Instruction No. 10/2016 of August 8 on Employee Benefits

INSTRUCTION NO. 10/2016 of August 8
SUBJECT: EMPLOYEE BENEFITS

Given the need to establish a set of procedures regarding the recognition, measurement, and disclosure of employee benefits, within the scope of the provisions established in Notice No. 06/2016, of June 22, on the general principles to be observed by Banking Financial Institutions, in the full adoption of International Accounting Standards/International Financial Reporting Standards.

This Instruction does not intend to make any interpretations of the International Accounting Standards/International Financial Reporting Standards, as such interpretations are developed exclusively by the IFRS Interpretations Committee and issued by the International Accounting Standards Board (IASB).

In accordance with the combined provisions of Article 21 and Article 51, both of Law No. 16/10 of July 15 – Law of the Bank of Angola, and Article 93 of Law No. 12/15 of June 17 – Law of the Bases of Financial Institutions.

I DETERMINE:

1. Object
   This Instruction establishes the procedures that Banking Financial Institutions must observe regarding the recognition, measurement, and disclosure of employee benefits, as provided for by International Accounting Standard 19 – Employee Benefits, hereinafter referred to as IAS 19.

2. Scope
   The addressees of the provisions contained in this Instruction are Banking Financial Institutions, hereinafter abbreviated as Institutions, under the supervision of the Bank of Angola, under the terms and conditions provided for in the Law of the Bases of Financial Institutions.

3. Definitions
   Without prejudice to the definitions established in the Law of the Bases of Financial Institutions, for the purposes of this Instruction, the following are understood:

3.1 Plan assets: assets that include:
a) assets held by a long-term employee benefit fund; and b) eligible insurance policies.

3.2 Qualified actuary: an individual or collective person who has demonstrated their competence at the actuarial level, and in compliance with the requirements established by the respective supervisory authority of the jurisdiction in which they carry out their activity.

3.3 Experience adjustments: adjustments resulting from the effects of differences between previous actuarial assumptions and those that actually occurred.

3.4 Eligible insurance policy: an insurance policy issued by an insurer that is not a related party of the reporting entity, when the amounts received:
a) can only be used to pay or finance benefits under a defined benefit plan; and b) are not available to the creditors of the reporting entity itself, even in the event of bankruptcy, and cannot be paid to the reporting entity, unless:

i. the amounts received represent surplus assets that are not necessary for the policy to satisfy all obligations related to benefits; or
ii. the amounts received are returned to the reporting entity for the reimbursement of paid benefits.

3.5 Termination benefits: benefits arising from the termination of the employment relationship with an employee before their normal retirement age, by decision of the Institution, or by decision of the employee in exchange for the same.

3.6 Short-term benefits: benefits that are not termination benefits, which must be settled in full within twelve months after the end of the annual reporting period in which the employees render services.

3.7 Employee benefits: all forms of remuneration granted by an Institution resulting from services rendered by employees or from the termination of employment.

3.8 Post-employment benefits: benefits, which are not termination or short-term benefits, to be settled after the termination of the employment relationship.

3.9 Current service cost: increase in the present value of the defined benefit obligation resulting from services rendered by employees in the current period.

3.10 Past service cost: increase in the present value of the defined benefit obligation relating to services rendered by employees in previous periods, resulting from changes to the plan or a significant reduction in the number of employees covered by the plan.

3.11 Deficit or surplus: difference between the present value of the defined benefit obligation and the fair value of plan assets, if any.

3.12 Actuarial gains and losses: variations in the present value of the defined benefit obligation resulting from experience adjustments, or from the effects of changes in actuarial assumptions.

3.13 Net interest on the net defined benefit liability (asset): variation, during the period, of the net defined benefit liability (asset) that results from the passage of time.

