ACTUARIAL SOCIETY OF THE PHILIPPINES

PRACTICE GUIDE ON REPORTING UNDER

PHILIPPINE ACCOUNTING STANDARD NO. 19 (PAS 19)
EFFECTIVE 4 March 2008
Background
The Accounting Standards Council has prescribed the use of Philippine Accounting Standard No.
19 in accounting for the costs of providing retirement benefits for employees of an enterprise.
Much of required information on the accounting for defined benefit plans will have to be supplied
by actuaries.
Purpose
This Practice Guide is intended to provide valuation and reporting guidelines to practitioners
rendering actuarial valuation reports under PAS 19. By doing so, it aims establishing a common
understanding by actuaries of PAS 19 requirements. This Guide should complement the ASPs
Standards of Actuarial Practice on the Valuation of Retirement Plans rather than replace it.
Valuation method
PAS 19 specifically requires the use of the Projected Unit Credit Method in the valuation of longterm and post-employment defined benefits. Such imposition, however, should not constrain the
actuary in choosing other methods for use in funding valuations. It is quite possible, therefore,
that the actuary will perform separate valuations for accounting and funding involving a single
defined benefit plan.
Ancillary Benefits
Local defined benefit retirement plans often contain benefits for other modes of employee
separation such as resignation, death and disability. If these benefits can be classified as defined
benefits also, they should be treated as post-employment benefits and valued using the Projected
Unit Credit Method also.
Sometimes, a defined benefit retirement plan will contain provisions for involuntary separation
(e.g. retrenchment or redundancy). Such benefits should generally be considered as termination
benefits rather than post-employment benefits if it is the employers action which gives rise to the
liability rather than the employees service. One way to test this is the certainty of payment. If the
benefit is certain to be paid and only the timing is uncertain, then it should be considered as a
post-employment benefit. However, if the benefit is not certain to be made, then it should be
considered as a termination benefit.
Termination benefits are reported as expense and liability when and only when the enterprise is
demonstrably committed to terminate the employment of employees prior to normal retirement or
provide termination benefits as a result of an offer made in order to encourage voluntary
redundancy. While such benefits may be reported as part of the plan provisions, termination
benefits should not be included in the valuation and this fact must be clearly disclosed in the
valuation report. Please note that the occurrence of terminations within the year may or may not
cause a curtailment adjustment in the post-employment benefit expense for the year.

Discount rate
Paragraph 78 of PAS 19 states that: The rate used to discount post-employment benefit
obligations (both funded and unfunded) shall be determined by reference to market yields at the
balance sheet date on high quality corporate bonds. In countries where there is no deep market
in such bonds, the market yields (at balance sheet date) on government bonds shall be used.
The currency and term of the corporate bonds or government bonds shall be consistent with the
currency and estimated term of the post-employment benefit obligations.
Since there is no deep corporate bond market in the Philippines, PAS 19 effectively mandates the
use of yields on government bonds for discounting post-employment benefit obligations. The
most readily available source of such information is the Philippine Dealing & Exchange Corp. or
PDEx which publishes Treasury reference rates in its website (www.pdex.com.ph). Actual done
rates are also available at the Bureau of Treasury website (www.treasury.gov.ph). Unfortunately,
done rates are available only occasionally and even when they are, they are not given for all
durations. However, if and when done rates are available, they are the preferred rates to use. In
any case, the gross rate should be used and no adjustment for any tax effects should be applied
in discounting a liability.
The approach that best meets the requirement of PAS 19 would be to estimate the duration of
each obligation and apply the appropriate discount rate to that obligation. However, this would
entail the use of several discount rates in a single plan valuation. To cut down on the effort (and
expense) of performing such detailed work, it is acceptable to use a single discount rate. ( PAS
19 supports the use of single average discount rates. ) The recommended approach for such
an option would be to use a weighted average discount rate where the weights are the expected
benefit payments. A less precise but still acceptable approach would be to get the weighted
average duration (still using expected benefit payments as weights) and use the discount rate
corresponding to such average duration. Since government bond yields are quoted only for
specific tenors, it may be necessary to interpolate the rates if the duration of a particular benefit
payment does not coincide with the available rates.

Realistic Assumption-Setting
The objective of PAS 19 is to present a fair value of both plan liabilities and assets. As such
assumptions in the valuations used must be individually and collectively realistic. Demographic
and financial assumptions which may materially affect the valuation must be made and included
in the valuation. Conservatism may not be used as an excuse to exclude such assumptions.
Plan Assets
PAS 19 requires the use of fair values in reporting plan assets. Therefore, actuaries must ensure
that they work only with such values in reporting plan assets under PAS 19. Smoothened asset
values which are sometimes used in funding valuations are not considered fair values. It must
also be noted that PAS 19 excludes unpaid contributions and shares of stocks of the plan
sponsor that are not publicly traded from the definition of plan assets.
Asset Ceiling
PAS 19 limits the reporting of a defined benefit asset to the lower of (a) the amount determined
under paragraph 54 and (b) the total of:
i any cumulative unrecognized net actuarial losses and past service cost and
ii the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
A refund is available to an entity only where it has an unconditional right to the refund:
i. during the life of the plan, without assuming that the plan liabilities must be settled in order
to obtain the refund; or
ii. assuming the gradual settlement of plan liabilities over time until all members have left the
plan; or
iii. assuming the full settlement of plan liabilities in a single event.
An entity should measure the economic benefit available as the amount of surplus at balance
sheet date that it has a right to receive as a refund, less any associated costs.
Economic benefit in the form of a reduction in future contributions must be measured as the lower
of the surplus and the present value of future service costs to the entity over the shorter of the
expected life of the plan and the expected life of the entity.
For more guidance in the determination and measurement of the economic benefits arising from
refunds or reduction in future contributions, practitioners are encouraged to refer to IFRIC 14.
Reporting Requirements
PAS 19 requires several disclosures. As a minimum, practitioners should include in their PAS 19
valuation reports the following actuarial items:
i. present value of the defined benefit obligation (active employees/pensioners)
ii. present value of the defined benefit obligation (terminated employees for use in case of
curtailments)
iii. present value of the defined benefit obligation (settled portion for use in case of
settlements)
iv. current service cost
v. interest cost
vi. expected return on assets
vii. past service cost (segregated into vested and non-vested components)

viii. actuarial gains/losses on plan assets and liabilities

ix. experience adjustments and effects of changes in actuarial assumptions expressed either
as amounts or percentages (of plan liabilities or assets as the case may be)
x. average expected working life of employees (for use in amortizing gains/losses if corridor
approach is used)
xi. average expected term of obligation (for use when single weighted discount rate is used)
xii. present value of economic benefit (for use in asset ceiling test)
xiii. all actuarial assumptions used
These are in addition to the required reporting information prescribed under the ASP Standards of
Actuarial Practice on the Valuation of Retirement Plans.
Practitioners are encouraged (but not required) to include all the other disclosure requirements of
PAS 19 such as:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.

amounts to be recognized in balance sheet (reconciliation of funded status)

amounts to be recognized in the income statement
amounts to be recognized in statement of realized earnings and expenses (SORIE)
movement in the net liability (asset) recognized in the balance sheet
movement of the present value of obligation during the year
movement of the plan asset balance during the year
recognition of actuarial gains/losses
effects of curtailments/settlements
asset ceiling test

Practitioners reporting the above accounting information must ensure that they are
knowledgeable with respect to the accounting requirements of PAS 19.