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Why is acturial valuation of leave balances required if the leaves are based on policy of use it or lose it.

SPAI PAIS's Profile

Firstly why is this needed when leaves are non accumulated.
1. any ways to reduce the liability arising out of actuarial valuation of leave balances.
2. MAny companies are doing away with specific leaves for the year and coming up with ’Self-Managed Paid Time off", how would that be treated.

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

1. If I follow the thought process in your question, I can also ask, If the liability is going to be zero at the end of the year anyways, why still track it or manage it? Does that sound off to you?

2. The purpose is to present the fair value of liability AT ANY POINT in the calendar year (or at least the most recent month close). This will include the actuarial valuation (if not the same with company EXPERIENCE/TRACK RECORD, ie, how the employees have historically used it) of the leave liability. The basis for the "expectations/projections" (whether historical or projected/expected) should be included in the footnotes.

3. If there are no standards, there is a possibility that at any point in the year, you can manipulate your balance sheet....and the financials (any time of the year) can be used for external purposes.

Example, let's say a prospective buyer asked for your February financials and intending to close the acquisition by second quarter, what leave liability number should be reflected? Are they entitled to know what type of liabilities and how much the company has?

P.S. This seems (to me) an ODD question for a Senior Manager for US GAAP.

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