3.14 Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

3.15 Asset ceiling: the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

3.16 Settlement: a transaction that eliminates all future legal or constructive obligations regarding part or all of the benefits provided by a defined benefit plan, with the exception of a benefit payment made to, or on behalf of, employees that is established under the terms of the plan and included in the actuarial assumptions.

3.17 Projected unit credit method: a method by which each period of service gives rise to an additional unit of benefit entitlement, measuring each unit separately for the purposes of establishing the final obligation.

3.18 Funding level: corresponds to the ratio between the fair value of plan assets and the value of past service liabilities.

3.19 Constructive obligation: an obligation that arises from the actions of an entity, where:
a) through a established pattern of past practices, published policies, or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and b) as a consequence, the entity has created a valid expectation in those other parties that it will fulfill those responsibilities.

3.20 Legal obligation: an obligation that derives from:
a) a contract; b) legislation; or c) another operation of law.

3.21 Other long-term benefits: benefits, which are not short-term, post-employment, or termination benefits, provided that there is an expectation that they will not be settled in full within twelve months after the end of the annual reporting period in which employees render their services.

3.22 Related party: a person or entity related to the Institution, where:
a) a person or a close member of their family is related to an Institution if:
i. they have control or joint control of the Institution;
ii. they have significant influence over the Institution; or
iii. they are a member of key management personnel of the Institution or of the parent of the Institution;
b) an entity is related to an Institution if any of the following conditions are met:
i. the entity and the Institution are members of the same group;
ii. one entity is an associate or joint venture of the other entity, or is an associate or joint venture of a member of a group to which the other entity belongs;
iii. both are joint ventures of the same third entity;
iv. one entity is a joint venture of a third entity and the other entity is an associate of that same third entity;
v. the entity is a post-employment benefit plan for the benefit of employees of the Institution or of an entity related to the Institution;

vi. the entity is controlled or jointly controlled by a person identified in item a);
vii. a person identified in item i. of item a) exercises significant influence over the entity or is a member of key management personnel of the entity, or of the parent of the entity.

3.23 Net defined benefit liability (asset): deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.

3.24 Key management personnel: persons who have authority and responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly, including any director, executive, or non-executive, of that entity.

3.25 Defined benefit plans: post-employment benefit plans that are not defined contribution plans, under which Institutions are obliged to ensure the payment of previously agreed benefits, with actuarial risk and investment risk falling on the Institutions.

3.26 Post-employment benefit plans: formal or informal agreements under which an Institution provides post-employment benefits to one or more employees.

3.27 Defined contribution plans: post-employment benefit plans under which an Institution pays fixed contributions to a fund, having no legal or constructive obligation to pay additional contributions if the fund does not hold sufficient assets to meet all employee benefits relating to services rendered in the current and past periods.

3.28 Remeasurement of the net defined benefit liability (asset): includes:
a) actuarial gains and losses; b) the return on plan assets, excluding amounts included in the net interest on the net defined benefit liability (asset); and c) any variation in the effect of the asset ceiling, excluding amounts included in the net interest on the net defined benefit liability (asset).

3.29 Return on plan assets: interest, dividends, and other income from plan assets, together with realized and unrealized gains or losses, net of management costs and taxes payable by the plan itself, excluding taxes included in the actuarial assumptions used to measure the present value of the defined benefit obligation.

3.30 Present value of a defined benefit obligation: present value, without deduction of plan assets, of future payments expected to be necessary to settle the obligations resulting from service rendered by the employee, in the current and past periods.

4. Application
   4.1 Institutions must apply this Instruction to all employee benefits, except benefits to which IFRS 2 - Share-based Payment is applicable.

4.2 Employee benefits include benefits provided:
a) under formal plans or other formal agreements between Institutions and employees on an individual basis, groups of employees, or their representatives; b) under legal requirements, or through sectoral agreements whereby Institutions must make contributions to national, provincial, or sectoral plans; or c) under informal practices that give rise to a constructive obligation, whenever Institutions have no other realistic alternative but to pay benefits to employees.

