting date to be measured at present value;

(d) requires the market yields on national government bonds to be usedin determining the present value of employee benefit liabilities; and

(e) requires disclosures to be made about:

(i) liabilities and assets that are a consequence of employingemployees;

(ii) defined benefit superannuation plans;

(iii) equity-based compensation benefits; and

(iv) the nature and terms of arrangements under whichemployees are offered an opportunity to acquire equity inthe employer and thereby derive a benefit, directly or

indirectly, by virtue of the employer/employee relationship,not otherwise specifically required to be disclosed by theStandard.

In relation to the disclosures required for equity-based compensationbenefits, the Standard requires disclosure of details about equity-


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AASB 1028 6 FEATURES

based instruments, including share options or other similar rights(such as performance rights), granted as employee compensationduring a reporting period and, as at each subsequent reporting date,details about the instruments that remain unexercised. Disclosure isrequired of the fair value of vested fully-paid shares issued by anemployer to equity-based compensation plans or to employees ordistributed by equity-based compensation plans to employees.

Future Action

The Standard does not yet require the fair value of share options or

other similar rights granted to be disclosed. This will be reviewedby the Australian Accounting Standards Board in light of theoutcome of the forthcoming proposed Standard on Director andExecutive Disclosures, which will address the disclosure of the fairvalue of such instruments. This will include consideration of thedate (or dates) at which fair value should be determined (forexample grant date and/or vesting date) and disclosed. It is likelythat amendments will be made to the Standard arising from theforthcoming Director and Executive Disclosures Standard.


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AASB 1028 7

ACCOUNTING STANDARD AASB 1028

The Australian Accounting Standards Board makes Accounting StandardAASB 1028 Employee Benefits under section 334 of the CorporationsLaw.

F.K. AlfredsonDated 28 June 2001 Chair AASB

ACCOUNTING STANDARD

AASB 1028 EMPLOYEE BENEFITS

1 Application

1.1 This Standard applies to:

(a) each entity that is required to prepare financial reportsin accordance with Part 2M.3 of the Corporations Lawand that is areporting entity;

(b) general purpose financial reports of each otherreporting

entity; and

(c) financial reports that are, or are held out to be,generalpurpose financial reports.

1.1.1 The standards specified in this Standard apply to the financial reportwhere information resulting from their application is material inaccordance with Accounting Standard AASB 1031 and AustralianAccounting Standard AAS 5 Materiality.

1.2 This Standard prescribesrecognition requirements for allemployee benefits other than:

(a) equity-based compensation benefits that will be settledwith equity instruments of the employer;

(b) equity-based compensation benefits that may, as opposedto will, be settled with equity instruments of theemployer, but only until a decision is made thatemployees will not receive equity instruments of theemployer; and


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(c) post-employment benefits that are superannuation ormedical benefits.

1.2.1 The definition ofequity-based compensation benefits inparagraph 8.1 includes employee benefits where the amount of thebenefits depends on the future value ofequity instruments of theemployer, even ifequity instruments will not be issued to employees(for example, whether due to the nature of the entity or there is noprovision in the arrangement with the employee for equityinstruments to be issued). This Standard treats equity-basedcompensation benefits where equity instruments of the employerwill

not be issued as profit sharing or bonus plans. This Standardprescribes recognition requirements for such benefits (seeparagraphs 4.5 to 4.6.5). In circumstances where equity-basedcompensation benefits may be settled with either equity instrumentsof the employeror other compensation in lieu, this Standard doesnot prescribe recognition requirements. However, when it is knownthat such benefits are not to be settled with equity instruments of theemployer, they are treated in the same manner as profit sharing orbonus plans. The disclosure requirements in paragraphs 6.3 to 6.9of this Standard apply to all types ofequity-based compensationbenefits, including where they are treated as profit sharing or bonusplans.

2 Operative Date2.1 This Standard applies toannual reporting periods beginning on

or after 1 July 2002.

2.2 This Standard may be applied toannual reporting periodsbeginning before 1 July 2002. An entity that is required toprepare financial reports in accordance with Part 2M.3 of theCorporations Law may apply this Standard toannual reportingperiods beginning before 1 July 2002, where an election has beenmade in accordance with subsection 334(5) of the CorporationsLaw.

2.3 When applied or operative, this Standard supersedes:

(a) Accounting Standard AASB 1028 Accounting forEmployee Entitlements as approved by noticepublished in Commonwealth of Australia GazetteNo. S 106 on 29 March 1994; and


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(b) Australian Accounting Standard AAS 30 Accountingfor Employee Entitlements as issued in March 1994.

2.3.1 Notice of this Standard was published in the Commonwealth ofAustralia Gazette on 29 June 2001.

3 Purpose of Standard

3.1 The purpose of this Standard is to:

(a) prescriberecognition and measurement requirementsfor employee benefits, other than certain equity-basedcompensation benefits, andpost-employment benefitsthat are superannuation or medical benefits; and

(b) require specific disclosures to be made in relation toemployee benefits, including equity-based compensationbenefits, andpost-employment benefits that are inrespect of defined benefit superannuation plans.

4 Recognition

Liabilities and Expenses Arising in Respect of

Employee Benefits

4.1 Subject to paragraph 4.16, liabilities and expenses arising inrespect ofemployee benefits must berecognisedwhen, and onlywhen:

(a) they are capable of being measuredreliably; and

(b) in respect of:

(i) expenses, it is probable that the consumption orloss of future economic benefits has occurred;and

(ii) liabilities, it is probable that settlement will berequired.

Paragraphs 4.2 to 4.12 must be applied in implementing theaboverecognition criteria to particular types ofemployeebenefits.


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4.1.1 As an employerconsumes employees services, an obligation tocompensate employees for those services arises. Consequently, anexpense of the employerarises unless the amounts qualify forrecognition as assets (see paragraphs 4.1.6 and 4.2(b)). Theseobligations will normally result in either cash outflows in the currentreporting period or, if they remain unpaid, liabilities of theemployer.

4.1.2 Liabilities arising in respect ofemployee benefits need not arisesolely from legal obligations. Liabilities arising from equitable orconstructive obligations may also qualify for recognition. For

example, an employers long service leave liability usuallycomprises both legal and constructive components, as discussed inparagraphs 4.4.9 and 4.4.10.

4.1.3 Costs that are a consequence of employing employees, but which arenot employee benefits, such as payroll tax and other similar on-costs,are recognisedas liabilities and expenses when the employeebenefits to which they relate are recognisedas liabilities andexpenses. For example, where the settlement ofemployee benefitliabilities, such as long service leave, gives rise to the payment ofemployment on-costs, such as payroll tax and workerscompensation insurance, a liability is recognisedfor those on-costsas well as for the employee benefits.

4.1.4 Liabilities arising in respect ofemployee benefits are recognisedwhen it is probable that settlement will be required and when theliabilities can be measured reliably. Liabilities that involve multipleindividual employee claims with differing probabilities ofsettlement, such as long service leave, are generally considered on agroup basis, rather than on the basis of individual claims.

4.1.5 Clarification of the application of the general recognitionrequirements specified in paragraph 4.1 for liabilities arising inrespect ofemployee benefits in the form of wages and salaries(including non-monetary benefits), compensated absences, profitsharing and bonus plans (including certain equity-basedcompensation benefits), termination benefits andpost-employmentbenefits is provided in paragraphs 4.2 to 4.12.

4.1.6 Some employee benefits that are paid or become payable during areporting period may give rise to future economic benefits and thusare recognisedas assets rather than as expenses. For example,consistent with Accounting Standard AASB 1019 and AustralianAccounting Standard AAS 2 Inventories and AccountingStandard AASB 1015 and Australian Accounting Standard AAS 21Acquisitions of Assets the cost ofemployee benefits such as


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wages and salaries incurred in producing inventories or other assetsis included when determining the cost of the inventories or otherassets. This is because employee costs associated with inventoriesor other assets represent part of the cost of acquiring the futureeconomic benefits embodied in those assets. The consumption ofthe future economic benefits associated with the inventories or otherassets, and therefore the expense, will not occur until the inventoriesor other assets are sold or otherwise consumed.

