Every business that employs people offers some form of employee benefit beyond salary — gratuity, earned leave, pension contributions, or post-retirement medical care. The AS 15 (Revised 2005) prescribes how these obligations should be measured, recognised in the books of accounts, and disclosed in financial statements. But the standard does not apply uniformly to all entities. Applicability varies based on the size, nature, and classification of the business.
Step 1 — Identify Whether You Are a Company or a Non-Company Entity
The Companies Act, 2013 governs companies incorporated under it. The relevant distinction here is between SMC (Small and Medium-sized Companies) and Non-SMC companies:
- SMC: Companies with turnover below ₹250 crore AND borrowings below ₹50 crore. Exempted from certain detailed disclosures under AS 15, but still required to measure and recognise liabilities using the Projected Unit Credit Method (PUCM).
- Non-SMC: Companies with turnover above ₹250 crore OR borrowings above ₹50 crore. Full compliance with AS 15 — measurement, recognition, and disclosures — is mandatory.
Non-company entities — partnerships, LLPs, trusts, societies, and cooperative institutions — are classified by the ICAI into four levels (Level I through Level IV), each with different compliance requirements.
Step 2 — Classify Non-Company Entities
The ICAI classifies non-company entities as follows:
| Level | Criteria |
|---|---|
| Level I | Listed (or listing-in-process) debt/equity securities; carrying on insurance business; turnover > ₹250 crore; borrowings > ₹50 crore; banks; financial institutions; holding/subsidiary of any of the above. |
| Level II | Does not meet Level I criteria, but turnover between ₹50–250 crore OR borrowings between ₹10–50 crore. |
| Level III | Does not meet Level I criteria, but turnover between ₹10–50 crore OR borrowings between ₹2–10 crore. |
| Level IV | Turnover below ₹10 crore AND borrowings below ₹2 crore. |
Step 3 — Determine the Applicable Paras of AS 15
Once the entity type is established, the compliance obligation follows a clear pattern:
| Entity Type | Actuarial Valuation (PUC Method) | Full Disclosures |
|---|---|---|
| Company — Non-SMC | Required | Required |
| Company — SMC | Required | Exempt |
| Non-Company — Level I | Required | Required |
| Non-Company — Level II (employees > 50) | Required | Exempt |
| Non-Company — Level II (employees ≤ 50) | Simplified basis | Exempt |
| Non-Company — Level III (employees > 50) | Required | Exempt |
| Non-Company — Level III (employees ≤ 50) | Simplified basis | Exempt |
| Non-Company — Level IV | Not required | Not required |
For Level II and Level III entities with 50 or fewer employees, the obligation may be measured on a "discontinuance basis" or using other arithmetic means — actuarial valuation using the Projected Unit Credit Method is not mandatory, though it remains best practice and is increasingly expected by lenders and investors.
What About Ind AS 19?
Ind AS 19 (Employee Benefits) is the standard applicable to companies that follow Indian Accounting Standards (Ind AS). Mandatory adoption of Ind AS applies to:
- Listed companies and companies in the process of listing whose net worth is ₹250 crore or more.
- Unlisted companies with net worth of ₹500 crore or more.
- Holding, subsidiary, joint venture, and associate companies of any of the above, from accounting periods beginning on or after 1 April 2017.
For companies within the Ind AS framework, Ind AS 19 applies instead of AS 15. The measurement principles (Projected Unit Credit Method) are broadly similar, but there are key differences — most notably the treatment of actuarial gains and losses through Other Comprehensive Income (OCI) rather than the P&L.
Benefits That Require Actuarial Valuation
Where PUCM is required, it applies to the following types of employee benefits:
- Post-employment defined benefits — gratuity, employer-managed pension plans, post-retirement medical care.
- Other long-term employee benefits — accumulating earned leave (privilege leave), long-service awards, deferred bonus arrangements.
Short-term benefits (salaries, bonuses, non-accumulating sick leave) and defined contribution plans (like provident fund contributions at a statutory rate) do not require actuarial valuation.
What Should You Do?
- Determine your entity type and size classification before your year-end close. If you are uncertain, consult your statutory auditor or actuary.
- Identify all employee benefits that may constitute defined benefit obligations — gratuity and earned leave are the most common, but pensions and post-retirement medical benefits also qualify.
- Commission an actuarial valuation before finalising your financial statements. Standard turnaround time with complete data is typically 48–72 hours.
- If you are an SMC or smaller entity, note that exemption from detailed disclosures does not mean exemption from measurement — you still need a valuation, just not the extended note disclosures.