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AASB 119 Australian Accounting standard Editing Services
The primary object of this AASB 119 Australian accounting standard assignment is to understand the accounting standard prescribed by the Australian Accounting Standard Board with respect to the accounting disclosures of the employee benefits reported by the entity. This report has employed the AASB 19 Employee Benefits to consider the required accounting principles for the reporting entity in its financial report. The application of respective accounting standard has been illustrated with the help of Major Mining Multinational BHP Billiton Annual Report for the last reporting period.
2.0 About the Organisation
The Australian multination corporation with engagements into the mining and petroleum sector. BHP Billiton is known as the largest mining organisation across the world based on the revenues and it is also the third largest organisation around the globe based on the market capitalization.
This dual listed organisation is a result of merger happened in the year of 2001 between two major multinational mining companies –
- Australian Broken Hill Proprietary Company Limited (BHP)
- Anglo–Dutch Billiton plc
The BHP Billiton which has a majority of stake is listed on the Australian exchange is known among the investors as a largest organisation in terms of market capitalization. Furthermore, the organisation has mining and processing operation around the world with a spread of 25 countries and availing the services of close to 41000 employees.
3.0 Employee Benefits
The employee benefits can be categorized as different types of compensations provided to the employees by the organisation beyond the regular payment of salaries and wages. It is significant to understand the employee benefits are generally considered as future benefits provided to the employee in exchange of their present services catered to the organisation. The primary purpose of these benefits is to ensure the economic security of all the employees performing their duties and providing financial security for post retirement period. The commonly known employee benefits as provided to employee are following –
- Housing Benefits
- Group Insurance
- Retirement Benefits
- Social Security
- Educational allowances
- Pension Benefits
- Other Specialized Benefits
4.0 Accounting Standard AASB 119
The primary objective of this accounting standard is to recommend the accounting policies and required disclosure for the employee benefits. In accordance with this accounting standard, it is expected from an entity to recognize –
- Liability of the firms with respect to the employee who is providing services to the firm in lieu of future benefits to be paid
- Any type of expenditure incurred by the entity for the consumption of the economic benefit during the service period of employee
4.1 Post Employment Benefits
The post-employment benefit category encompasses all the following items with respect to the future benefits of the employee –
- Retirement Benefits; Payments at the retirement like pension or lump sum payment.
- Life Insurance to be provided for post employment period
- Medical Care to be provided for post employment period
Based on the arrangement the whereby firms provide all the post employment benefits as post employment plan s and the accounting standard is applicable to all such arrangements. Moreover, it depends on the economic substance whether the post employment benefit plan is to be considered one of the following –
- Defined Contribution Plan
- Defined Benefit Plan
4.1.1 Defined Contribution Plan
Under this plan the legal obligation of the entity is limited as per the initial agreement with respect to the contribution to the fund. The accounting for the defined contribution plan is simple since the obligation of the entity is determined based on the contribution for the respective period. Moreover, it does not require any actuarial assumptions to determination of total obligation or expense since there is no probability of any type of actuarial gain or loss. All the obligations of reporting entity are to be measured based on undiscounted approach with an exception of obligations which are not expected to get settled completely within the period of 12 months after the period of annual reporting.
Disclosure Requirements: Based on the accounting standard (AASB 124) the entity is required to disclose the amount for defined contribution plan as an expense for all the key personnel within the organisation.
4.1.2 Defined Benefit Plan
Under defined benefit plan the future benefits of the employee are to be sorted out based on the total derived with the help of following factors
- Salary History of the employee
- Duration of Employment
- Employee Turnover
- Mortality rate of employees
- Trends of Medical Expenses
- Employee Contributions
- Final Salaries
The above calculation makes the accounting difficult for the entity since it requires the consideration of actuarial assumptions to measure the total value of obligation, expense and the possibility to assess whether there is actuarial gain on loss.
Disclosure: It is significant for the reporting entity to disclose all the details and accounting items pertaining to defined benefits plans since the ultimate cost of employee benefits is highly uncertain and this uncertainty is expected to persist for long. Hence it is important for the reporting entity to provide the required disclosures for the stakeholders of the firm.
As prescribed by the Australian Accounting Standard Board – Employee Benefits, the reporting entity must provide following types of disclosures: -
- Recognition of Net Defined Benefit Liability in the Balance Sheet for the reporting period
- In case of any surplus with respect to defined benefit asset the details to be provided
- Disclose the characteristics of the defined benefit plans and the associated risks
- Dependences, if any, to be disclosed with respect to reporting entity cash flow for defined benefit plans.
5.0 Disclosures Reported by BHP Billiton
5.1 Statement of Financial Position
5.2 Income Statement of BHP Billiton
5.3 Statement of Comprehensive Income for the year
5.4 Changes in Present Value of Defined Benefit Plan for the year
5.5 Changes in the valuation of Fair Value of Assets for the year
5.6 Segregation of Assets class
5.7 Actuarial Assumptions
5.8 Valuation of Employee Benefits
The present valuation of following items is being disclosed for the current year along with details of last four years to enable the comparison and correct evaluation of liability of the organisation –
- Defined Benefit Obligation
- Fair Value of Scheme Assets
- Post Retirement Medical scheme
5.8.1 Estimated Contribution
5.9 Key Personnel Compensation details
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