4.1.7 Where the entity has paid an amount to employees that exceeds theentitlement for services rendered to date by the employees, the

excess represents future economic benefits controlled by the entitythat is recognisedas an asset(prepaid expense) in accordance withparagraph 4.13. This assetrepresents a prepayment that will lead toa reduction in future payments or a cash refund.

Wages and Salaries, including Non-MonetaryBenefits

4.2 When an employee has rendered service to the entity during areporting period, the entity mustrecognise the amount of wagesand salaries, including non-monetary benefits, expected to besettled in exchange for that service:

(a) as a liability, after deducting any amount already paid;

and

(b) as an expense, unlessrecognisedas part of the carryingamount of anasset in accordance with anotherAccounting Standard or an Australian AccountingStandard.

4.2.1 Wages and salaries (including components of a wage or salarypackage, such as payments by the employerof an employeespersonal costs and the related fringe benefits tax) arising from theservices rendered by employees during the reporting period wouldgenerally satisfy the recognition criteria and would be recognisedasexpenses unless they satisfy the recognition criteria for assets. Thisis because they are capable of being measured reliably and becauseemployees obtain their entitlement to wages and salaries as they

provide their services.

4.2.2 An employermay provide employee benefits in the form of non-monetary benefits. Such benefits may take the form of payment ofhealth insurance premiums, housing, motor vehicles, and free orsubsidised goods or services (for example, interest free or subsidised


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loans, including such loans that are associated with equity-basedcompensation arrangements). In most circumstances, employeesrights to non-monetary benefits do not accrue in proportion to theirperiods of service and do not accumulate. Usually, the right toreceive those benefits in each period exists irrespective of theduration of service provided by employees. In such circumstances,an employerrecognises the cost associated with providing thebenefits in the period during which the benefits are taken byemployees. The amount of cost is determined on the basis of the netmarginal cost (if any) to the employerof the benefits provided. Aliability is not recognisedfor any non-accumulating benefits that theemployees do not take during the period.

4.2.3 In other circumstances, employees entitlements to non-monetarybenefits may accrue in proportion to periods of service and/oraccumulate over a number of reporting periods. To the extent thatemployees entitlements to non-monetary benefits are accumulatingand have not been settled, those benefits satisfy the definition ofliabilities. In such cases, the amount recognisedas liabilities isdetermined on the basis of the net marginal cost (if any) to theemployerof the benefits expected to be provided. This requiresemployers to recognise as expenses (unless recognisedas part of thecarrying amount of an assetin accordance with another AccountingStandard or an Australian Accounting Standard) accumulating non-monetary benefits in the reporting periods during which employeesaccumulate those benefits and not in the reporting periods duringwhich the benefits are taken.

4.2.4 Where goods or services have been purchased from other entities,the net marginal cost will be the cost of the acquired goods orservices less any amount expected to be paid or payable byemployees. For example, if a retailer (employer) has a presentobligation to provide discounted merchandise to employees as aresult of their service to date, the amount recognisedas liabilities isthe expected cost of the goods to the employerless any amountexpected to be paid by employees for those goods. In respect ofbenefits such as low-interest or interest-free loans to be provided toemployees, the amount recognisedas liabilities is based on theexpected marginal cost to the employerof borrowing those funds,less the expected interest charged to employees. Where goods or

services that the employerproduces or manufactures (for example,motor vehicles) are to be sold to employees at a discount, theamount recognisedas liabilities is based on marginal productioncosts less amounts expected to be paid or payable by employees.


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Compensated Absences

4.3 A liability for employee benefits in the form of compensatedabsences must berecognisedwhen, and only when:

(a) in the case of accumulating compensated absences,employees render service that entitles them to futurecompensated absences; or

(b) in the case of non-accumulating compensated absences,the absences occur.

4.4 The liability for accumulating compensated absences must bebased on the amount that the entity expects to pay in futurereporting periods as a result of the unused entitlement that hasaccumulated as at thereporting date.

4.4.1 Compensated absences may include compensation paid or payablein respect of absence for various reasons including annual leave,sickness, short-term disability, maternity or paternity, sabbatical andlong service. Entitlement to compensated absences falls into twocategories: accumulating and non-accumulating.

4.4.2 Accumulating compensated absences are those that are carriedforward and can be used in future periods if the current periods

entitlement is not used in full. Accumulating compensated absencesmay be either vesting (that is, employees are entitled to a cashpayment for unused entitlement on leaving the entity) or non-vesting(that is, employees are not entitled to a cash payment for unusedentitlement on leaving the entity). An obligation arises as employeesrender service that increases their entitlement to future compensatedabsences. The obligation exists, and is recognised, even if thecompensated absences are non-vesting, although the possibility thatemployees may leave before they use an accumulated non-vestingentitlement affects the measurement of that obligation.

4.4.3 Non-accumulating compensated absences are not carried forward.They lapse to the extent that the entitlement is not used in the periodand do not entitle employees to a cash payment for unusedentitlement on leaving the entity (that is, they are non-vesting). This

may be the case for sick leave and maternity or paternity leave. Anentity does not recognise a liability until the time of the absence,because employee service does not increase the amount of thebenefit.


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Annual Leave

4.4.4 Unpaid entitlements to annual leave (including annual leaveloading) arising from services rendered by employees during thereporting period generally satisfy the criteria for recognition asliabilities specified in paragraphs 4.1 and 4.3. This is because theyare capable of being measured reliably and because employeesobtain their entitlement to annual leave as they provide their service.

Sick Leave

4.4.5 Sick leave entitlements can be categorised as either vesting or non-vesting. Vesting sick leave entitlements accumulate and vest(whether by agreement or custom) in a similar manner to annualleave entitlements. Unpaid vestedsick leave entitlementsaccumulated by employees during the reporting period satisfy thedefinition ofliabilities, since the employerwill have consumedemployees services during the reporting period and entitlementsaccumulate with the provision of those services. Thus, vesting sickleave is of the same nature as annual leave.

4.4.6 Non-vesting sick leave entitlements may accumulate in a mannersimilar to annual leave entitlements, but do not vestand are paidonly upon a valid claim for sick leave by an employee.

4.4.7 In measuring the liability to be recognisedfor non-vestingaccumulating sick leave, only that component of the entitlementsaccumulated as at the reporting date that is expected to result inpayments to employees is recognisedas a liability. This is becausenot all accumulated non-vesting entitlements will result in paymentsbeing made by the employer.

4.4.8 Non-vesting accumulating sick leave entitlements are normallymeasured on a group basis, rather than on the basis of individualemployees. Where experience indicates that, on average, sick leavetaken each reporting period is less than or equal to the entitlementaccruing in that period, and this experience is expected to recur infuture reporting periods, it is improbable that existing accumulatedentitlements will be used by employees. Unused entitlements giverise to a recognisedliability only when it is probable that sick leave

taken in the future will be greater than entitlements that will accruein the future.


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Long Service Leave

4.4.9 Whilst differences exist between the various Acts, Awards andWorkplace Agreements specifying long service leave entitlements inAustralia, the following entitlement categories are common:

(a) an unconditional legal entitlement to payment arises after aqualifying period of service (usually ten or fifteen years).Accumulation of long service leave entitlement continuesafter this point, until the leave is taken. This entitlement istermed the unconditional entitlement category in thisStandard;

(b) in certain circumstances (for example, death, retrenchment,or early retirement under some Awards), a legal entitlementto pro rata payment in lieu of long service leave arises(sometimes only after a qualifying period of service). Thisentitlement is termed the conditional entitlementcategory in this Standard; and

(c) no legal entitlement to any payment or leave exists beforethe accumulation of the period of service necessary toqualify for the entitlement described in (a) or (b) above.This entitlement is termed the pre-conditional entitlementcategory in this Standard.

At any point in time, an employercould have employees in morethan one of the above categories.

