22 March 2022 (updated 31 October 2023)


Global IFRS Institute | Uncertain times

What’s the issue?

External events – e.g. natural disasters, geopolitical unrest, climate effects or inflationary pressures – may cause economic uncertainty and market volatility that impacts how companies estimate and measure employee benefits and recognise share-based payment expenses.

The accounting implications will require careful consideration. 

The impacts include how companies:

  • measure employee benefits – e.g. updated actuarial valuations of defined benefit liabilities might be required; 
  • recognise share-based payment expenses – e.g. companies may need to revise the estimates used to recognise these expenses and consider the implications of any modifications to these arrangements; and 
  • recognise employee termination expenses – e.g. companies may need to recognise employee termination expenses related to restructuring plans. 

Economic uncertainty and market volatility will impact how companies estimate and measure employee benefits and recognise share-based payment expenses.

Getting into more detail

Restructuring plans 

If a company implements a restructuring plan that includes employee redundancies, then it recognises an expense and a corresponding liability for termination benefits at the earlier of when it:

  • recognises a restructuring provision under IAS 37 Provisions, Contingent Liabilities and Contingent Assets that includes the payment of termination benefits; and
  • can no longer withdraw the offer of those benefits. [IAS 19.165, Insights 4.4.1460] 

A company recognises a restructuring provision when it has a formal plan with sufficient detail of the restructuring and has raised a valid expectation in those affected by the plan – i.e. it has either started to implement the plan or has announced the main features to those affected by it. [IAS 37.72, Insights 3.12.230]

Updating estimates, including actuarial assumptions

Companies may need to consider the potential impact on estimates, including actuarial assumptions used in measuring employee benefits. 

There could be an impact on certain demographic and financial assumptions used to measure these benefits – e.g. the discount rate and inflation rate used to measure the present value of employee benefit obligations. 

Companies preparing interim financial statements should consider whether net defined benefit obligations/assets need to be remeasured. Under IAS 19 Employee Benefits, remeasurements are recognised in the period when they arise; therefore, if adjustments at the interim reporting date are considered to be material, then they will need to be recorded at that date. An updated measurement of plan assets and obligations is required when a plan amendment, curtailment or settlement is recognised. In addition, significant market fluctuations may trigger the need for an updated actuarial valuation. [IAS 34.IE.B9, Insights 4.4.360, 5.9.150]

Practically, many companies obtain actuarial valuations a few months before the reporting date. This is acceptable if the valuation is adjusted for material subsequent events up to the reporting date. Therefore, companies should consider the timing of their actuarial valuation reports and whether they reflect material events between the valuation and reporting dates. [Insights 4.4.350] 


Plan assets

The current economic uncertainty and market volatility will also lead to volatility in the fair value of plan assets, which may affect the funded status of employee benefit plans. 

IAS 19 requires a company to determine the fair value of plan assets with sufficient regularity such that the amounts recognised in financial statements do not differ materially from the amounts that would be determined at the reporting date. Accordingly, in volatile market conditions, it is important to consider whether updating is required for any valuation carried out in advance of the reporting date, even if it was obtained fairly recently, in order to reflect changes in values of assets held by the plan through to the reporting date.  

Share-based payments 

Companies with share-based payments whose vesting depends on achieving non-market performance conditions – e.g. earnings per share targets – may need to revise their estimate of the number of instruments expected to vest, which would impact the charge in the income statement over the remaining vesting period. However, expectations of achieving market performance conditions – e.g. achieving a specified total shareholder return and non-vesting conditions – and grant-date fair value are not revised. [Insights 4.5.500]

Modifications to share-based payment arrangements will need to be assessed as to whether they are either beneficial or non-beneficial to the employee and accounted for accordingly. For example, if plans are modified such that market conditions are easier to achieve, then this may constitute a beneficial modification that increases the value of the award in the hands of the employee. In this case, the incremental fair value is recognised over the modified vesting period. [Insights 4.5.1190]

Actions for management

  • Assess when to recognise an expense and corresponding liability for termination benefits.
  • Update estimates, including actuarial assumptions used to measure employee benefits, as appropriate. 
  • In preparing interim financial statements, consider the need for updated actuarial valuation reports and whether any plan remeasurements should be recognised. 
  • For any actuarial valuation reports obtained before the reporting date, consider how to reflect material events occurring between the valuation and reporting dates. 
  • Update the estimate of the number of awards that will vest for achieving non-market performance conditions in share-based payment arrangements.
  • Evaluate whether modifications to share-based payment arrangements are non-beneficial or beneficial. 

References to ‘Insights’ mean our publication Insights into IFRS®

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