Hi Smitha,
The valuation certificate for statutory payments is not very important prior to the Satyam scam. The statutory payments are valued by the management themselves and provisions are made in their books of accounts accordingly. After the Satyam scam, all statutory payments are focused on obtaining a valuation certificate to ensure the accuracy of accruals and deposits. Not only gratuity but other statutory payments have to be accompanied by a valuation certificate as per accounting standards. Now, accounting standards are given foremost importance after such a scam.
I apologize, I do not have a specific individual to handle such certifications. Typically, they will charge a nominal amount for the certification, not as high as you mentioned.
With warm regards,
T. Kumar
From India, Madras
1The valuation certificate for statutory payments is not very important prior to the Satyam scam. The statutory payments are valued by the management themselves and provisions are made in their books of accounts accordingly. After the Satyam scam, all statutory payments are focused on obtaining a valuation certificate to ensure the accuracy of accruals and deposits. Not only gratuity but other statutory payments have to be accompanied by a valuation certificate as per accounting standards. Now, accounting standards are given foremost importance after such a scam.
I apologize, I do not have a specific individual to handle such certifications. Typically, they will charge a nominal amount for the certification, not as high as you mentioned.
With warm regards,
T. Kumar
From India, Madras
Hi Smita,
Gratuity valuation from an actuary is compulsory if your company has employed more than 20 employees and in some specific cases. Please refer to AS15 (Accounting standards) for more information. If you are exempt from actuarial valuation, you can perform a basic arithmetic calculation (basic + da * 26/15 * number of years completed in service with the company).
Contact details:
Name: Thanawala
Tel: (91 22) 6694 3311
From India, Madras
Gratuity valuation from an actuary is compulsory if your company has employed more than 20 employees and in some specific cases. Please refer to AS15 (Accounting standards) for more information. If you are exempt from actuarial valuation, you can perform a basic arithmetic calculation (basic + da * 26/15 * number of years completed in service with the company).
Contact details:
Name: Thanawala
Tel: (91 22) 6694 3311
From India, Madras
Dear All,
Thank you so much for your replies. I am confused now, as per a few replies, gratuity valuation by a certified actuary is mandatory, but a few are saying you can get it done within the company itself. Please advise.
Thanks,
Smita
Thank you so much for your replies. I am confused now, as per a few replies, gratuity valuation by a certified actuary is mandatory, but a few are saying you can get it done within the company itself. Please advise.
Thanks,
Smita
Experts, please advise. After reading the posts, I have many queries, and I request CiteHR members with real and complete knowledge to guide all members on the following points:
1. I am assuming that gratuity payment provision is to be made in the annual books of accounts every year. Is it okay to make a provision of actual gratuity payable as of 31st March to all the eligible employees onboard?
2. In case the company has a gratuity trust and a tie-up with an insurance company, and is paying regular premiums to them, is there a need to make a separate provision again?
3. If the provision is to be made as per point no. 1 above, it will be a huge provision but it is a simple arithmetic calculation, and there is no need for an actuary and expert.
4. How is actuarial calculation different? Will the provision be higher or lower than point no. 1 above? Why? And how?
Experts, please educate.
Thanks & Regards
From India, Pune
1. I am assuming that gratuity payment provision is to be made in the annual books of accounts every year. Is it okay to make a provision of actual gratuity payable as of 31st March to all the eligible employees onboard?
2. In case the company has a gratuity trust and a tie-up with an insurance company, and is paying regular premiums to them, is there a need to make a separate provision again?
3. If the provision is to be made as per point no. 1 above, it will be a huge provision but it is a simple arithmetic calculation, and there is no need for an actuary and expert.
4. How is actuarial calculation different? Will the provision be higher or lower than point no. 1 above? Why? And how?
Experts, please educate.
Thanks & Regards
From India, Pune
Dear Smita,
As far as I know, if you have more than 20-25 employees, you need to do a gratuity valuation annually. This is mainly from an accounting perspective as they do it for the balance sheet and P&L preparation. It is preferred if you use an actuary to do the valuation.
Our company uses:
Thanawala Consultancy Services,
Swagatam, 1st Floor,
Khar,
Mumbai - 400 052, India
Tel. No: (91 22) 6694 3311
Fax No: (91 22) 6694 3322
Website: firm of actuaries and consultants, actuaries and consultants firm, actuarial and various employee benefit-related consultancy services, employee benefits
They are reasonably priced and do a very systematic job.
Regards,
Rose S
From India, Mumbai
As far as I know, if you have more than 20-25 employees, you need to do a gratuity valuation annually. This is mainly from an accounting perspective as they do it for the balance sheet and P&L preparation. It is preferred if you use an actuary to do the valuation.
Our company uses:
Thanawala Consultancy Services,
Swagatam, 1st Floor,
Khar,
Mumbai - 400 052, India
Tel. No: (91 22) 6694 3311
Fax No: (91 22) 6694 3322
Website: firm of actuaries and consultants, actuaries and consultants firm, actuarial and various employee benefit-related consultancy services, employee benefits
They are reasonably priced and do a very systematic job.
Regards,
Rose S
From India, Mumbai
Dear Friend,
This is the first time I am hearing from you. If your organization has completed five years, you can get attached with LIC of India. Every financial year, you have to submit employee details of those who have joined and left, along with the existing basic and DA wages. Accordingly, they will send you your amount.
Regards,
RAVEESH
From India, Manipal
This is the first time I am hearing from you. If your organization has completed five years, you can get attached with LIC of India. Every financial year, you have to submit employee details of those who have joined and left, along with the existing basic and DA wages. Accordingly, they will send you your amount.