4.4.10 To the extent that it is probable that long service leave entitlementsaccumulated by employees in the unconditional, conditional and pre-conditional entitlement categories during the reporting period willresult in cash outflows by an employerin future reporting periods,they satisfy the criteria for recognition of a liability. The employerhas consumed employees services during the period and theentitlement accumulates with the provision ofemployees services.

4.4.11 It will often be possible for employers to estimate the present valueof the future cash outflows associated with their long service leaveliabilities by using short-hand measurement techniques. For

example, experience may indicate that accrual of an employers longservice leave liability based on remuneration rates current as at thereporting date for all employees with five or more years of serviceprovides an estimate of the long service leave liability not materiallydifferent from the estimate determined by using the present valuebasis of measurement and detailed group-based estimates.


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4.4.12 Whilst most employers provide long service leave benefits toemployees directly, some employers participate in industry-basedlong service leave schemes. Where an employerhas an obligation tocontribute to any funding shortfalls of such a scheme, that obligationsatisfies the definition ofliabilities. This is because the employerhas a present obligation to make future cash outflows as a result ofthe long service leave scheme arrangements. Accordingly, anemployers obligations to industry-based long service leave schemesare recognisedas a liability of the employer.

4.4.13 Some industry-based long service leave schemes operate so thatemployers directly meet their long service leave obligations toemployees, and subsequently receive reimbursement from thescheme for all or part of the payments made to employees. In suchcases, consistent with the requirements of paragraphs 4.3 and 4.13,employersrecognise separately as liabilities the amount of paymentsexpected to be made to employees and as assets the amountexpected to be reimbursed by the scheme (see alsoparagraph 4.15.2).

Profit Sharing and Bonus Plans

4.5 A liability for employee benefits in the form of profit sharing andbonus plans must berecognisedwhen, and only when:

(a) the entity has no realistic alternative but to settle theliability; and

(b) the amount of the liability is capable of being measuredreliably in accordance with paragraph 4.6.

4.6 A liability for employee benefits in the form of profit sharing andbonus plans is capable of being measuredreliably when, andonly when, at least one of the following conditions is met:

(a) there are formal terms in the plan for determining theamount of the benefit;

(b) the entity determines the amounts to be paid before thetime of completion of the financial report; or

(c) past practice gives clear evidence of the amount of theentitys obligation.

4.6.1 Under some profit sharing plans, employees receive a share of theprofit only if they remain with the entity for a specified period ormeet other criteria during subsequent periods. Such plans create a


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constructive obligation as employees render service that increasesthe amount to be paid if they meet those criteria. The measurementof such constructive obligations reflects the probability that someemployees may leave without receiving part or all of the profitsharing payments.

4.6.2 The entity may have a practice of paying bonuses, even though itmay have no legal obligation to do so. In such cases, the entity has aconstructive obligation because the practice of paying bonusescreates an expectation that bonuses will be paid in the future. Themeasurement of the constructive obligation reflects the probability

that some employees may leave without receiving part or all of thebonus.

4.6.3 An obligation under profit sharing and bonus plans results fromemployee service and not from a transaction with the entitysowners. Therefore, the entityrecognises the cost of profit sharingand bonus plans as an expense rather than as a distribution of profit.

4.6.4 Consistent with paragraph 1.2, profit sharing and bonuses that areequity-based compensation benefits:

(a) that will be settled with equity instruments of the employer;or

(b) that may, as opposed to will, be settled with equityinstruments of the employer, but only until a decision ismade that employees will not receive equity instruments ofthe employer,

are not required to be recognisedby this Standard. In contrast,profit sharing and bonuses that are other types ofequity-basedcompensation benefits, some of which are commonly referred to asstock appreciation rights, phantom schemes or shadow schemes aresubject to paragraphs 4.5 and 4.6. Disclosures about profit sharingand bonuses that are equity-based compensation benefits are madein accordance with paragraphs 6.3 to 6.9.

4.6.5 Section 5 of this Standard specifies measurement requirements foremployee benefit liabilities, including liabilities arising from profit

sharing and bonus plans. The measurement ofequity-basedcompensation benefits that will not be settled with equityinstruments of the employeris based on expected future cashoutflows, which requires an estimate to be made of the futureincrease in the price ofequity instruments of the employer. Wherereliable estimates of future increases are not available, the


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measurement of the liability is based on the price of the equityinstrumentof the employerat the end of the reporting period.

Termination Benefits

4.7 A liability and an expense fortermination benefits exist when,and only when, the entity is presently obliged to provide benefitsthat relate to either:

(a) terminating the employment of an employee or group ofemployees before the normal retirement date; or

(b) providingtermination benefits in accordance with avoluntary redundancy scheme.

4.8 Except for liabilities fortermination benefits that arise underparagraph 4.9 and qualify forrecognition under paragraphs4.10(a)(ii) and 4.10(b), an entity is presently obliged to provide termination benefitswhen, and only when, the entity has:

(a) developed a detailed formal plan for the terminationsidentifying at least:

(i) the location, function, and approximatenumber ofemployees who will be compensated

for terminating their services;

(ii) thetermination benefits for each jobclassification or function; and

(iii) when the terminations will occur; and

(b) raised a valid expectation in those employees affectedthat it will carry out the terminations.

4.8.1 The entity may be committed, by legislation, by contractual or otheragreements with employees or their representatives or by aconstructive obligation based on business practice, custom or adesire to act equitably, to make payments (or provide other benefits)to employees if it terminates their employment. Such payments are

termination benefits. Termination benefits are typically lump-sumpayments, but sometimes also include:

(a) an enhancement of retirement benefits or of otherpost-employment benefits, either directly or indirectly, throughan employee benefitplan; and


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(b) salary until the end of a specified notice period duringwhich the employee renders no further service that provideseconomic benefits to the entity.

4.8.2 In some jurisdictions, some employee benefits are payable regardlessof the reason for the employees departure. The payment of suchbenefits is certain (subject to any vesting or minimum servicerequirements) but the timing of their payment is uncertain.Although such benefits may be described as termination benefitsor termination gratuities, they arepost-employment benefits , ratherthan termination benefits, and the entity accounts for them aspost-employment benefits (see paragraph 4.12). Some entities provide alower level of what they refer to as termination benefit forvoluntary termination at the request of the employee (in substance, apost-employment benefit) than for involuntary termination at therequest of the entity. Only the additional benefit payable oninvoluntary termination is a termination benefit.

4.8.3 Termination benefits do not provide the entity with future economicbenefits and are recognisedas an expense when the presentobligation to provide them to employees arises.

4.8.4 Evidence that the entity has raised a valid expectation in thoseemployees affected that it will carry out terminations would beprovided, for example, by starting to implement the termination planor notifying employees (or their representatives) that their serviceswill be terminated. A public announcement of a detailed plan toterminate the employment ofemployees by itself constitutes aconstructive obligation only if it is made in such a way and insufficient detail (that is, setting out the main features of the plan)that it gives rise to valid expectations ofemployees (or theirrepresentatives) that the entity will carry out the terminations.

4.8.5 For a termination plan to give rise to a present obligation whencommunicated to those employees affected by it, its implementationis scheduled to begin as soon as possible and to be completed in atimeframe that makes significant changes to the plan unlikely. If itis expected that there will be a long delay before the terminationsbegin or that the termination plan will take an unreasonably longtime, it is unlikely that the plan will raise a valid expectation on the

part ofemployees that the entity is at present committed to theterminations, because the timeframe allows opportunities for theentity to alter its decisions.

4.8.6 A decision of the entitys management or governing body toterminate employees made before a particular date does not give rise


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to a constructive obligation at that date unless the entity has, beforethat date:

(a) started to implement the termination plan; or

(b) announced the main features of the termination plan tothose employees affected by it in a sufficiently specificmanner to raise a valid expectation in them that the entitywill carry out the terminations.

4.8.7 When the entity starts to implement a termination plan, or

announces its main features to those employees affected, betweenthe reporting date and the time of completion of the financial report,disclosure of this event may be required under Accounting StandardAASB 1002 and Australian Accounting Standard AAS 8 EventsOccurring After Reporting Date.

