dear sir,

 

i am serching consultant in Gujarat for Actuarial valuer of gratuity, leave

any have any contact in Gujarat (like baroda, ahmedabad, surat, bharuch, ) pls contact me contact my email id is bhardwajvn @ abcbearings.com

Observations in respect of Employee Benefits in compliance of Accounting Standard 15 made by The Institute of Chartered Accountants of India in their Journal “The Chartered Accountant”, issue of December 2012 on Page No. 999. “Non-Compliance with Reporting Obligations observed by the Financial Reporting Review Board relating to AS 15 ‘Employee Benefits’ With a view to apprise the members of the Institute and others concerned about the major non compliance's observed during the review, the Financial Reporting Review Board (FRRB) compiles such non compliance's from time to time and publishes the same in the Journal of the Institute. Continuing the same practice, published below are some of the common non-compliance's observed by the Board during the review of general-purpose financial statements of certain enterprises and auditors’ reports thereon, relating to AS 15, Employee Benefits notified under the Companies (Accounting Standard) Rules, 2006: 1. Enterprises often state in their accounting policies that “Provision for gratuity is made in the accounts, considering the balance sheet date as the notional date of retirement”. It was noted that as per AS 15 the provision for gratuity should be determined through actuarial valuation which should be based on assumption that are not excessively conservative and should reflect the economic relationship considering the factors such as inflation, salary increase, the return on plan and discount rates. It was viewed that the stated policy indicates that provision for gratuity is determined by the company based on the assumption that all its employee retire on the balance sheet date which is an excessively conservative assumption. Since it does not consider actuarial risk, it was viewed that actuarial valuation is not followed by the company while valuing its liability towards gratuity, which is against AS 15. 2. Accounting policy on defined contribution schemes of some enterprises simply states that contribution to defined contribution schemes such as provident fund etc., are charged to the profit & loss account as and when incurred, however, in respect of employees who have not opted for pension benefits, provident fund contributions are made to a trust administered by the Bank. It was noted that the ASB Guidance on Implementing AS 15, inter alia, states that, “The rules of the provident funds set up by such establishments (referred to as exempt provident funds) generally provide for the deficiency in the rate of interest on the contributions based on its return on investment as compared to the rate declared for Employees’ Provident Fund by the Government under paragraph 60 of the Employees’ Provident Fund Scheme, 1952 to be met by the employer. Such provision in the rules of the provident fund would tantamount to a guarantee of a specified rate of return. As per AS 15, where in terms of any plan the enterprise’s obligation is to provide the agreed benefits to current and former employees and the actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the enterprise, the plan would be a defined benefit plan. Accordingly, provident funds set up by employers which require interest shortfall to be met by the Employer would be in effect defined benefit plans in accordance with the requirements of paragraph 26(b) of AS 15.”Accordingly, it was viewed that any provident fund scheme administered through trust should be treated as defined benefit plan rather than defined contribution plan, and in view of the same, the liabilities towards such benefit should be based on actuarial valuation. Further, the disclosure requirements for such defined benefits should be made as required under paragraphs 119 and 120 of AS 15. 3. Accounting policy on termination benefits of a company states that payments under Voluntary Retirement Scheme are recognised in the profit and loss account of the year in which such payment are affected. It was viewed that considering the provision given under paragraph 134 of AS 15, an enterprise is required to provide for termination benefits on accrual basis. Accordingly, the stated accounting policy is observed to be against the requirements of AS 15 as well as Section 209(3) (b) of Companies Act, 1956. 4. Certain companies have adopted an accounting policy on employee benefits under which any payment to defined contribution scheme is charged as expense, as they fall due. It was viewed that as per paragraph 45 of AS 15, the expense of defined contribution plan should be recognised for each period of service rendered by the employees; however, the accounting policy states that such expense has been recognized by the enterprise when it falls due. It was viewed that such policy does not clearly indicate as to whether the contribution, so made, is the appropriate accrual of liability or not. It is essential because the contribution in excess of what is due is to be recognised as an asset and contribution falling short is to be recognised as liability.” We provide actuarial valuation services in compliance of AS-15 (Revised 2005). For more details you may vist our website at www.mlsodhiactuary.com

Requirement of actuarial valuation services in compliance of AS-15 (Revised 2005) under various employee benefits plans such as Gratuity, Leave Encashment , Pension, etc. :-

Accounting & Disclosure for Employee Benefits in Compliance of Accounting Standard (AS) 15 (revised 2005)
--------------------------------

Accounting Standard (AS) 15 (revised 2005) is issued by the Institute of Chartered Accountants of India and is mandatory in nature (refer to the text of the standard for details).

