AS 15 prescribes the accounting and disclosure for employee benefits — all forms of consideration given by an enterprise in exchange for services rendered by employees. This covers everything from salaries and wages to gratuity, pensions, leave encashment, and other post-employment and long-term benefits. The standard's most demanding requirements concern defined benefit plans such as gratuity, which must be measured using actuarial techniques. For any employer, AS 15 is directly relevant to how staff costs and retirement obligations appear in the accounts.
Objective and scope
The objective is to prescribe the accounting and disclosure for employee benefits. Employee benefits are all forms of consideration given by an enterprise in exchange for service rendered by employees. The standard applies to all employee benefits except share-based payments (which are dealt with separately). It groups benefits into categories that drive their accounting: short-term employee benefits, post-employment benefits, other long-term employee benefits, and termination benefits.
Short-term employee benefits
Short-term employee benefits are those (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service — for example, wages, salaries, short-term compensated absences, and bonuses payable within twelve months. The accounting is straightforward: the undiscounted amount of the benefit is recognised as an expense in the period the employee renders the service (with a liability for any amount unpaid, or a prepayment if payment exceeds the obligation). No actuarial assumptions or discounting are involved because the benefits are settled quickly.
Post-employment benefits — the key distinction
Post-employment benefits are payable after the completion of employment — such as gratuity, pension, and post-employment medical benefits. The accounting turns entirely on whether the plan is a defined contribution plan or a defined benefit plan.
Defined contribution plans. The enterprise pays fixed contributions into a separate fund and has no obligation to pay further amounts if the fund cannot pay all employee benefits — the actuarial and investment risk falls on the employee. The accounting is simple: the contribution payable for the period is recognised as an expense (with a liability for unpaid contributions). Provident fund contributions to a government-administered scheme are a common example. Once the contribution is paid, the employer's obligation is discharged.
Defined benefit plans. These are post-employment benefit plans other than defined contribution plans — the enterprise's obligation is to provide the agreed benefits, and it bears the actuarial and investment risk. Gratuity under the Payment of Gratuity Act is the classic Indian example. If the fund is insufficient, the employer must make up the shortfall. Because the ultimate cost depends on future variables — salary growth, employee turnover, mortality, and discount rates — defined benefit obligations must be measured using actuarial valuation.
Measuring a defined benefit obligation
For a defined benefit plan, the enterprise must determine the present value of its defined benefit obligation and the related current service cost using the Projected Unit Credit Method, an actuarial method that attributes benefit to periods of service and makes actuarial assumptions about demographic variables (such as employee turnover and mortality) and financial variables (such as future salary increases and the discount rate). The discount rate is determined by reference to market yields on government bonds. The amount recognised as a liability is the present value of the defined benefit obligation, less the fair value of any plan assets out of which the obligation is to be settled.
The charge to the profit and loss account for the period comprises the current service cost, interest cost, expected return on plan assets, and — importantly under AS 15 — actuarial gains and losses. Under AS 15, actuarial gains and losses are recognised immediately in the profit and loss account; they are not deferred or recognised elsewhere. (This is a key difference from Ind AS 19 — see below.)
Other long-term and termination benefits
Other long-term employee benefits — such as long-service benefits, long-term disability benefits, and leave encashment that does not fall due within twelve months — are also measured using actuarial techniques, but with a simpler presentation than post-employment defined benefit plans; actuarial gains and losses are again recognised immediately in profit and loss.
Termination benefits are payable as a result of an enterprise's decision to terminate an employee's employment before normal retirement, or an employee's decision to accept voluntary redundancy. They are recognised as a liability and an expense when, and only when, the enterprise is demonstrably committed to the termination. Because termination benefits do not provide future economic benefits, they are expensed immediately.
Disclosure
For defined benefit plans, disclosures are extensive: the enterprise's accounting policy, a general description of the plan, a reconciliation of the opening and closing balances of the present value of the defined benefit obligation and of the plan assets, the amounts recognised in the balance sheet and profit and loss account, the principal actuarial assumptions used (discount rate, expected salary increases, and so on), and other specified information. These disclosures allow users to understand the nature and financial effect of the enterprise's retirement obligations.
A brief illustration
An employer contributes a fixed 12% of salary to a government provident fund each month — a defined contribution plan, so the contribution is simply expensed as it accrues, and the employer has no further obligation. The same employer also provides gratuity under the Payment of Gratuity Act — a defined benefit plan. Here, an actuary uses the Projected Unit Credit Method to estimate the present value of the gratuity obligation, taking assumptions about salary growth, employee turnover, mortality, and a discount rate based on government bond yields. Suppose the obligation is measured at ₹50 lakh and plan assets are ₹40 lakh; a net liability of ₹10 lakh is recognised. The year's profit and loss charge includes current service cost, interest cost, expected return on plan assets, and any actuarial gains or losses arising from changes in assumptions or experience — all recognised immediately in profit and loss under AS 15.
How AS 15 compares with Ind AS 19
AS 15 and Ind AS 19, Employee Benefits share the same architecture — the same categories of benefit, the same defined contribution versus defined benefit distinction, and the same use of the Projected Unit Credit Method for defined benefit obligations. The most significant difference concerns actuarial gains and losses (remeasurements). Under AS 15, actuarial gains and losses are recognised immediately in the profit and loss account. Under Ind AS 19, remeasurements of the net defined benefit liability (including actuarial gains and losses) are recognised in other comprehensive income (OCI) and are not subsequently reclassified to profit or loss. This means that under Ind AS, the volatility from changes in actuarial assumptions bypasses profit or loss and sits in OCI, whereas under AS 15 it flows straight through the profit and loss account. Ind AS 19 also uses a "net interest" approach on the net defined benefit liability rather than separately presenting interest cost and expected return. These differences flow from the OCI concept that exists under Ind AS but not under AS.
Common pitfalls
Recurring issues include treating a defined benefit plan (such as gratuity) as if it were a defined contribution plan and simply expensing contributions, rather than obtaining an actuarial valuation; using inappropriate actuarial assumptions or discount rates; failing to offset plan assets against the obligation correctly; and omitting the extensive defined benefit disclosures.
Why this is cleaner on a unified system
Employee benefit accounting depends on accurate, complete payroll and service data — salaries, tenure, headcount movements — which feed both the routine expensing of short-term benefits and the actuarial valuation of gratuity and other long-term obligations. When payroll and the accounting ledger sit in one connected system, the data an actuary needs and the resulting liabilities and expenses draw on a single source of truth, making the recognition of employee benefits and the required disclosures far more reliable than reconciling payroll records against separately maintained accounts. This tight link between payroll and the books is central to the unified approach our guides describe.
This article is a detailed educational summary of AS 15 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of AS 15 as issued by the ICAI before relying on it, and consult a qualified chartered accountant (and a qualified actuary for defined benefit valuations) for application to your specific circumstances.