4.8.8 Although a constructive obligation is not created solely by amanagement or governing body decision, a present obligation mayresult from earlier events together with such a decision. Forexample, negotiations with employee representatives for terminationpayments may have been concluded subject only to approval by theentitys management or governing body. Once that approval hasbeen obtained and communicated to the other parties, the entity hasa constructive obligation with respect to termination benefits, if theconditions in paragraph 4.8 are met.

4.8.9 For some entities, the ultimate authority is held by a supervisoryboard the membership of which includes representatives of externalparties (for example, employees). Because a decision by such aboard involves communication to these representatives, it may resultin a constructive obligation to provide termination benefits.However, if further consultations or major modifications to the planare likely to be subsequently required, it is unlikely that the entityhas a present obligation. If significant changes are possible, forexample, as a result of the outcome of further negotiations, the entitydoes not have a constructive obligation in respect of a specifictermination plan.

Liabilities for Termination Benefits Recognised as a

Part of an Acquisition of an Entity or Operation

4.9 Fortermination benefits relating to employees of an acquiredentity or operation that arise as a consequence of the acquisition,a liability fortermination benefits exists as at the date ofacquisition when, and only when, the acquirer has:


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(a) at, or before, the date of the acquisition, developed themain features of a plan that relates to compensatingemployees of the acquiree for termination of theiremployment;

(b) by the earlier of:

(i) three months after the date of the acquisition;and

(ii) thetime of completion of the annual financial

report;

developed the main features of the plan described inparagraph 4.9(a) into a detailed formal plan thatidentifies at least the items set out in paragraphs4.8(a)(i) to 4.8(a)(iii); and

(c) at, or before, the date of the acquisition, raised a validexpectation in those employees affected that it will carryout the terminations.

4.10 A liability fortermination benefits must berecognisedby theacquiree as at the date of the acquisition of an entity oroperation, and taken into account by the acquirer in measuringthe fair value of the net assets acquired, when, and only when:

(a) either of the following applies:

(i) the acquiree has satisfied the conditionsspecified in paragraph 4.8 for the existence of aliability fortermination benefits at, or before,the date of the acquisition; or

(ii) the acquirer has satisfied the conditionsspecified in paragraph 4.9; and

(b) the liability satisfies therecognition criteria for a liabilitythat are specified in paragraph 4.1.

4.10.1 The requirements for the recognition and measurement of a liabilityfor termination benefits arising as a consequence of the acquisitionof an entity or operation are consistent with the requirements for therecognition and measurement of restructuring provisions arising as aconsequence of the acquisition of an entity or operation that will bespecified in a forthcoming Accounting Standard Provisions,Contingent Liabilities and Contingent Assets.


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4.10.2 Liabilities for termination benefitsrecognisedunder paragraph 4.10include only the costs incurred in compensating employees of theacquiree for termination of their employment.

4.10.3 Liabilities for termination benefits that failed the criteria forrecognition as at the date of acquisition are excluded from thedetermination of the fair value of the net assets acquired (andaccordingly any goodwill or discount on acquisition). Applying thispolicy is pertinent to applying Accounting Standard AASB 1013and Australian Accounting Standard AAS 18 Accounting forGoodwill and Accounting Standard AASB 1015 and Australian

Accounting Standard AAS 21 Acquisitions of Assets. However,termination benefits can subsequently qualify for recognitionbecause they meet the tests in paragraph 4.8, even though they failto qualify to be taken into account in measuring the fair value of thenet assets acquired.

4.11 The outstanding balance, or any part thereof, of a liability for termination benefitsrecognisedunder paragraphs 4.10(a)(ii)and 4.10(b) must be reversed when, and only when:

(a) settlement is no longer probable; or

(b) the detailed formal plan, developed in accordance withparagraph 4.9(b), is not implemented:

(i) in the manner set out in the detailed formalplan; or

(ii) within the timeframe established in the detailedformal plan.

Where the acquisition gave rise to goodwill or discount onacquisition (or could have so given rise), the reversal must berecogniseddirectly as an adjustment to goodwill or discount onacquisition (and outside equity interest, where applicable). Ifthe adjustment is a decrease in goodwill, the adjusted carryingamount of goodwill must be amortised prospectively inaccordance with Accounting Standard AASB 1013 andAustralian Accounting Standard AAS 18 Accounting for

Goodwill from the date as at which the reversal isrecognised.If the adjustment is an increase in discount on acquisition, acorresponding proportionate reduction must be made to theremaining carrying amounts of the non-monetaryassetsacquired until the discount is eliminated. Where a discountbalance remains after reducing to zero the recorded amounts ofthe non-monetaryassets acquired, the discount balance must be


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recognisedimmediately asrevenue. Following any adjustmentto the carrying amounts of the non-monetaryassets acquired,the remaining carrying amounts of thoseassets must bedepreciated prospectively in accordance with AccountingStandard AASB 1021 and Australian Accounting StandardAAS 4 Depreciation.

4.11.1 A reversal normally is not necessary in respect ofliabilities fortermination benefitsrecognisedunder paragraphs 4.10(a)(ii)and 4.10(b) because the detailed formal plan is required to identifythe terminations that will occur. Where such terminations do not

occur in the planned manner, in the planned timeframe, or are nolonger probable, the entity reverses the carrying amount (to theextent the plan is not likely to be implemented or settlement is nolonger probable), immediately prior to reversal, of those liabilitiesfor termination benefits, with a corresponding adjustment to theamount of goodwill or discount on acquisition (and outside equityinterest, where applicable). Where a reversal made in accordancewith paragraph 4.11 reduces the carrying amount of goodwill, noadjustment is recognisedto compensate for the fact that pastamortisation was based on a higher carrying amount prior to thereversal. Similarly, where a reversal increases the amount ofdiscount on acquisition, no adjustment is recognisedto compensatefor the fact that past depreciation of the acquired non-monetaryassets was based on higher carrying amounts for those assets priorto the reversal. If subsequently an obligation arises underparagraph 4.8 that is required to be recognised, the entity recognisesa corresponding expense.

4.11.2 In certain circumstances under Australian Accounting StandardAAS 21 Acquisitions of Assets, AAS 27 Financial Reporting byLocal Governments, or AAS 29 Financial Reporting byGovernment Departments, acquisitions can be accounted for in away that does not give rise to goodwill or discount on acquisition.An example is the acquisition by a government department of thenet assets of another government department for nominalconsideration as a result of a restructuring of administrativearrangements. In those circumstances, the reversal required byparagraph 4.11 is recognisedas employee benefit revenues in thereporting period in which the reversal is invoked.

4.11.3 Disclosure requirements regarding provisions, especially provisionsfor restructurings, will be contained in a forthcoming AccountingStandard Provisions, Contingent Liabilities and ContingentAssets. The forthcoming Standard will require disclosure ofprovisions that arise as a consequence of an acquisition of an entityor operation, including liabilities for termination benefits recognised


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as part of such acquisitions. The aggregate amount of theseprovisions will be required to be disclosed for each acquisition.

Post-Employment Benefits

4.12 A liability for employee benefits in the form ofpost-employmentbenefits must berecognised:

(a) progressively over the reporting periods up to the timewhen the benefits become vested,where the benefits vestafter a specified qualifying period; and

(b) in the reporting period an employee is appointed to aspecified position, where the benefits vest at the time ofappointment

and continue to berecogniseduntil they are settled.

4.12.1 In accordance with the definition in paragraph 8.1,post-employmentbenefits are employee benefits which become payable afteremployment ceases, but do not include termination benefits (seeparagraph 4.8.2) and equity-based compensation benefits.Consistent with paragraph 1.2(c), paragraph 4.12 does not apply topost-employment benefits that are superannuation or medicalbenefits. Examples ofpost-employment benefits to which

paragraph 4.12 applies include the provision of free or subsidisednon-monetary benefits after retirement, such as air or train travel,office accommodation, administrative support and the use of amotor vehicle.