The objective of the standard is to prescribed accounting and disclosure for employee benefits. The statement requires an enterprise to recognize:-

A liability when an employee has provided service in exchange for employee benefits to be paid in the future; and

An expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.

Employee Benefits fall under 2 type of plans:- Defined Contribution Plans and Defined Benefit Plans.

Employee Benefits are further classified as:-

Short Term Employee Benefits

Post Employment Benefits such as Gratuity, Pension, Other Retirement Benefits, Post-Employment Life Insurance and Post-Employment Medial Care;

Other Long-Term Employee Benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation; and

Termination Benefits

Because each category identified above has different characteristics, this statement establishes separate requirements for each category.

Accounting and Disclosure requirements for Defined Benefit Plans need the skill of an Actuary.

Most common Defined Benefits relevant in the Indian context which need the services of an actuary for compliance of the accounting standard, whilst finalizing the financial statements are:-

Gratuity
Compensated Absences (Earned Leave)
Compensated Absences (Sick Leave)
Post Retirement Medical Benefits
Superannuation (Pension Benefits)

Frequent items to be conversant with the subject are:-

Projected Unit Credit Method (PUC)
Present Value of Obligation
Current Service Cost
Interest Cost
Actuarial Gains/Losses
Employer’s Expense
Experience Adjustment on Plan Liabilities
Experience Adjustment on Plan Assets

*We provide actuarial services for compliance of the standard. We have expertise, experience and in-depth knowledge in this field. We have a large clientele spread in almost all sectors of the economy in Public and Private Sectors including Multinational Companies, Limited Companies, Schools, Hospitals, Banks, Electricity/Power Companies etc. etc.

Our services are also available for compliance of :-

IndAS 19 ,International Accounting Standard IAS (19) – IFRS, NAS-19 (Nepal Accounting Standard)-19 & US GAAP

For more details you may send your requirements on emails :- mlsodhi @ yahoo.co.in or you may visit website at you may visit our website : www.mlsodhiactuary.com

Hi 

Could you please clarify in general terms why acturial valuation is required? why not it could be computed by every company by itself similar to calculation of provisions/accruals.

Ofcourse, as per accounting standards it is required, i'm asking this question in general scenerio in case if it is not mandated by accounting standards.

 

 

Accounting & Disclosure for Employee Benefits in Compliance of Accounting Standard (AS) 15 (revised 2005) --------------------------------- Accounting Standard (AS) 15 (revised 2005) is issued by the Institute of Chartered Accountants of India and is mandatory in nature (refer to the text of the standard for details). The objective of the standard is to prescribe accounting and disclosure for employee benefits. The statement requires an enterprise to recognize:- A liability when an employee has provided service in exchange for employee benefits to be paid in the future; and An expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. Employee Benefits fall under 2 type of plans:- Defined Contribution Plans and Defined Benefit Plans. Employee Benefits are further classified as:- Short Term Employee Benefits Post Employment Benefits such as Gratuity, Pension, Other Retirement Benefits, Post-Employment Life Insurance and Post-Employment Medical Care; Other Long-Term Employee Benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation; and Termination Benefits Because each category identified above has different characteristics, this statement establishes separate requirements for each category. Broadly Employee Benefits fall into following categories : Defined Contribution Benefits & Defined benefit benefits:- Defined benefit benefits are other than defined contribution Benefits. ﴾Refer to Definitions-Paragraph 7 of AS-15 (Revised). ﴿ Accounting and Disclosure requirements for Defined Benefits need the skill of an Actuary. Most common Defined Benefits relevant in the Indian context which need the services of an actuary for compliance of the accounting standard, whilst finalizing the financial statements are:- Gratuity Compensated Absences (Earned Leave) Compensated Absences (Sick Leave) Post Retirement Medical Benefits Superannuation (Pension Benefits), Etc. Frequent items to be conversant with the subject are:- Projected Unit Credit Method (PUC) Present Value of Obligation Current Service Cost Interest Cost Actuarial Gains/Losses Employer’s Expense Experience Adjustment on Plan Liabilities Experience Adjustment on Plan Assets Current & Non-Current Liabilities We provide actuarial services for compliance of the standards :- AS-15 (Revised 2005) Ind AS – 19 IAS-19 US-GAAP We have expertise, experience and in-depth knowledge in this field. We have a large clientele spread in almost all sectors of the economy in Public and Private Sectors including Multinational Companies, Limited Companies, Schools, Hospitals, Banks, Electricity/Power Companies etc. etc. All assignments undertaken by us are subject to terms & conditions. For more details log on to www.mlsodhiactuary.com

Hi 

 

We are working as a Trust in Bangalore. We have opened an account for gratuity with LIC this year and depositing gratuity amount in that account. Do we need to get the actuarial valuation of gratuity done again in this case for the financail year 2017-18.

