Strategic Business Reporting (International) · Employee benefits

IAS 19 Scope and Short-term Employee Benefits for ACCA SBR

Updated 11 October 2026 · Fact-checked

IAS 19 covers all employee benefits except share-based payment. It splits them into short-term, post-employment, other long-term and termination benefits. Short-term benefits are due within 12 months after the period in which service is given. You recognise the undiscounted cost as an expense and a liability as service is received, less amounts already paid.

Understand IAS 19 Scope and Short-term Employee Benefits

IAS 19 Employee Benefits applies to all benefits an entity gives in exchange for service from employees. Share-based payment is outside its scope because IFRS 2 covers it. Benefits can be paid to employees, their dependants or their beneficiaries.

IAS 19 sorts benefits into four categories:
- Short-term employee benefits: expected to be settled wholly before 12 months after the end of the annual period in which the service was rendered. Examples are wages, salaries, social security contributions, paid annual leave, paid sick leave, profit shares, bonuses and non-monetary benefits such as a company car.
- Post-employment benefits: pensions and post-employment medical care.
- Other long-term employee benefits: for example long-service leave or long-term disability benefits.
- Termination benefits: paid because the entity ends employment or the employee accepts voluntary redundancy.

The category matters because it decides the measurement. Short-term benefits are the simple case. You do not discount them and you do not use actuarial methods. You measure the undiscounted amount you expect to pay and recognise it as the employees work. The debit is an expense, unless another standard allows it to be capitalised into an asset's cost. For example, wages of staff building your own factory go into PPE under IAS 16. The credit is a liability for anything unpaid at the reporting date, or a prepaid asset if you paid more than the service received.

Compensated absences are paid leave. They are either accumulating or non-accumulating. Accumulating absences carry forward and can be used in future periods. They can be vesting (employee is paid for unused leave on leaving) or non-vesting. You recognise the expense when employees render the service that increases their entitlement. The measure is the additional amount you expect to pay because of unused entitlement at the reporting date. Non-vesting still creates a liability, as the possibility that staff leave before using it only affects measurement. Non-accumulating absences, such as sick leave that lapses, are recognised only when the absence occurs.

Profit-sharing and bonus plans are recognised when the entity has a present legal or constructive obligation to pay as a result of past events, and can make a reliable estimate. A constructive obligation exists when the entity has no realistic alternative but to pay, for example because of past practice. If the plan pays out only to staff still employed at a later date, you still recognise a liability, but you allow for the staff expected to leave. If the payments are not all due within 12 months, the benefit is treated as an other long-term benefit.

Key rules to remember

Short-term benefit recognition: Expense and liability = undiscounted amount expected to be paid for service rendered − amounts already paid; No discounting and no actuarial assumptions for short-term benefits.
Accumulating compensated absence: Liability = unused days expected to be taken × expected daily pay cost; Use the additional amount expected to be paid. Vesting does not change the principle. Non-vesting only affects the number of days expected to be used.
Short-term test: Settled wholly within 12 months after the end of the period in which service is rendered; If not, treat as other long-term benefit.
Profit-sharing and bonus recognition: Recognise when: present legal or constructive obligation + reliable estimate; Allow for employees expected to leave if payment depends on staying.
Non-accumulating absences: Recognise when the absence takes place; Includes sick leave that lapses if unused, and maternity leave.

How to solve IAS 19 Scope and Short-term Employee Benefits questions

Use this approach for any short-term benefit question in SBR.

1Identify the benefit type and category: short-term, post-employment, other long-term or termination. Check the 12-month test.
2Decide whether IAS 19 applies. Exclude share-based payment, which falls under IFRS 2.
3Check for an obligation: legal or constructive. Look for past practice, announcements or contract terms.
4For bonuses, estimate the expected payout. Adjust for employees expected to leave and use the best estimate.
5For leave, split into accumulating and non-accumulating. For accumulating, work out the unused days expected to be taken and cost them at the expected pay rate.
6Compute the undiscounted amount. Deduct any amount already paid to find the liability or prepayment.
7Post the journal. Debit expense, or an asset if another standard allows capitalisation. Credit liability.
8Write the answer for the scenario: state the rule, apply the numbers and explain the effect on profit and liabilities.

Quickest way: Four-question check

When to use it: Use when time is short and the scenario lists several benefits.

