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Ashish Goyal (Practicing CA) (56 Points)

15 April 2011  

How can we get comfort on the Discount Rate used by the Actuary for the Accrued Liability relating to Pension, Gratuity & Leave Encashment (i.e. how can we verify that rate) in case of a company?

 3 Replies

numerica.in (Actuary) (42 Points)
Replied 16 April 2011


You would need to ask your actuary what the average future amortization service is. It is also called "average future service (decrement adjusted)" or some other names. The actuary would have calculated that as part of the valuation process.

Next step would be to look at YTM on government bonds as at the valuation date. Sources are available on the internet - FIMMDA website is a good example. Look at government bonds which have average term similar to the average future amortization service and compare YTM on those bonds with the discount rate taken in actuarial valuations. The two should be close

Please note that this only a rough method to provide you some confidence on suitability of discount rate chosen by the actuary. Actuaries sometimes tend to use more complex methods to determine the discount rate (e.g. deriving entire spot yield curve by bootstrapping techniques) so do not expect to see a YTM exactly same as the discount rate taken by the actuary

Hope that helps

1 Like

Tikaram Chuadhary (Client Relation Manager)   (22 Points)
Replied 24 July 2014

It is with reference to the assumption of discount rate for calculation of benefit obligations. In this connection your attention is drawn to paragraph 78 of AS 15 (revised 2005) which is produced herein below- “The rate used to discount post-employment benefit obligations (both funded and unfunded) should be determined by reference to market yields at the balance sheet date on government bonds. The currency and term of the government bonds should be consistent with the currency and estimated term of the post-employment benefit obligations.” For reference of discount rate you may refere following websites : https://www.pnbgilts.com/ https://www.rbi.org.in/ TIKARAM CHAUDHARY 9211637063

Tikaram Chaudhary (Founder of Gratuity Trust Fund Consultant)   (1847 Points)
Replied 21 January 2016

Requirement of Actuarial Valuation ervices in compliance of IndAS-19 under various employee benefits plans such as Gratuity, Leave Encashment , Pension, etc. :-

Accounting & Disclosure for Employee Benefits in Compliance of IndAS-19

IndAS-19 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:-

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)
Projected Benefit Obligation at the Start of the Accounting Period

Current Service Cost

Past Service Cost


Interest Cost in Indian GAAP

Net Interest Cost (Income) in IAS -19 (Revised 2011) under IFRS

Other Comprehensive Income and Reimbursements in IAS -19 (Revised 2011) under IFRS

Actuarial Gain/Losses in AS -15 (Revised 2005)

Actuarial (gains)/losses arising from experience adjustment in IndAS 19

Actuarial (gains)/losses arising from changes in Financial Assumptions in IndAS 19

Actuarial (gains)/losses arising from changes in Demographic Assumptions in IndAS 19

Projected Benefit Obligation at the End of the Accounting Period

Current and Non- Current Obligations as required Revised Schedule VI in Indian GAAP


*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 :-

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


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