4.12.2 Post-employment benefits that vestafter a specified qualifyingperiod of service are recognisedas a liability progressively over thatsame period. For example, if an employee will receive $2,000 worthof annual free air travel upon retirement after having completed25 years of service, the estimated net marginal cost (if any) to theemployerof that benefit is recognisedprogressively over those25 years. As with the measurement of long service leave, themeasurement of apost-employment benefitliability takes intoaccount the fact that some employees will not attain the requisiteyears of service to become entitled to part or all of the benefit.

Assets and Revenues Arising in Respect of EmployeeBenefits

4.13 Subject to paragraph 4.16,assets andrevenues arising in respectofemployee benefits must berecognisedwhen, and only when:


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(a) they are capable of being measuredreliably; and

(b) in respect of:

(i) assets, it is probable that the future economicbenefits will eventuate; and

(ii) revenues, it is probable that the inflow or otherenhancement or saving in outflow of futureeconomic benefits has occurred.

4.13.1 Revenues arise in relation to employee benefits in the circumstanceswhere a reassessment of a related liability results in the amount ofthat liability decreasing from one reporting date to the next. Forexample, where an employers long service leave liability decreasesfrom one reporting date to the next because of a change incircumstances, such as a significant reduction in the size of theworkforce, revenues in the form of savings in estimated future cashoutflows would arise. Revenues may also arise in the rarecircumstances where a related liability (or part thereof) is forgiven.

4.13.2 Employee benefitrevenues are recognisedwhen it is probable thatinflows or other enhancements or savings in outflows of futureeconomic benefits have occurred and when the revenues can bemeasured reliably. Assessments of the probability ofrevenueshaving arisen will usually be straightforward and will be linked tothe recognition of decreases in employee benefit liabilities.

Recognition on a Net Basis

Revenues and Expenses

4.14 Employee benefitrevenues and expenses that arise in respect ofwages and salaries (including non-monetary benefits),compensated absences and profit sharing and bonus plans mustberecognisedon an overall net basis.

4.15 For any employee benefit type not specified in paragraph 4.14,each employee benefitrevenue and expense that arises must beindividuallyrecognisedon a net basis.

4.15.1 Various types ofemployee benefits may exist, including terminationbenefits,post-employment benefits and those identified inparagraph 4.14. Both revenues and expenses may arise within theone employee benefittype in any one reporting period. Forexample, in relation to long service leave, one employerwithin an


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economic entity may have an increase in its long service leaveliability (expense) and another employerwithin the economic entitymay have a reduction in its long service leave liability (revenue). Insuch cases, the revenue and expense are recognisedby the entity ona net basis, in accordance with paragraph 4.14, so that only netrevenue or net expense, as the case may be, is recognised.Similarly, where an employerhas, for example, a revenue arising inrespect of long service leave and an expense arising in respect ofsick leave or wages and salaries, these are recognisedon a net basisin accordance with paragraph 4.14. Furthermore, where an entityhas a revenue arising in respect of one type ofemployee benefitthat

falls outside the scope of paragraph 4.14 and an expense arising inrespect of the same type ofemployee benefit, paragraph 4.15requires the employee benefitto be recognisedon a net basis.Accordingly, except for the netting-off ofrevenues and expensesarising from employee benefits of the types identified inparagraph 4.14 or within the same type of other employee benefits asdealt with in paragraph 4.15, the netting-off ofrevenues andexpenses is not permitted. For example, revenues arising from longservice leave are not permitted to be offset against expenses arisingfrompost-employment benefits.

Assets and Liabilities

4.15.2 Assets and liabilities arising from employee benefits are only netted-

off against each other where there is a right of set-off in accordancewith Accounting Standard AASB 1014 and Australian AccountingStandard AAS 23 Set-off and Extinguishment of Debt.

Non-Recognition of Assets and Liabilities

4.16 The entity may elect not torecogniseemployee benefit liabilitiesandassets arising from agreements equally proportionatelyunperformed, except where this Standard or anotherAccounting Standard or an Australian Accounting Standardsets out specific requirements for therecognition of suchliabilities andassets.

4.16.1 In practice, liabilities and assets arising from agreements equallyproportionately unperformed that would satisfy the recognition

criteria set out in this Standard have usually not been recognised.For many agreements associated with employee benefits, such asemployment contracts, significant uncertainty may exist as towhether the definitions of, and recognition criteria for, liabilitiesand assets would be satisfied. In addition, substantial difficulties


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may arise in determining a reliable and appropriate measure forliabilities and assets that may arise from these agreements.

5 Measurement

Nominal Basis of Measurement

5.1 Liabilities that arise in respect of:

(a) wages and salaries (including non-monetary benefits),annual leave, and sick leave (regardless of whether theyare expected to be settled within 12 months of thereporting date); and

(b) other employee benefits expected to be settled within12 months of thereporting date

must be measured at their nominal amounts.

5.1.1 Employee benefits that are required to be measured at their nominalamounts include those arising from:

(a) wages and salaries (including non-monetary benefits suchas medical benefits provided during employment, housing,

motor vehicles and free or subsidised goods or services);

(b) annual leave and sick leave;

(c) profit sharing and bonuses that are expected to be settledwithin 12 months of the end of the reporting period inwhich the employees render the related service;

(d) termination benefits that are expected to be settled within12 months of the end of the reporting period; and

(e) other employee benefits that are expected to be settledwithin 12 months of the end of the reporting period inwhich the employees render the related service.

5.1.2 The nominal basis of measurement uses remuneration rates that theentity expects to pay as at each reporting date and does not discountcash flows to their present value.


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Present Value Basis of Measurement

5.2 Subject to paragraph 5.1, employee benefit liabilities that areexpected to be settled more than 12 months after thereportingdate must be measured as the present value of the estimatedfuture cash outflows to be made by the employer in respect ofservices provided by employees up to thereporting date.

5.2.1 Employee benefits that are required to be measured using the presentvalue basis of measurement include those arising from:

(a) compensated absences such as long service and sabbaticalleave that are expected to be settled more than 12 monthsafter the end of the reporting period;

(b) profit sharing and bonuses that are expected to be settledmore than 12 months after the end of the reporting periodin which the employees render the related service;

(c) deferred compensation that is expected to be settled morethan 12 months after the end of the reporting period;

(d) termination benefits that are expected to be settled morethan 12 months after the end of the reporting period; and

(e) post-employment benefits that are expected to be settledmore than 12 months after the end of the reporting period.

5.2.2 Measuring employee benefit liabilities at their present value requiresall factors that are expected to affect the ultimate amount payable tobe taken into account. For example, where employees will receiveleave benefits that are determined by reference to the totalremuneration package, rather than the salary component of anemployees remuneration package, the non-salary components (suchas employersuperannuation contributions) are included in themeasurement of the leave liability, to the extent that the non-salarycomponents are not otherwise recognisedas a liability. Also,expected future increases in remuneration rates are taken intoaccount since they will increase the amount that the employerisrequired to pay to settle the liability.

Discount Rate

5.3 In measuring employee benefitliabilities in accordance withparagraph 5.2, market yields as at thereporting date on nationalgovernment bonds must be used to discount estimated future


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cash flows. The currency and term of the bonds must, to theextent practicable, be consistent with the currency in which theemployee benefit obligations are to be settled and the estimatedterm of the employee benefit obligations.

5.3.1 Where the entity has employee benefitobligations that are to besettled in a foreign currency, the rate used to discount thoseobligations is determined by reference to market yields on bonds ofthe pertinent national government.

5.3.2 In applying paragraph 5.2, pre-tax cash flows are discounted to their

present value. Accordingly, the discount rate used in determiningthe present value ofemployee benefit liabilities is a pre-tax bondrate.

5.3.3 Where a particular employee benefit liability is settled progressivelyover a number of reporting periods, the discount rates used are themarket yields for the pertinent bonds with terms to maturity thatmatch as closely as possible the periods to settlement of the liability.In practice, an entity often calculates a single weighted averagediscount rate that reflects the estimated amount and timing of thepayments and the currency in which the payments are to be made.