 

Thanks

1. Brief about Gratuity Benefit

As per guidelines of The Payment of Gratuity Act 1972 (Amended) gratuity is a statutory obligation on the shoulders of the employer to make the payment of Gratuity within 30 days to his employees as soon as it becomes payable.(Refer Sub Section (2) of Section 7 to the Act).

2. Applicability

Compliance of this act is applicable to all organizations such as a factory, mine, oilfield, port, railways, plantation, shops, establishments or Educational institution having 10 or more employees on any day in the preceding 12.

3. Determination of Gratuity Amount

The amount of Gratuity payable to an employee on his exit from service, according to “The Payment of Gratuity (Amendment) Act 2018 ”, in force at present, is:- 

(Wages of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit) 

This is subject to a ceiling limit of 20,00,000/- effective from 29.03.2018. The Gratuity Ceiling Limit can be raised by the employer to give additional benefits to his employees.

4. Conditions for payment of Gratuity

Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:

(a) On his superannuation 

(b) On his resignation 

(c) On his death or disablement due to injury or disease. 

In the case of (c) vesting condition of 5 years does not apply.

5. Impact of Increasing Wages and Length of Employment of Future payments of Gratuity

Gratuity Benefits depends upon last drawn monthly wages and is linked to the length of service, normally it goes on increasing from the time when the employee joins service and the time of his exit from service due to the annual increase in salary and increasing service period.

For Example. If Mr. A at Age 48, joins the Company where retirement Age is 60 yrs. with a Basic Pay of Rs. 2,60,000/- per month and there is a change in wages @ 10% annually, then Gratuity Payments for next 5 years and on *retirement will be:-

On Completion of 1 Yr - (15/26)* 2,86,000*1 = 1,50,000/-

On Completion of 2 Yrs - (15/26)*3,14,600*2 = 3,63,000/-

On Completion of 3 Yrs - (15/26)*3,46,060*3 = 5,98,950/-

On Completion of 4 Yrs - (15/26)*3,80,670*4 = 8,78,460/-

On Completion of 5 Yrs - (15/26)*4,18,730*5 = 12,00,788/-

On Completion of 12 Yrs - (15/26)*8,15,991*12 = 56,49,198/-*

6. Provisions for Employer under the Payment of Gratuity Act 1972 (Amended)

Section 7 of the Act has kept the obligation for payment of gratuity act on the shoulders of the employer, few provisions of this section act are listed below:-

1. As soon as Gratuity becomes payable, it employers responsibility to determine the amount of gratuity and inform it to employee in writing (Refer subsection 2 of Section 7 of the Act).

2. The employer shall arrange to pay the amount of gratuity within 30 days from the date when it becomes mandatory. (Refer Sub-section 3 of Section 7 of the Act).

3. If the amount of gratuity is not paid within 30 days then the amount of gratuity and simple interest will be paid by the employer to the employee for the duration when the payment is not made to the employee. (Refer Sub-section 4 of Section 7 of the Act).

7. Options for Gratuity Liability Management

From point 5 & 6, it is clear that the Gratuity Liability increase exponentially with the increase in wages of employee and service period of employee. Also, it is employers responsibility to pay the gratuity to the employee in any case. Companies have generally 2 options for discharging the Gratuity Liability: -

1. Pay as go options – In this option, the employer makes provision of Gratuity Liability by taking an Actuarial Valuation Report/ Certificate from An Actuarial Service provider in Compliance of AS 15 (Revised 2005) in their Financial Statement and whenever an employee leaves the organization, the employer pays him gratuity from his own resources.

2. Funding Option – In this option, the Employer creates an irrevocable Gratuity Trust and gets the approval from Income Tax Department and contribute funds into the Gratuity Trust annually and get tax benefits section 36 (1) (v) of the income tax act, 1961 and as and when an employee leaves the organization, gratuity amount paid by the gratuity trust.

