Indian cos not prepared to apply AS-15

BANGALORE: A survey of Indian corporates done by Watson Wyatt indicates that half of the 250-odd companies were not prepared to implement the new accounting standard(AS-15) relating to measurement of employee benefit liabilities.

The survey which was done over a four month period ending January 2007 in-dicates that over 80% of the firms either had no scheme or had unfunded schemes relating to leave encashmnet and post-retirement medical costs.

The new AS-15 guidelines aligns the Indian accounting standard with global practice and would change the way in which employee benefits are reported in India.

The new standard is an improvement over AS-15(as issued in 1995) as the former is market based standard and the scope of the new guideline extends beyond retirement benefits to cover all employee benefits(defined as all form of deferred compensation given by an enterprise in exchange for services ren-dered by employees).

The report also highlights the fact that contributions can no longer be taken as cost arising out of volatility of reported cost from year to year.

Interestingly enough, the report also has a word of caution relating to the bank-ing sector. "The new guideline requires immediate adjustment to be made to the opening balance of reserves and surplus for any shortfall that may arise re-lating to employee benefit liabilities," said Mr Bob Charles, managing con-sultant of Watson Wyatt.

Mr Charles says that the accounting treatment that would arise due to these changes may have a material impact on a bank's tier-I capital.

The issue of treatment of employee benefits is a major one relating to various sectors of the economy. While typically government employees are not im-pacted, employees in PSUs and the private sector need to prepare for the new guidelines as these changes directly impact the P & L.