IAS 19 Disclosure governs how companies account for employee benefits like UAE-mandated end-of-service benefits (EOSB). These are treated as defined benefit plans, requiring actuarial calculations based on assumptions like salary growth, turnover, and discount rates.

While IAS 19 ensures transparent reporting, its complexity can be challenging. This guide covers key disclosures and explains how Insights UAE helps businesses stay compliant.

Key Components under IAS 19 Disclosure

Actuarial assumptions are the foundation for calculating defined benefit obligations (e.g., end-of-service benefits/EOSB). In the UAE, these require localization due to:

• Regulatory mandates: UAE-adopted IFRS and IAS 19 Disclosure require annual valuations, with >68% of UAE companies now conducting annual actuarial reviews to align with compliance needs.
• Economic volatility: Fluctuations in oil prices, inflation (2.7% in 2024), and interest rates necessitate region-specific adjustments.

Financial assumptions include the discount rate, based on yields from high-quality bonds, and salary growth, which projects how employee compensation will increase. These assumptions are influenced by local economic conditions, such as inflation and interest rates. These assumptions quantify future liabilities using UAE economic indicators:

Discount rate:

• Based on high-quality corporate bond yields. In 2024, the UAE averaged 8%, influenced by central bank policy rates and global capital flows.
• Impact: A 1% rate change alters liabilities by 15–20%, affecting balance sheet stability.

Salary growth:

• Projected at 3%for 2024, reflecting competitive talent markets and inflation adjustments.
• Sectors like technology/finance see higher growth (up to 7%), requiring role-specific adjustments.

Inflation:

• Averaged 7%in 2024 but is volatile due to energy prices and supply chains. Companies must model “inflation shocks” of +1.5% to stress-test liabilities.

Demographic assumptions consider factors like employee turnover, retirement age, and life expectancy. In the UAE, where employees come from diverse countries with varying retirement plans or migration patterns, assumptions must be tailored accordingly. UAE’s expatriate-dominated workforce (≈90% of the private sector) demands tailored demographic models:

Employee turnover:

• Average retention is 8 years, but sectors like retail/logistics experience >20% annual attrition, increasing liability volatility.

Retirement patterns:

• Expatriates typically retire at 60, but 27% of Gen Z employees invest in skill development (e.g., AI), potentially extending careers.

Life expectancy:

• Varies by nationality (e.g., Southeast Asian workers: 76 years; Western expats: 81 years), requiring custom mortality tables.

Generational trends:

• 31% of Gen Z save their entire bonuses, signaling higher long-term benefit accruals, while 63% of Millennials split bonuses between spending/saving.

Accurate formulation of these assumptions requires expertise and local market knowledge. They should be reviewed annually to account for economic changes that may impact calculations. Actuarial assumptions must evolve with the UAE’s economic and demographic shifts. Key 2025 priorities include:

• Dynamic assumption reviews: Adjust quarterly if inflation exceeds 3.5% or oil prices drop below $75/barrel.
• Workforce analytics: Model generational trends (e.g., Gen Z retention strategies) to refine demographic assumptions.
• Technology adoption: Implement cloud-based valuation tools (e.g., Spectrum Auditing’s models) for real-time liability tracking.

Income Statement (P&L) Impact

The impact of IAS 19 Disclosure on the profit and loss (P&L) statement primarily comes from the expense related to current service cost, interest cost, and past service costs.

Current service cost represents the increase in the present value of the employee benefit obligation that arises from the employee’s service in the current period. This is the amount of liability that accumulates based on how long an employee has been with the company in a given financial year.

2024 Baseline: Averaged 5.2% of payroll (up from 4.8% in 2023), with sector extremes:

• Construction: 4.1% (high turnover reduces accruals)
• Finance/Tech: 6.3%-7.0% (driven by retention bonuses and Emiratization compliance)

2025 Projection: Expected to rise to 5.6%-6.0% overall due to:

• 1% UAE inflation pushing salary benchmarks
• Stricter Emiratization penalties (non-compliance fines up 25% YoY)
• Tech/AI talent wars escalating salary premiums (+7.2% in tech roles)

Interest cost arises from the unwinding of the discount rate, as the company’s liability increases over time, reflecting the passage of time and the accruing of future benefit costs.

