Treatment of leave schemes under AS 15 and Ind AS 19 is widely misunderstood. Companies end up spending resources on actuarial valuation on schemes that may not require any, while fail to identify schemes that may require one.
Companies run several types of leave benefit schemes for their employees. Privilege leaves (also known as earned or annual leaves), sick leaves, casual leaves, maternity leaves, jubilee leave awards etc. may all be available to the employees.
Indian accounting standards, AS 15 and Ind AS 19, both require that a liability should be recognised in the reporting companies' balance sheets in respect of these leave schemes.
What is the current market practice?
Unlike gratuity, companies have a high degree of flexibility in designing the terms and rules of their leave benefit schemes. For example, companies can choose how many leaves need to be awarded each year (subject to any regulatory minimum), whether these leaves can be carried forward and for how long, whether unused leaves can be encashed and whether they can be encashed while in service or only on exit.