5.3.4 In some cases, there may be no market in the pertinent bonds with asufficiently long maturity to match the estimated maturity of all thebenefit payments. In such cases, the entity uses current market ratesof the appropriate term to discount shorter term payments, andestimates the discount rate for longer maturities by extrapolatingcurrent market rates along the yield curve.

5.3.5 The portion of the increase in the liability arising in respect ofemployee benefits from the previous reporting date to the currentreporting date which is due to discounted employee benefitliabilities not yet settled being one period closer to settlement,conceptually, ought to be classified as interest. However, the viewadopted in this Standard is that the cost of distinguishing the interestcomponent of the increase in employee benefit liabilities exceeds thebenefit that may be gained from reporting it separately.Accordingly, such an increase is treated as employee benefits ratherthan interest.

5.3.6 Where employee benefit liabilities have been measured at theirpresent value, users understanding of the amount of the liabilitiesrecognisedis likely to be enhanced if assumptions adopted indetermining the present value were disclosed. Accordingly, thisStandard encourages disclosure of:


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(a) changes in the estimated timing and amount of future cashoutflows to settle employee benefit liabilities; and

(b) the weighted average discount rate used, and its source(that is, the bonds used).

5.4 For the purposes of Accounting Standard AASB 1013 andAustralian Accounting Standard AAS 18 Accounting forGoodwill and Accounting Standard AASB 1015 and AustralianAccounting Standard AAS 21 Acquisitions of Assets, theamounts calculated in accordance with paragraphs 5.1 to 5.3 are

deemed to be equal to the fair values ofemployee benefitliabilities.

6 Disclosures

The Nature and Terms of EmployeeBenefitArrangements

6.1 The financial report must discloserelevant details (including thenature and terms) of arrangements under which employees areoffered an opportunity to acquire equity-based instruments in theemployer and thereby derive a benefit, directly or indirectly, byvirtue of the employer/employee relationship, not otherwise

specifically required to be disclosed by this Standard.

6.1.1 An example of the type of arrangement that would give rise todisclosures under paragraph 6.1 is where an employerprovides aninterest free loan to a trust for the on-market acquisition ofequity inthe employeron behalf ofemployees. In such circumstances,compensation is in the form of an interest free loan, rather than inthe form ofequity-based compensation benefits, and thereforerelevantdetails of the arrangement are not disclosed underparagraph 6.5 but instead are disclosed under paragraph 6.1. Undersuch arrangements, the nature and terms of the loan (includingpayment conditions), the number ofequity instruments involved,and the relationship between the employerand the trust and betweenthe trust and employees is disclosed. Another example is where anemployeroperates an equity-based compensation arrangementunder which, at the discretion of management, depending onperformance, employees are offered shares in the employerfor nopayment. At the time the arrangement is established, no equity-based instruments have been granted(due to the discretion retainedby management) and therefore relevantdetails of the arrangement


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are not disclosed under paragraph 6.5 but instead are disclosedunder paragraph 6.1.

Details of Amounts Recognised in the FinancialStatements

6.2 The financial report must disclose the aggregate liability and theaggregateasset arising from employee benefits and related on-costs that have beenrecognisedin the financial statements,identifying current and non-current portions where applicable.

6.2.1 The aggregate liability required to be disclosed by paragraph 6.2includes liabilities from providing employee benefits and liabilitiesrelating to payroll tax and other similar on-costs. This Standarddoes not require disclosure of the components of the aggregate.However, the components may be required to be disclosed in certaincircumstances in accordance with Accounting Standard AASB 1040and Australian Accounting Standard AAS 36 Statement ofFinancial Position.

6.2.2 Employee benefits that have been capitalised into non-employeebenefitrelated assets (such as inventories see paragraph 4.1.6) arenot included in the amounts disclosed in relation to aggregate assetsin accordance with paragraph 6.2. Assets to be disclosed inaccordance with paragraph 6.2 include an asset recognisedfor the

overpayment ofemployee benefits. Where an assetand a liabilityrelating to employee benefits are netted-off against each other (seeparagraph 4.15.2) the net amount is included in the aggregateliability (or asset) disclosed in accordance with paragraph 6.2.

Equity-Based Compensation Benefits

6.3 The financial report must disclose:

(a) theaccounting policy for equity-based compensationarrangements, including whether the arrangementshave given rise torecognisedamounts; and

(b) the amountsrecognisedin the financial statements as aresult of applying theaccounting policy disclosed in

accordance with paragraph 6.3(a) for equity-basedcompensation arrangements.

6.3.1 The amounts disclosed in accordance with paragraph 6.3(b) include,where applicable, amounts relating to equity-based compensation


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arrangements that are included in the amounts disclosed inaccordance with paragraph 6.2.

Equity-Based Instruments at the Beginning of theReporting Period


(a) for each type of equity-based instrumentgrantedby theentity that is held by equity-based compensation plans at

the beginning of the reporting period:

(i) the nature and number of instruments;

(ii) grant dates;

(iii) whether the instruments provide dividendand/or voting rights and, if so, details of thoserights;

(iv) the terms under which those instrumentsbecome vested, the extent to which theinstruments are vestedin the plan and theextent to which employees entitlements to theinstruments are vested; and

(v) other terms (including, where applicable,conversion rights, exercise dates, exerciseprices and expiry dates); and

(b) for each type of equity-based instrument (such as shareoptions and performance rights), other than vestedfully-paid shares,grantedby the entity that are held byemployees at the beginning of the reporting period:


(ii) grant dates (and, where applicable, dates ofdistribution from equity-based compensationplans);



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(iv) the terms under which those instrumentsbecome vestedand the extent to whichemployees entitlements to the instruments arevested; and

(v) other terms (including, where applicable,conversion rights, exercise dates, exerciseprices and expiry dates).

Comparative information need not be disclosed.

Equity-Based Instruments Granted/Distributed Duringthe Reporting Period


(a) except for shares issued as a result of the exercise ofoptions or other rights, for each type ofequity-basedinstrument that isgrantedby the entity and held byequity-based compensation plans during the reportingperiod:


(ii) grant dates;


(iv) other terms (including, where applicable,performance conditions, conversion rights,exercise dates, exercise prices and expirydates); and

(v) the fair value of any consideration received bythe entity from the plans ongranting theinstruments;

(b) except for shares distributed as a result of the exercise

of options or other rights, for each type ofequity-basedinstrument that is distributed by equity-basedcompensation plans to employees during the reportingperiod:


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(i) the nature and number of instrumentsdistributed;

(ii) dates of distribution from equity-basedcompensation plans;


(iv) other terms (including, where applicable,

performance conditions, conversion rights,exercise dates, exercise prices and expirydates); and

(v) the fair value of any consideration received bythe plans from employees on distributing theinstruments; and

(c) except for shares issued as a result of the exercise ofoptions or other rights, for each type ofequity-basedinstrument that isgrantedby the entity and held byemployees during the reporting period:


(ii) grant dates;


(iv) other terms (including, where applicable,performance conditions, conversion rights,exercise dates, exercise prices and expirydates); and

(v) the fair value of any consideration received bythe entity from employees ongranting theinstruments.

The entity must also disclose the fair value as at issue date ofvestedfully-paid shares issued to equity-based compensationplans that do not result from the exercise of share options andother rights and, separately, vestedfully-paid shares issueddirectly to employees as employee benefits that do not result fromthe exercise of share options and other rights. It must also


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disclose the fair value as at distribution date ofvestedfully-paidshares distributed from equity-based compensation plans toemployees that do not result from the exercise of share optionsand other rights. In addition, it must disclose the basis ofdetermining fair value andrelevant assumptions adopted indetermining that value.

Share Options and other Equity-Based InstrumentsExercised During the Reporting Period

6.6 The financial report must disclose for each type ofequity-basedinstrument (such as share options and performance rights)grantedby the entity that are exercised by equity-basedcompensation plans during the reporting period:

(a) the nature and number of instruments;

(b) grant dates;

(c) exercise dates;

(d) expiry dates, where they differ from exercise dates;

(e) exercise prices;

(f) aggregate proceeds received from plans; and

(g) the number of shares issued and the fair value as at theissue date of those shares.