4.3 For the purposes of this Instruction, employee benefits include benefits provided:
a) to employees; b) to their dependents or beneficiaries; c) to governing bodies; and d) to other key management personnel.

5. Classification
   Institutions must identify the benefits that are in force and classify them into the following categories, taking into account the provisions established in IAS 19 and this Instruction:
   a) short-term benefits; b) post-employment benefits; c) other long-term benefits; and d) termination benefits.

6. Short-term benefits
   6.1 Institutions must include in the category of short-term benefits, among others, the following benefits:
   a) salaries, wages, and social security contributions; b) paid leave and paid sick leave; c) profit sharing and bonuses; and d) non-monetary benefits, namely medical care, housing, cars, and free or subsidized goods or services, for employees in office.

6.2 Institutions must recognize the undiscounted amount of short-term benefits they expect to settle, resulting from service rendered, during the current period as a:
a) liability, in a specific line item of accrued expenses, after deduction of any amounts paid. If the amounts paid exceed the undiscounted amount of benefits, Institutions must recognize an asset in a specific line item of deferred costs, on the assumption that there will be, illustratively, a reduction in future payments or a refund of money; and b) cost, unless another IAS/IFRS requires or allows the inclusion of short-term benefits in the determination of the cost of an asset.

6.3 Institutions must recognize the expected cost of short-term benefits associated with paid absences as follows:
a) as accumulated paid absences, if they can be carried forward to future periods whenever the right for the current period is not fully used. Institutions must recognize the costs associated with these absences when employees render services that increase their right to future paid absences, based on the additional amount the entity expects to pay as a consequence of the unused right that has accumulated at the reporting date; b) as non-accumulated paid absences, if they are lost at the end of a period whenever they are not used and the employee has no right to a cash payment for unused rights upon leaving the Institution. Institutions must recognize a cost related to these absences when they occur.

6.4 Institutions must recognize the expected cost of payments for profit sharing and bonuses when:
a) they have a present legal or constructive obligation to make such payments as a result of past events; and b) they can make a reliable estimate of the obligation.

6.5 Institutions must recognize the payments provided for in the previous point as a cost and not as a distribution of results.

6.6 Institutions must classify payments for profit sharing and bonuses that are not settled in full within twelve months after the end of the annual reporting period in which employees render the respective service in the category of other long-term benefits.

6.7 Without prejudice to the provisions of this number, a set of additional guidelines that Institutions must consider in the accounting for short-term benefits is presented in Annex I of this Instruction.

7. Post-employment benefits
   7.1 Institutions must include in the category of post-employment benefits the following benefits:
   a) retirement benefits, such as retirement pensions and lump-sum payments at retirement; and b) other post-employment benefits, namely post-employment life insurance and access to post-employment medical care.

7.2 Institutions must apply the criteria set out in this number to all agreements through which post-employment benefits are provided, even if a separate entity is created to pay the benefits and receive the contributions inherent to a specific agreement.

7.3 Institutions must classify post-employment benefit plans according to their economic substance into the following categories:
a) defined contribution plans; and b) defined benefit plans.

7.4 Without prejudice to the provisions of this number, a set of additional guidelines that Institutions must consider in the accounting for post-employment benefits is presented in Annex I of this Instruction.

8. Post-employment benefits - Defined contribution plans
   8.1 Institutions must recognize the contribution payable to a defined contribution plan in exchange for service rendered during the current period as a:
   a) liability, in a specific line item of accrued expenses, after deduction of any amounts paid. If the contribution paid exceeds the obligation due for service rendered at the reporting date, Institutions must recognize an asset in a specific line item of deferred costs, on the assumption that there will be, illustratively, a reduction in future payments or a refund of money; and b) cost, unless another IAS/IFRS requires or allows the inclusion of the contribution in the determination of the cost of an asset.

8.2 Institutions must measure obligations arising from a defined contribution plan on an undiscounted basis, except when it is not expected that they will be settled in full within twelve months after the end of the fiscal year in which employees render the service.