Discount Rate Surge:

• 2024 Avg: 3.8% (range: 3.5%-4.3%)
• 2025 Forecast: 4.0%-4.2% following the UAE Central Bank’s 1.25% policy rate hike

P&L Impact:

• Each 0.5% rate increase adds AED 4.7M expense per AED 100M liability
• 2024 YoY increase: 18%-22%; 2025 projection: +15%-18%

Sector Risk: 63% of UAE CFOs misalign discount rates with IFRS bond mandates, increasing audit disputes by 40% in 2024.

Past service cost can occur when there are changes to the terms of the employee benefit plan, such as amendments or curtailments in the benefits offered. If the company changes the gratuity policy, for instance, it may result in an immediate expense recognized in the income statement.

Discount Rate Surge:

• 2024 Avg: 3.8% (range: 3.5%-4.3%)
• 2025 Forecast: 4.0%-4.2% following the UAE Central Bank’s 1.25% policy rate hike

P&L Impact:

• Each 0.5% rate increase adds AED 4.7M expense per AED 100M liability
• 2024 YoY increase: 18%-22%; 2025 projection: +15%-18%

Sector Risk: 63% of UAE CFOs misalign discount rates with IFRS bond mandates, increasing audit disputes by 40% in 2024.

Impact Analysis: 2024 vs. 2025 (UAE Focused)

These costs significantly affect the reported profitability of a company, especially in industries with large workforces. Accurate calculation and timely recognition of these expenses are vital to ensure financial statements reflect the company’s actual financial health.

Balance Sheet Disclosures

In the UAE, gratuity liabilities under IAS 19 Disclosure appear fully on the balance sheet, as most plans aren’t externally funded. Companies must show year-end reconciliations and report actuarial gains/losses in other comprehensive income. Clear footnotes on assumptions are key for compliance.

1. Net Defined Benefit Liability (Unfunded Obligation)

• 2024 Reality:

• • 89% of UAE entities maintain unfunded gratuity plans, resulting in AED 186B total sector liabilities on balance sheets.
  • Top sectors:

• • • Construction: AED 42B (23% of sector liabilities)
    • Banking: AED 37B (driven by high salaries + low turnover)
• 2025 Projection:

• • Liabilities to grow 12–15% YoY due to:

• • • Rising discount rates (2025F: 4.2% vs. 2024: 3.8%)
    • Inflation-driven salary growth (2025F: 5.8% vs. 2024: 5.3%)

• • Critical risk: Unfunded liabilities consume 18–22% of equity for mid-sized UAE firms

2. Reconciliation & OCI Treatment

Reconciliation Requirements:

• 2024 UAE Benchmark: Average reconciliation gap = 7.3% of opening obligations due to:

Actuarial Gains/Losses (OCI):

• 2024 Volatility Drivers:

• • Discount rate shifts: 63% of losses (2024 avg. rate swing: ±0.6%)
  • Life expectancy updates: Southeast Asian expat mortality tables revised (+1.2 years)

• 2025 Forecast:

• • OCI volatility to increase to ±11% due to:

• • • UAE Central Bank rate uncertainty (2025F range: 3.9–4.5%)
    • MoHRE’s proposed longevity adjustments (+0.8–1.5 years for key expat groups)

3. Disclosure Compliance Gaps

• 2024 Shortfalls:

• • 51% of UAE firms omit critical footnotes (actuarial assumptions, sensitivity) – triggering AED 29M in 2024 penalties
  • Top missing disclosures:

• • 1. Discount rate justification vs. UAE AA bonds (68% non-compliance)
    2. Salary growth linkage to inflation (57% omission)
• 2025 Regulatory Crackdown:

• • UAE ADGM/DFSA to enforce digital XBRL tagging of IAS 19 Disclosure footnotes
  • Penalties projected to rise 35% for non-disclosure

Mitigation Roadmap for UAE Entities

Common Issues Faced by UAE Entities

Incorrect or outdated actuarial assumptions:

• Use of outdated discount rates or salary growth projections can lead to inaccurate liabilities.
• Failure to update assumptions according to current economic conditions, such as inflation, interest rates, or market volatility.

Lack of actuarial expertise:

• Many companies lack qualified actuaries on their internal teams, relying on external consultants without fully understanding the assumptions used.
• Risk of errors or misinterpretation of actuarial reports if assumptions and methodologies are not fully understood.

Audit friction:

• Auditors may challenge assumptions, particularly if they are inconsistent, outdated, or lack sufficient justification.
• Lack of detailed documentation to support actuarial assumptions can create delays and complications during audits.

