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Can I use formula method to calculate gratuity provision? Is formula method an actuarial technique?
in IAS 19 - Employee Benefits by

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Well, I am afraid formula method does not appear to be an acceptable actuarial technique as per the current IAS 19. Refer IAS 19.76 which says what should "actuarial assumptions" comprise of.

(a) demographic assumptions about the future characteristics of current and former employees (and their dependants) who are eligible for benefits. Demographic assumptions deal with matters such as:
(i) mortality (see paragraphs 81 and 82);
(ii) rates of employee turnover, disability and early retirement;
(iii) the proportion of plan members with dependants who will be eligible for benefits;
(iv) the proportion of plan members who will select each form of payment option available under the plan terms; 
(v) claim rates under medical plans.

(b) financial assumptions, dealing with items such as:
(i) the discount rate (see paragraphs 83–86);
(ii) benefit levels, excluding any cost of the benefits to be met by
employees, and future salary (see paragraphs 87–95);
(iii) in the case of medical benefits, future medical costs, including
claim handling costs (ie the costs that will be incurred in
processing and resolving claims, including legal and adjuster’s
fees) (see paragraphs 96–98)
(iv) taxes payable by the plan on contributions relating to service
before the reporting date or on benefits resulting from that

So the formula method may not be acceptable by your auditors.


by Level 5 Member (11.6k points)
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