8.3 Institutions must disclose the following information:
a) amount recognized as cost; and b) information on contributions made regarding key management personnel, whenever required by IAS 24 - Related Party Disclosures.

9. Post-employment benefits - Defined benefit plans
   9.1 In the recognition and measurement of defined benefit plans in their financial statements, as established in IAS 19, Institutions must consider the following steps:
   a) determine the surplus or deficit of their respective defined benefit plan; b) determine the amount of the net defined benefit liability (asset); c) determine the amounts to be recognized in profit or loss; and d) determine the amounts to be recognized in other comprehensive income.

9.2 For the purposes of determining the surplus or deficit of their respective defined benefit plan, Institutions must:
a) use the projected unit credit method to make a reliable estimate of the final cost that represents the benefit employees obtained in exchange for their service in the current and previous periods; b) discount that benefit to determine the present value of the defined benefit obligation and the current service cost; c) deduct the fair value of plan assets from the present value of the defined benefit obligation.

9.3 The amount of the net defined benefit liability (asset) corresponds to the deficit or surplus of the defined benefit plan determined in accordance with the previous point, adjusted for any effect resulting from limiting a net defined benefit asset to the asset ceiling.

9.4 Institutions must determine the value of assets and liabilities related to defined benefit plans for their employees at least annually.

9.5 Institutions must ensure a minimum funding level of one hundred percent of past service liabilities.

9.6 Institutions must account for legal obligations according to the formal terms of their respective plan, as well as constructive obligations arising from informal practices.

9.7 Institutions must engage qualified actuaries in the measurement of materially relevant liabilities of defined benefit plans, and the instructions presented in number 12 of this Instruction must be considered.

9.8 Institutions must update the measurement of materially relevant liabilities of defined benefit plans whenever there are material transactions and other material changes in circumstances until the end of the reporting period.

9.9 Institutions must disclose information in accordance with the provisions of Annex II of this Instruction.

9.10 For the purposes of the previous point, Institutions must consider the filling instructions presented in Annex III to this Instruction.

10. Other long-term benefits
    10.1 Institutions must include in the category of other long-term benefits, among others, the following benefits:
    a) long-term paid absences; b) jubilee benefits or other benefits for years of service; c) long-term disability benefits; d) profit sharing and bonuses; and e) deferred remuneration.

10.2 Institutions must recognize in profit or loss, unless another IAS/IFRS requires or allows their inclusion in the determination of the cost of an asset, the net value of the following components:
a) service cost; b) net interest on the net defined benefit liability (asset); and c) remeasurement of the net defined benefit liability (asset).

10.3 In measuring long-term disability benefits, Institutions must take into account the following requirements:
a) in situations where the level of the benefit depends on the length of service, Institutions must recognize their obligations as service is rendered. The measurement of these obligations must reflect the probability that associated payments will be made and the period of time during which payments are expected to be made; b) in situations where the level of the benefit is the same for any employee regardless of the length of service, Institutions should only recognize the expected cost when an event causing long-term disability occurs.

10.4 Without prejudice to the provisions of this number, a set of additional guidelines that Institutions must consider in the accounting for other long-term benefits is presented in Annex I of this Instruction.

11. Termination benefits
    11.1 Institutions must recognize termination benefits as a liability and as a cost on the earliest date between:
    a) the date when Institutions cannot withdraw the offer of such benefits; and b) the date when Institutions recognize costs for a restructuring that falls within the scope of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, and that implies the payment of termination benefits.

11.2 Institutions must measure termination benefits taking into account the nature of the benefits. If the benefits are an increase or extension of post-employment benefits, the requirements regarding post-employment benefits must be considered.
Otherwise:
a) if it is expected that they will be settled in full within twelve months after the end of the annual reporting period in which they are recognized, the requirements regarding short-term benefits must be considered.