8. Why Funding Option is preferred by organizations?

Companies make provision of Gratuity liability in the balance on annually on an accrual basis based on actuarial report but it is not allowed as deduction whilst computing net Income of Income Tax (Refer Section 47A (7) of Income Tax Act 1961), So companies prefer to create Gratuity Trust. To avail the Tax Benefit under benefits section 36 (1) (v) of the income tax act, 1961 for Initial and Annual Ordinary Contribution, employer prefer Funding Option.

There are 2 major categories of Gratuity Trust, which is based on the Investment Management of the Contribution received from the organization.

(a) Self Managed Trust - In this category of Gratuity Trust, Trustee manages the investment of contribution received from the employer in the manner prescribed by the Government of India vide Rules 101 & 67 of Income Tax Rules, 1962 and earn tax-free Interest. Contribution received from the employer and interest earned from the Investment together is used to discharge the gratuity liability of employees of the organization. 

(b) Insurer Managed Trust - In this category of Gratuity Trust, Trustee approach LIC or other Insurer for management the investment of contribution received from the employer. LIC or other Insurer company receive the contribution from the employer Investment is done by the LIC or other Insurer company. Few Benefits of LIC or other Insurer Managed Gratuity Trust is as under:-

(i) The job of investment and interest is paid by the LIC or other Insurer company on the accumulated funds. 

(ii) In case of death while in service, the service period is counted while calculating the gratuity as if the person has served the company up to his Normal Retirement Date. It is a special feature of LIC Managed Gratuity Fund.

(iii) LIC or other Insurer the company maintains the fund under the name of the trust.

(iv) Investment of funds is taken care by LIC or other Insurer company & Interest is declared as per the performance of Total Fund and credited to the individual trust fund.

(v) At the time of exit of employee, trustee send discharge and advice LIC or other Insurer company to make payment of Gratuity as per Scheme to the Trust.

The establishment of Gratuity Trust requires in-depth knowledge of various rules/regulations and expertise of various professionals. We have 10 years of experience in providing above Consultancy Services and We have collaboration with leading Finance Professionals, Litigation Partners, Chartered Accountants, Company Secretaries, Registered Valuers & Heads of Insurance Companies to complete the assignment. In the past 10 years, we have given Consulting Services for Gratuity Trust Formation, Gratuity & Leave Encashment Policy Restructuring and Actuarial Valuation Services to CFOs, Directors, Heads of HR, Finance and Tax Planning Department of the Companies. Our clientele is spread in all sectors of the Indian Economy, in the Public & Private Sectors which covers areas of Manufacturing, Software, Technology, Electricity, Electronics, Call Centers, Banks, Educational Institutes, Schools, Universities, Hotels, Hospitals, Hospitality Companies, etc. etc. The Services offered by us are as under:-

1. Consulting Services for Gratuity Trust Formation.

2. Consulting Services for Gratuity Trust Investment in Group Gratuity Schemes.

(a) Traditional Group Gratuity Schemes of LIC

(b) Unit Linked Gratuity Schemes of all Private Insurance Companies.

3. Consulting Services for Gratuity & Leave Policy Restructuring as Employee Retention Policy. 

4. Consulting Services for Legal issues involved in Gratuity & Leave Encashment Policy. 

5. Specialized Consulting Support Services for Registered Valuer's valuations:-

(a) Actuarial Valuations under Gratuity & Leave Encashment plan - For compliance of AS 15(R)

(b) Plant and Machinery Valuations- For compliance of AS 10

(c) Land and Building Valuations- For compliance of AS 10

(d) Securities or Financial Assets Valuations- For Compliance of Section 42 of Companies Act

(e) Merchant Banker Valuations - For Compliance of Section 42 & 62(i)(c) of Companies Act

6. Consulting Services for Investment in Immediate & Deferred Annuities as retention benefit for highly productive employees or as a retirement benefit.

7. Consulting Services for all types of Group, General, Health insurances such as Marine Insurances, EAR Insurance, Corporate Property, Fire Insurances, etc.

In case you or your clients have a requirement for the above service then you can contact us. 

Tikaram Chaudhary

Gratuity Trust Fund Formation & Compliance Valuations Consultant

Office Address: R 11, F/F, R Block, Vikas Nagar, New Delhi -110059

Mobile Number : 9211637063

Email Id :  & , 

Blog: https://gratuitytrustfundconsultant.blogspot.com

Website: https://gratuity-trust-fund-consulta...business.site/

Linked-In Profile: https://www.linkedin.com/in/tikaram-chaudhary-a5727848/ 

(All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.)