AS ? 15 accounting norms may be relaxed

Provisions made by Cos for post-retirement benefits of employees to be altered

Banks and companies could get more leeway in implementing AS-15 ? the revised accounting standard which requires them to make provisions for post ? retirement benefits of their employees. The change in accounting practice is meant to improve disclosures for employee benefits, in sync with best international practices. However, banks have out a case to the government and the ICAI for flexibility in implementing AS ? 15 to avert a massive hit on their balance sheet.

The standard mandates companies to compute the last salary that will be drawn by the employee and provide for liabilities such as pension and gratuity on that basis.

The ICAI has now decided to set up a study group to review the implications of adopting AS ? 15. ? The idea is to see if there could be any flexibility in providing for the short fall between the procedure to be adopted under AS ? 15 and the standard that is in vogue now. The study group will consult the Reserve Bank and the State Bank of India. It will study if a similar impact will be faced by Insurance companies such as LIC that have a huge workforce. It will also consult the insurance regulator. As of now, the implementation of AS ? 15 by corporates is with effect from April 1, 2006 ? ICAI president Mr. T N Manoharan to ET

The study group will finalise its recommendations in a few months. Typically, companies make these provisions only towards the end of the fiscal year and, by then, it should be clear if there would be some flexibility in the implementation and accounting procedure. Retirement schemes account for a chunk of employee remuneration. These benefits include contributions to the provident fund, superannuation fund, pension plan, gratuity, leave encashment and so on. A provident fund scheme is a defined contribution plan ? the company contributes a certain percentage of current salary as PF and the employee makes a matching contribution. Since there is no outgo, companies will not have to make any provisions under AS-15, pension plans are defined benefit schemes. The accountings for these schemes are complex, as it involves actuarial calculations. The calculations for future retirement benefits will be made by actuaries, whoa re trained in assessing risks. ? The revised AS-15 is fairly rigid on the actuarial method used for computing liabilities. We are concerned about its impact on defined benefit schemes such as pension plans. This is because a change in the accounting procedure will deplete tier ? 1 capital of banks ? said Mr. Shankaranarayanan, Sr Vice President Indian Banks Association


Source: The Economic Times 12th September 2006