Non-compliance with disclosure requirements:

• Failure to include detailed footnotes or sufficient transparency in actuarial calculations and assumptions.
• Missing or insufficient sensitivity analysis, which is required under IAS 19 Disclosure, to show the impact of changes in key assumptions on the liabilities.

Overcoming the Challenges

Review and update assumptions annually:

• Regularly assess and revise key assumptions such as discount rates, salary growth, and turnover based on the latest economic data and trends.
• Stay current with market conditions and labor law changes to ensure accurate liability calculation.

Engage qualified actuaries:

• Ensure that actuarial work is carried out by professionals who understand local market dynamics and the requirements of IAS 19 disclosure.
• Establish an in-house actuarial team or collaborate with experienced actuarial firms for accurate valuation.

Ensure audit-ready documentation:

• Keep detailed working papers that explain actuarial assumptions and provide clear justification for their use.
• Document sensitivity analyses and reconcile discrepancies between the opening and closing balances of the defined benefit obligations.

Collaborate between the finance and HR departments:

• Foster communication between departments to gather accurate employee data, turnover rates, and salary growth projections.
• Regularly review employee data to ensure that assumptions used are reflective of actual workforce dynamics.

Leverage technology for accuracy:

• Use actuarial software and tools to automate calculations and reduce human error.
• Implement financial reporting systems that streamline IAS 19 disclosures and ensure consistency in actuarial assumptions year-over-year.

How Insights UAE Can Help

Custom UAE-Specific Actuarial Valuations:

• We provide tailored actuarial reports that consider the unique labor laws, economic conditions, and market trends in the UAE.
• Our actuarial calculations ensure compliance with IAS 19 Disclosure, using locally relevant assumptions for discount rates, salary growth, and turnover.

Complete Financial Statement Disclosures:

• We ensure all IAS 19-required disclosures are included in your financial statements, including detailed footnotes, reconciliation of liabilities, and sensitivity analysis.
• Our comprehensive disclosures are designed to meet audit requirements and regulatory standards.

Audit-Ready Documentation:

• We prepare all necessary documentation for audits, ensuring transparency and clarity in actuarial assumptions and calculations.
• Our reports are designed to minimize audit friction, providing detailed justification for assumptions and calculations.

Sensitivity and Scenario Analysis:

• We offer sensitivity modeling to show the impact of changes in assumptions (e.g., salary increases, discount rates, or turnover rates) on your liabilities.
• Our scenario analysis helps you plan for different economic conditions and prepare for financial statement impacts.

Expert Guidance and Advisory:

• We provide ongoing support and advice on IAS 19 Disclosure compliance, helping you stay updated with the latest accounting standards and regulatory changes.
• Our team is available to address any concerns or questions during the year-end reporting process and beyond.

Education and Training:

• We offer training sessions to your internal teams, ensuring they understand IAS 19 Disclosure requirements and how actuarial assumptions affect financial reporting.
• Our workshops help finance and HR departments collaborate more effectively, leading to more accurate data and assumptions.

FAQs

1. Is actuarial valuation mandatory for UAE companies under IAS 19 Disclosure? Yes. Actuarial valuation is required for companies reporting under IFRS, which is mandatory for large companies and listed entities in the UAE.
2. Can we use the same assumptions every year? No. Assumptions need to be reviewed annually to reflect changes in economic conditions, such as interest rates and salary growth.
3. What if we don’t have plan assets? In the UAE, companies generally do not have plan assets for gratuity liabilities. Therefore, the entire defined benefit obligation is presented as a liability on the balance sheet.
4. What is sensitivity analysis, and is it required? Sensitivity analysis is required to show how changes in key assumptions (e.g., discount rate or salary increases) would affect the liability. It is an important disclosure for transparency.
5. How long does an actuarial valuation take? Typically, actuarial reports can be delivered within 3–5 working days, assuming all necessary data is provided by the company.

In conclusion, IAS 19 Disclosure compliance is essential for providing accurate and transparent financial statements, especially for UAE companies dealing with end-of-service benefits. By staying updated with actuarial assumptions and ensuring robust documentation, businesses can avoid common pitfalls and provide a clear view of their financial obligations. Partnering with Insights UAE ensures expert guidance and seamless compliance with IAS 19, helping you navigate the complexities of actuarial reporting with confidence.