Background: As per the provisions of Section 129 of the Companies Act 2013, Indian and Multinational Companies Operating in India need to prepare the Financial Statements such as Balance Sheet & Profit/Loss Accounts at the closure of each financial year in compliance with Accounting Standards as stipulated in Section 133 of the Companies Act 2013. This ensures that they provide a true and fair view of the state of affairs of the company. The Accounting and Disclosure requirements for Employee Benefits Plans are laid down in the following 2 Accounting Standards issued by The Institute of Chartered Accountants of India (ICAI): 1. Accounting Standard 15 (Revised 2005) - AS 15 (Revised 2005) 2. Indian Accounting Standard 19 - IndAS 19 The main objectives of the above Standards are to prescribe the guidelines and disclosures for Accounting for Defined Benefit Plans (e.g., Gratuity, Leave Encashment, Pension, etc.). To comply with these standards, a company is required to recognize: (a) a liability when an employee has provided service to the company in exchange for defined benefits to be paid in the future; and (b) an expense when the company consumes the economic benefit arising from the service provided by an employee in exchange for defined benefits.
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ACCOUNTING STANDARDs FOR GRATUITY ACCOUNTING ON ACTUARIAL BASIS.docx