Regards,
RAVEESH
From India, Manipal
After reading the posts, I have many queries and I request citehr members with real and complete knowledge to guide all members on the following points:
1. I am assuming that gratuity payment provision is to be made in the annual books of accounts every year. Is it okay to make a provision of actual gratuity payable as of 31st March to all the eligible employees on board.
Provisioning has to be done for all employees, including those who have not completed 5 years of service, and should be accruing every month.
2. In case the company has a gratuity trust and a tie-up with an insurance company, and is paying a regular premium to them, is there a need to make a separate provision again.
Provisioning in the books of accounts may be done based on actuarial valuation and also considering other assumptions such as the number of new joiners, attrition, increment %, etc. If there is a tie-up with the insurance company, the actuarial valuation will be done by them, but the assumptions should be given to them.
3. In case the provision is to be made as per point no. 1 above, it will be a huge provision, but it is a simple arithmetic calculation and there is no need for an actuary or an expert.
Expert advice is required because the liability will be calculated after the assumptions, and it is very difficult for us to calculate. As a statutory requirement, actuarial valuation should be approved by the actuary.
4. How is actuarial calculation different? Will the provision be higher or lower than point no. 1 above? Why? And How?
The actuarial valuation and a simple gratuity calculation will definitely be different because the actuarial value is calculated after considering the assumptions.
Hope this clarifies
1. I am assuming that gratuity payment provision is to be made in the annual books of accounts every year. Is it okay to make a provision of actual gratuity payable as of 31st March to all the eligible employees on board.
Provisioning has to be done for all employees, including those who have not completed 5 years of service, and should be accruing every month.
2. In case the company has a gratuity trust and a tie-up with an insurance company, and is paying a regular premium to them, is there a need to make a separate provision again.
Provisioning in the books of accounts may be done based on actuarial valuation and also considering other assumptions such as the number of new joiners, attrition, increment %, etc. If there is a tie-up with the insurance company, the actuarial valuation will be done by them, but the assumptions should be given to them.
3. In case the provision is to be made as per point no. 1 above, it will be a huge provision, but it is a simple arithmetic calculation and there is no need for an actuary or an expert.
Expert advice is required because the liability will be calculated after the assumptions, and it is very difficult for us to calculate. As a statutory requirement, actuarial valuation should be approved by the actuary.
4. How is actuarial calculation different? Will the provision be higher or lower than point no. 1 above? Why? And How?
The actuarial valuation and a simple gratuity calculation will definitely be different because the actuarial value is calculated after considering the assumptions.
Hope this clarifies
Dear friend,
Beside gratuity, any other HR expense must be considered for provision in the accounts books so that the accounts department may correctly record the accrued expenses for the coming year. Provisions should also be made for leave encashment, bonuses, unpaid salaries, etc. It is essential to adhere to systematic accounting standards.
Best regards,
Umesh Chaudhary
welcomeumesh@yahoo.com
From India, Delhi
Beside gratuity, any other HR expense must be considered for provision in the accounts books so that the accounts department may correctly record the accrued expenses for the coming year. Provisions should also be made for leave encashment, bonuses, unpaid salaries, etc. It is essential to adhere to systematic accounting standards.
Best regards,
Umesh Chaudhary
welcomeumesh@yahoo.com
From India, Delhi
Hi Deepa Sudhakar,
Your response is really elaborate and has depth. I still have a doubt and request your clarification.
1) Correct me if I am wrong. As I understand it, the amount of provision for gratuity payable as of March 31st will be the actual gratuity payable to all employees on board. In short, if all employees are checked out on March 31st, that will be the amount of gratuity payable. This calculation involves simple arithmetic. To make this calculation, you do not need an actuary. An actuary or Chartered Accountant is likely needed to certify that the correct amount is provisioned for.
2) If my statement in (1) is correct, then the amount of gratuity calculated by X, Y, an Actuary, or a Chartered Accountant should be the same.
Thanks & Regards
From India, Pune
Your response is really elaborate and has depth. I still have a doubt and request your clarification.
1) Correct me if I am wrong. As I understand it, the amount of provision for gratuity payable as of March 31st will be the actual gratuity payable to all employees on board. In short, if all employees are checked out on March 31st, that will be the amount of gratuity payable. This calculation involves simple arithmetic. To make this calculation, you do not need an actuary. An actuary or Chartered Accountant is likely needed to certify that the correct amount is provisioned for.
2) If my statement in (1) is correct, then the amount of gratuity calculated by X, Y, an Actuary, or a Chartered Accountant should be the same.
Thanks & Regards
From India, Pune
Hi,
The calculation that you are talking about is discontinuance liability, and it is only an input to calculate the actuarial value. This will be the actual amount of gratuity payable. The actuarial value will usually be less than the discontinuance liability. The net liability will be calculated at the end of the FY, and it becomes the responsibility of the organization to keep it completely funded.
Actuarial Valuation parameters/Assumptions usually include mortality rate, attrition rate, salary inflation, discount rate, recognition of actuarial gain or loss, and also the method of valuation. The most commonly used method, as prescribed by the Institute of Actuaries and AS 15, is the Unit Credit Method.
Calculation of the Fair value of the assets should also be done. This definitely requires an expert's intervention.
Regards,
Deepa
The calculation that you are talking about is discontinuance liability, and it is only an input to calculate the actuarial value. This will be the actual amount of gratuity payable. The actuarial value will usually be less than the discontinuance liability. The net liability will be calculated at the end of the FY, and it becomes the responsibility of the organization to keep it completely funded.
Actuarial Valuation parameters/Assumptions usually include mortality rate, attrition rate, salary inflation, discount rate, recognition of actuarial gain or loss, and also the method of valuation. The most commonly used method, as prescribed by the Institute of Actuaries and AS 15, is the Unit Credit Method.
Calculation of the Fair value of the assets should also be done. This definitely requires an expert's intervention.
Regards,
Deepa
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