Severance pay liability is one month’s gross salary for each year served. Severance pay is certain under certain conditions. Hence, the probability of the payment requires a detailed calculation. We calculate severance pay liability according to International Accounting Standard No.19 and Turkish Accounting Standard No.19, using actuarial methods.
The severance pay liability acquires an actuarial approach with the financial and demographic assumptions are modeled correctly by an actuary.
The discount rate is a crucial parameter in the actuarial valuation of employee benefits. In Turkey, where the severance pay liability covers a large part in the long term benefits, the discount rate is determined by the initiative of companies since the end of 2010. Principles of actuarial valuation require that maturity date of plan coincides with the maturity date of financial instruments. On the other hand, in a long term projection such as the severance pay liability, short term fluctuations adversely affect the health of actuarial valuations.
Our approach in determining the long term discount rate and explanations for this important issue follows;
Dated 16 June 2011changes to the content of the International Accounting Standard 19 (IAS 19) took effect as of January 1st, 2013.
The changes affect the severance pay liability accounting, that is the most common actuarial valuation in the Turkey.
Adendum pursues all changes for its clients. If severance pay liability figure of your company is valuated by Adendum, appropriate information will be shared with you.
If you want to be informed about the changes, you can follow the link IFRS.
The bylaw concerning the details of IFRS applications have been published on the Turkish Official Gazette dated 13.06.2013. The bylaw defines which companies must obey International Financial Reporting Standards in their financial tables and defines exceptional cases.