The entity must also disclose the basis of determining the fairvalue andrelevant assumptions adopted in determining thatvalue.

6.7 The financial report must disclose for each type ofequity-basedinstrument (such as share options and performance rights)grantedby the entity that are exercised by employees during thereporting period:

(a) the nature and number of instruments;

(b) grant dates;

(c) exercise dates;

(d) expiry dates, where they differ from exercise dates;


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(e) exercise prices;

(f) aggregate proceeds received from employees; and

(g) the number of shares and the fair value of those shares:

(i) as at their issue date, that are issued by theentity directly to employees; and

(ii) as at their distribution date, that aredistributed by equity-based compensation plans

to employees.

The entity must also disclose the basis of determining the fairvalue andrelevant assumptions adopted in determining thatvalue.

Share Options and other Equity-Based InstrumentsLapsed During the Reporting Period

6.8 The financial report must disclose, separately, the nature andnumber of each type ofequity-based instrument (such as shareoptions and performance rights)grantedby the entity thatlapsed during the reporting period that were held by:

(a) equity-based compensation plans; and

(b) employees.

Equity-Based Instruments at the End of the ReportingPeriod


(a) for each type of equity-based instrumentgrantedby theentity that is held by equity-based compensation plans atthe end of the reporting period:


(ii) grant dates;



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(iv) the terms under which those instrumentsbecome vested, the extent to which theinstruments are vestedin the plan and theextent to which employees entitlements to theinstruments are vested; and

(v) other terms (including, where applicable,conversion rights, exercise dates, exerciseprices and expiry dates); and

(b) for each type of equity-based instrument (such as share

options and performance rights), other than vestedfully-paid shares,grantedby the entity that are held byemployees at the end of the reporting period:


(ii) grant dates (and, where applicable, dates ofdistribution from equity-based compensationplans);


(iv) the terms under which those instrumentsbecome vestedand the extent to whichemployees entitlements to the instruments arevested; and

(v) other terms (including, where applicable,conversion rights, exercise dates, exerciseprices and expiry dates).

The entity must also disclose the fair value, as at the end of thereporting period, ofvestedfully-paid shares held by equity-basedcompensation plans at that date, and the basis of determiningfair value andrelevant assumptions adopted in determining thatvalue.

6.9.1 The distinction between issue date and distribution date is pertinentto the disclosure requirements in paragraphs 6.5 and 6.7. Issue dateis the date at which the entity issues shares to an equity-basedcompensation plan or to employees, whether or not as a result of theexercise of options over those shares. Distribution date is the date atwhich an equity-based compensation plan distributes equity-basedcompensation benefits to employees (including the distribution of


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shares held by the plan to employees on the exercise by employeesof options over those shares). The distinction between grantdateand vesting date is also pertinent to the disclosure requirements.Granted and vested are defined in paragraph 8.1 and consideredfurther in paragraph 8.1.9. Depending on the circumstances, grantdate may coincide with vesting date. However, that will not alwaysbe the case. For example, options may be grantedthat are subject toperformance hurdles and therefore will not vestunless and until thehurdles are met. Shares may also be grantedsubject to performancehurdles. Such instruments are commonly referred to as performancerights. The granting of performance rights that are held by anemployee would be disclosed under paragraph 6.5(c). If the hurdlesare met (that is, the shares become vested), the performance rightsresult in the entity providing shares. Details about the exercise ofthe performance rights and the issue of shares are disclosed underparagraph 6.7.

6.9.2 When the entity has various equity-based compensationarrangements, disclosures required by paragraphs 6.3 to 6.9 aremade separately for each arrangement, or in such groupings as areconsidered most useful for assessing the entitys obligations to issueequity instruments under such arrangements and the changes inthose obligations during the current reporting period. Suchgroupings may distinguish, for example, the location and seniorityof the employee groups covered. When the entity providesdisclosures in total for a grouping of arrangements, such disclosuresare provided in the form of weighted averages or of relativelynarrow ranges.

6.9.3 When the entity has grantedshare options or other equity-basedinstruments, other than vestedshares, such as performance rights inthe form ofemployee benefits to employees or to equity-basedcompensation plans, disclosures are made in such groupings as areconsidered most useful for assessing the number and timing ofshares that may be issued and the consideration that may be receivedas a result. For example, it may be useful to distinguish options thatare out-of-the-money (where the exercise price exceeds thecurrent market price) from options that are in-the-money (wherethe current market price exceeds the exercise price). Furthermore, itmay be useful to combine the disclosures in groupings that

aggregate options with a range of exercise prices or exercise dates.Disclosing exercise dates as a range of dates (rather thanindividually listing each exercise date) for each type of equity-basedinstrument may satisfy the requirements of paragraphs 6.6(c)and 6.7(c). It may also be useful to show options under differentarrangements, by terms and conditions.


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6.9.4 The disclosures about equity-based compensation arrangements arerequired by this Standard irrespective of the entity within thereporting entity in which the employees are entitled to acquireequity. Where employees are entitled to equity-based instruments ofdifferent entities within a group, separate disclosures are made inrelation to each entitysequity-based instruments.

6.9.5 The fair value of any consideration received from an equity-basedcompensation plan or employee in relation to equity-basedinstruments includes any amount that is funded through loans madeby the entity disclosed in accordance with paragraph 6.1.

6.9.6 Separate disclosure in relation to equity-based compensation plansand employees of the number of each type ofequity-basedinstrumentthat has been:

(a) grantedby the entity during the reporting period;

(b) distributed by equity-based compensation plans toemployees (excluding distributions of shares resulting fromthe exercise of share options or other rights) during thereporting period;

(c) exercised (resulting in issues or distributions of shares)during the reporting period; and

(d) lapsed during the reporting period;

in a presentation that reconciles movements, between the beginningand end of the reporting period, in the number of each type ofequity-based instrumentgrantedby the entity, fulfils requirementsto disclose the number ofequity instruments under equity-basedcompensation arrangements in paragraphs 6.4 to 6.9. Thereconciliation avoids double-counting equity-based instrumentsgrantedby the entity to equity-based compensation plans anddistributed by the equity-based compensation plans to employees.

6.9.7 The fair value ofvestedfully-paid shares is based on the price of theshares as at the applicable date (that is, the issue date, distributiondate or the end of the reporting period), and is the market price (or

estimated market price if not publicly traded) of an equivalent share(carrying equivalent entitlements or restrictions) at the applicabledate.

6.9.8 The amounts disclosed in relation to the fair value of shares aredetermined on the basis of cost to the issuing or distributing entity.This value reflects the consideration that the entity would receive in


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an active and liquid market if it issued or distributed theshares forcash or another financial asset. Restrictions that continue in effectafter the rights to benefit have been earned, such as the inability totransfer vestedshares to third parties, affect the market value of theshares issued or distributed and therefore are reflected in estimatingtheir fair value.

6.9.9 Appendix 1 provides a table summarising the requirements inparagraphs 6.4 to 6.9. Appendix 2 illustrates disclosures that arerequired to be made in accordance with paragraphs 6.1 and 6.4to 6.9.

Superannuation

6.10 The following information must be disclosed in respect ofdefined benefit superannuation plans sponsored by theemployer:

(a) the following information which has been determined inaccordance with Australian Accounting StandardAAS 25 Financial Reporting by SuperannuationPlans and which, in the absence of more recentinformation, has been determined as at the date of themost recent financial report of the plan:

(i) for each plan and in aggregate, accruedbenefits, the net market value of the planassetsand the difference between the two precedingitems, and vested benefits (as defined inAAS 25); or

(ii) where the entity participates in a multipleemployer superannuation plan, and the entitysproportion of the net market value of planassets cannot be determinedreliably, theemployers share of the difference betweenemployees accrued benefits and the net marketvalue of planassets;

(b) the dates at which amounts required to be disclosed in

paragraphs 6.10(a)(i) or 6.10(a)(ii) were measured;

(c) theaccounting policy, including whether any amountshave beenrecognisedin the financial statements of theemployer; and


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(d) the amountsrecognisedin the financial statements as aresult of applying theaccounting policy disclosed inaccordance with paragraph 6.10(c).

