Page 173 - Group Insurance and Retirement Benefit IC 83 E- Book

accordance with AS 15 (revised 2005), the underlying data is accurate, the assumptions

are appropriate and the information required for compliance with the disclosure
requirements of the Standard have been provided by the insurance company. A separate

certificate from another qualified actuary is not necessary.

Let us look at alternative scenarios when the company has to adopt Revised Accounting
Standard AS (15).

Scenario I: Company was not making any provision towards Gratuity Liability

Scenario II: Company was making provision according to old standard AS (15) of

1995

Scenario III: company was having a Group Gratuity Policy of LIC but the Fund

accumulated with LIC was not adequate compared to amount of actuarial provision
required by Revised Accounting Standard AS (15).

The liability arising on implementation of Revised AS (15) is clearly prior period item
which should be debited to Profit & Loss Account

Scenario II

Under old Accounting Standard Actuarial Method was prescribed and as such
incremental liability arising on account of switch-over from old standard to new standard

will be adjusted against Revenue Reserves / Surplus as provided in the Accounting
Standard.

However many employers do not include employees for computation of liability if they

have not completed five years of service. This interpretation was always wrong

77777since gratuity liability is incurred for every year of service and not merely on
vesting of liability after five years. Any incremental liability arising on account of

inclusion of such employees will be treated as prior year charge and debited to Profit &

Loss Account.