Is it within 12 months and for current service? If so, short-term.
Is there a legal or constructive obligation? If so, recognise.
Is it accumulating leave? If so, accrue the expected unused days. If not, do nothing until absence.
Compute undiscounted. Expense = liability less paid. Then state the journal in one line.

Common mistakes in IAS 19 Scope and Short-term Employee Benefits

Discounting short-term benefits to present value.
Students carry over the discounting from defined benefit plans or IAS 37.
Fix: Short-term benefits are measured undiscounted. Only post-employment and other long-term benefits need discounting.
Ignoring non-vesting accumulating leave.
Students think no payment is due if the employee leaves with unused days.
Fix: A liability still arises. Reduce it for the days expected not to be used, but do not drop it.
Accruing sick leave that lapses.
Students treat all absences as accumulating.
Fix: Non-accumulating absences are recognised only when the absence occurs.
Not recognising a bonus because it has not been formally approved.
Students look only for a legal obligation.
Fix: Consider constructive obligation. Consistent past payment with no realistic alternative creates one.
Forgetting employees expected to leave when a bonus requires continued employment.
Students accrue the full pool.
Fix: Estimate the leavers and reduce the pool. The obligation still exists, but the amount is lower.
Treating all staff costs as expenses.
Students overlook other standards.
Fix: If staff work on a self-constructed asset, capitalise the cost under IAS 16 or IAS 38 as appropriate.

Worked examples

Example 1

Alpha has 200 employees. At 31 December Year 1, each is entitled to 10 days paid leave a year. Unused leave carries forward for one year and is non-vesting. Alpha expects that 190 employees will take all their leave and the other 10 employees will have on average 4 unused days each at the year end. Average daily pay is $150. Calculate the liability.

Show the solution

Identify: accumulating, non-vesting paid leave, short-term benefit.
Measure the expected additional payment for unused days carried forward. The question says 10 employees have 4 unused days each, so the carried-forward total is 10 × 4 = 40 days.
Cost at $150: 40 × 150 = $6,000.
Journal: Dr Employee cost expense $6,000, Cr Accrued leave liability $6,000.
No discounting is applied.

Answer: Alpha recognises a liability and expense of $6,000 for accumulated unused leave.

Example 2

Beta's year end is 30 June. Its staff bonus scheme is paid 20% of profit before bonus, as an annual practice. Profit before bonus is $2,400,000. Payment is made in September and only to staff in employment on payment date. Beta estimates that 4% of the bonus will not be paid because of leavers. Should Beta recognise a liability and how much?

Show the solution

Check: bonus paid within 12 months and for service in the year, so it is a short-term benefit.
Obligation: it is an annual practice, so Beta has at least a constructive obligation. Recognise.
Gross bonus: 20% × $2,400,000 = $480,000.
Allow for leavers: 4% × $480,000 = $19,200.
Net liability: $480,000 − $19,200 = $460,800.
Journal: Dr Staff cost expense $460,800, Cr Accrued bonus liability $460,800.

Answer: Beta recognises a liability and expense of $460,800 at 30 June.

Exam tips

Always state the category and the 12-month test first. The marker looks for it.
Use the words legal or constructive obligation when explaining bonus recognition.
Show a clear journal. Examiners reward simple, correct entries with brief reasoning.
In a scenario with ethics themes, such as manipulated bonus accruals or leave provisions, comment on earnings management and show scepticism.
Keep to what the question asks. Short-term benefit answers are brief, so do not add actuarial detail.

Practice questions from Employee benefits

IAS 19 Scope and Short-term Employee Benefits in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IAS 19 Scope and Short-term Employee Benefits: frequently asked questions

What are the four types of employee benefit under IAS 19?

They are short-term benefits, post-employment benefits, other long-term benefits and termination benefits. Each category has its own measurement rules. Short-term benefits are the simplest.

Are short-term employee benefits discounted?

No. You measure them at the undiscounted amount expected to be paid. No actuarial method is needed.

What is the difference between accumulating and non-accumulating compensated absences?

Accumulating absences can be carried forward and used in later periods, so a liability arises as service is rendered. Non-accumulating absences lapse if unused, so you recognise cost only when the absence occurs.

When do you recognise a bonus under IAS 19?

You recognise it when there is a present legal or constructive obligation from past events and you can estimate the amount reliably. Past practice can create a constructive obligation even without a contract.