6.10.1 This Standard requires the entity to disclose, in notes in its financialreport, information about the defined benefit superannuation plansthat it sponsors in respect of its employees. These disclosures arerequired to be determined in accordance with the requirementsof AAS 25. Where an employersponsors a defined benefitsuperannuation plan in which two or more entities participate, eachentity is required to determine its proportionate interest in the benefitliabilities and plan assets of that plan. An employers proportionateinterest in a multiple employerdefined benefit superannuation planwill often be able to be reliably determined by reference to itsproportion of total annual contributions to the plan or by referenceto its proportion of total plan members. Where the superannuationliabilities of the entity are assumed by another entity (as is often thecase, for example, with government departments) the employerdoesnot sponsor the superannuation plan in which its employeesparticipate. Accordingly, in such cases an employeris not requiredto make the disclosures specified in paragraph 6.10.

6.10.2 The disclosures required by paragraphs 6.10(a)(i) or 6.10(a)(ii) areencouraged to be as at the same date, where practicable.

7 Transitional Arrangements

7.1 Except for theaccounting policies required by paragraphs 4.9to 4.11, theaccounting policies required by this Standard mustbe applied as at the beginning of the reporting period to whichthis Standard is first applied. Where this, or the voluntaryapplication of paragraphs 4.9 to 4.11 to liabilities orassets as atthe beginning of that reporting period, gives rise to initialadjustments which would otherwise berecognisedin net profitor loss/result, the net amount of those adjustments, includingany adjustments to deferred income tax balances, must beadjusted directly against retained profits (surplus) oraccumulated losses (deficiency) as at the beginning of thereporting period to which this Standard is first applied.

7.1.1 The exception in paragraph 7.1 to the application of paragraphs 4.9to 4.11 allows the entity to continue to apply its existing accountingpolicies to any acquisition of an entity or operation that occursbefore the reporting period to which this Standard is first applied.Paragraphs 4.9 to 4.11 are applied for any acquisition that occurs on


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or after the beginning of the reporting period to which this Standardis first applied. Those paragraphs may also be applied toacquisitions that occur before that date.

8 Definitions

8.1 In this Standard:

accounting policies means the specific accounting principles,

bases or rules adopted in preparing and presenting thefinancial report;

annual reporting periodmeans the financial year or similarperiod to which an annual financial report relates;

assets means future economic benefits controlled by the entity asa result of past transactions or other past events;

contributions by owners means future economic benefits thathave been contributed to the entity by parties external to theentity, other than those which result in liabilities of theentity, that give rise to a financial interest in the net assets ofthe entity which:

(a) conveys entitlement both to distributions of futureeconomic benefits by the entity during its life, suchdistributions being at the discretion of theownership group or its representatives, and todistributions of any excess ofassets over liabilitiesin the event of the entity being wound up; and/or

(b) can be sold, transferred or redeemed;

disclosing entity is defined in the Corporations Law;

distributions to owners means future economic benefitsdistributed by the entity to all or part of its ownershipgroup, either as a return on investment or as a return ofinvestment;

economic entity means a group ofentities comprising theparententity and each of itssubsidiaries;

employee means a natural person (including a director)appointed or engaged under a contract for services who is


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subject to the direction of an employer in respect of themanner of execution of those services, whether on a full-time, part-time, permanent, casual or temporary basis. Forthe purpose of this Standard, in respect of public sectorentities that are required to preparegeneral purposefinancial reports in accordance with Australian AccountingStandard AAS 27 Financial Reporting by LocalGovernments or AAS 31 Financial Reporting byGovernments, all elected representatives are deemed to beemployees;

employee benefits means all forms of consideration given by anentity in exchange for services rendered by employees;

employer means an entity, including an economic entity, whichconsumes the services ofemployees in exchange forproviding employee benefits;

entity means any legal, administrative, or fiduciaryarrangement, organisational structure or other party(including a person) having the capacity to deploy scarceresources in order to achieve objectives;

equity means the residual interest in theassets of the entity afterdeduction of its liabilities;

equity-based compensation arrangement means any formal orinformal arrangement, which may include an equity-basedcompensation plan, under which an employer providesequity-based compensation benefits for one or moreemployees;

equity-based compensation benefits means employee benefits inthe form of:

(a) equity instruments of the employer; or

(b) other compensation, the amount of which dependson the future value ofequity instruments of theemployer;

equity-based compensation plan means a formal equity-basedcompensation arrangement involving a trust or a similarvehicle;

equity-based instrument means:


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(a) an equity instrument; or

(b) any contract that evidences a right to receive anamount which depends on the future value of anequity instrument;

equity instrument means any contract that evidences a residualinterest in theassets of an entity after deducting all of itsliabilities;

expenses means consumptions or losses of future economic

benefits in the form of reductions inassets or increases inliabilities of the entity, other than those relating todistributions to owners, that result in a decrease in equityduring the reporting period;

general purpose financial report means a financial reportintended to meet the information needs common to userswho are unable to command the preparation of reportstailored so as to satisfy, specifically, all of their informationneeds;

grantedmeans, in relation to employee benefits, an employer hasagreed the terms ofemployee benefits with employees;

liabilities means the future sacrifices of economic benefits thatthe entity is presently obliged to make to other entities as aresult of past transactions or other past events;

parent entity means an entity which controls another entity;

post-employment benefitsmeans employee benefits (other thantermination benefits and equity-based compensation benefits)which are payable to an employee after the completion ofemployment;

recognisedmeans reported on, or incorporated in amountsreported on, the face of thestatement of financialperformance or the statement of financial position (whetheror not further disclosure of the item is made in the notes);

relevance means that quality of financial information whichexists when that information influences decisions by usersabout the allocation of scarce resources by:

(a) helping them form predictions about the outcomesof past, present or future events; or


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(b) confirming or correcting their past evaluations;

and which enables users to assess the discharge ofaccountability by the management or governing body of theentity;

reliability means that quality of financial information whichexists when that information can be depended upon torepresent faithfully, and without bias or undue error, thetransactions or other events that either it purports torepresent or could reasonably be expected to represent;

reporting date means the end of the reporting period to whichthe financial report relates;

reporting entity means an entity (including an economic entity) inrespect of which it is reasonable to expect the existence ofusers dependent ongeneral purpose financial reports forinformation which will be useful to them for making andevaluating decisions about the allocation of scarceresources, and includes but is not limited to the following:

(a) adisclosingentity; and

(b) a company which is not asubsidiary of a holdingcompany incorporated in Australia and which is asubsidiary of a foreign company where that foreigncompany has its securities listed for quotation on astock market or those securities are traded on astock market;

revenues means the inflows or other enhancements, or savings inoutflows, of future economic benefits in the form ofincreases inassets or reductions in liabilities of the entity,other than those relating tocontributions by owners, thatresult in an increase in equity during the reporting period;

subsidiary means an entity which is controlled by aparent entity;

termination benefits means employee benefits payable as a result

of either:(a) an entitys decision to terminate an employees

employment before the normal retirement date; or

(b) an employees decision to accept voluntaryredundancy in exchange for those benefits;


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time of completion means:

(a) in the case of entities required to produce afinancial report in accordance with theCorporations Law the date of the DirectorsDeclaration; and

(b) in the case of other entities the date of finalapproval of the financial report by the managementor governing body of the entity, whichever isapplicable; and

vestedmeans, in relation to employee benefits, employee benefitsthat are not conditional on future employment.

8.1.1 The definition ofannual reporting periodrefers to financial year orsimilar period and will normally be a twelve-month period. Theannual reporting periodwill differ from twelve months incircumstances such as:

(a) the entity being established on a date

wwf accounting treatment

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