Long Service Leave Model
TRIM reference: F07/2109 / D08/53149
Overview and Accounting requirements
Anna Hooi, Manager – Accounting Policy
Coverage
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Background, Process and Consultation
Key Features
Relevant AAS Prescriptions
FRD 17A LSL Wage Inflation and Discount Rates
Disclosure Alignment
Website Access and User Documentation
Implementation
Background, Process and Consultation
• 2004 LSL Model
• 2007 Prototype version
-
consultation with Depts and VAGO undertaken
feedback received, analysed and modifications made
retested by selective Depts - further refinements
late 2007, briefed VAGO
incorporated various VAGO comments
• 2008 LSL Model
Key Features
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simplified data input requirements
in-built guidance and notes
user friendly interface
caters for 7 and 10 yr eligibility
methodology complies with current AAS
relevant to FRD 17A
- LSL Wage Inflation and Discount Rates
Key Features (cont’d)
• alignment with 2008 Model Report for Vic Govt Depts
• single weighted average discount rate
• optional LSL Model features :
-
on-costs estimate
employee number changes (MOG/admin)
quarterly updates
indexation factors
Relevant AAS Prescriptions
• Summary in
- LSL Model Overview
- 2008 Dept’al Model Report (Note 26 pg 159 – 161, Note 1 pg 83)
• AASB 101 Presentation of Fin Statements
• AASB 119 Employee Benefits
• AASB 137 Provisions, Contingent Liabilities and Assets
FRD 17A - LSL Wage Inflation and Discount Rates
Requirement:
• To calculate the PV of LSL liabilities, an entity must use the
wage inflation rate and discount rates advised by the Minister
for Finance, unless the entity can demonstrate that an
alternative rate is more relevant and reliable
• An entity must seek approval from the Minister and consult
with the VAGO prior to the use of an alternative rate
Disclosure Alignment
• LSL Model displays estimates aligned to the 2008 Model Report
SCREEN 5
Department of Technology
Estimates for incorporation into the Provisions note
for the 12 months ended June 2008
Employee benefits (LSL components only)
Current
Employee benefits:
Unconditional and expected to be settled within 12 months
$
52,375
Unconditional and expected to be settled after 12 months
$
426,388
$
478,763
$
$
9,852
80,204
$
90,056
Employee benefits
$
184,826
Provisions related to employee benefit on-costs
$
34,766
$
219,591
Provisions related to employee benefit on-costs:
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
Non-current
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Disclosure Alignment
• Extract from the Model Report for Victorian Government
Departments
Provisions
($ thousand)
2008
Current
Employee benefits
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
52
426
479
Provisions related to employee benefit on-costs
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
10
80
90
Total current provisions
Non-current
Employee benefits
Provisions related to employee benefit on-costs
Total non-current provisions
Total provisions
569
185
35
220
789
Disclosure Alignment
• Model Report v LSL Model
Provisions
($ thousand)
SCREEN 5
Department of Technology
2008
Current
Employee benefits
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
Estimates for incorporation into the Provisions note
for the 12 months ended June 2008
Employee benefits (LSL components only)
52
426
479
Provisions related to employee benefit on-costs
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
10
80
Current
Employee benefits:
Unconditional and expected to be settled within 12 months
$
52,375
Unconditional and expected to be settled after 12 months
$
426,388
$
478,763
$
$
9,852
80,204
$
90,056
Employee benefits
$
184,826
Provisions related to employee benefit on-costs
$
34,766
$
219,591
Provisions related to employee benefit on-costs:
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
90
Total current provisions
Non-current
Employee benefits
Provisions related to employee benefit on-costs
Total non-current provisions
Total provisions
569
Non-current
185
35
220
789
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Website Access – LSL Model
3.
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2.
User Documentation
(1) Overview
- High level summary
- outline of Model, purpose, the overall methodology, disclosure
requirements
(2) User Guide
- Low level details
- Model screen navigation, data reqmts, comprehensive explanation of
the methodology including a worked example
- FAQs
Implementation
• Available in new financial year, from 1 July 2008
• Use of 2008 LSL Model not mandatory
• Discount rates – despatch continuation
• Enquiries on LSL Model
- Check FAQs (located in Part D of User-Guide)
- Letterbox - AccPol@dtf.vic.gov.au
• Future feedback to AccPol@dtf.vic.gov.au
Model methodology and assumptions
Julie Osborn, Actuarial Adviser, Financial
Risk Management
Coverage
• Data Requirements
- First Time Use
- Ongoing
• Key Assumptions
• Model Overview
- Output
- Methodology
- Disclosure Format
• Potential Variation
Data Requirements – First Time Use
• When the model is used for the first time, historical data will be
required for:
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Nominal value of LSL paid/taken each year
Total value of unconditional LSL
Nominal value of conditional LSL by years of VPS service
Total number of employees
Number of employees with >= 1 year of VPS service
Number of employees who transfer in or out with >= 1 year of VPS
service
- On-costs as a proportion of salary/remuneration (optional)
- Wage inflation rate
- Discount rate
Data Requirements – Ongoing
• Once the required historical data has been entered it is possible
to save the model and simply update it each year by entering
data for the current period.
Key Assumptions
• Discount rate: a single weighted average discount rate is used,
in accordance with AASB 119, and based on Reserve Bank of
Australia quoted rate
• Salary inflation: To allow for promotion, salaries are assumed to
increase by 1% more than the DTF projected wage inflation
rate.
DTF will notify both of these rates on a quarterly basis.
Key Assumptions
• Payment pattern: The ratio of LSL paid/taken to the total
nominal unconditional liability is used to imply the number of
years over which the current liability will be paid. This is also
used to estimate the LSL amount expected to be paid in the
next 12 months
• Probability of reaching eligibility period: The average rate of
staff turnover, adjusted for transfers, is used to determine the
probability of an employee remaining with the organisation
until they become eligible for LSL (i.e. 7 or 10 years)
Model Overview - Output
The LSL model will provide the following outputs:
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Current and non-current LSL liability
Current and non-current on-costs liability
Indexation factor – by years of VPS service
Retention rates – by years of VPS service
Model Overview - Methodology
• Current liability
- The value of unconditional LSL is apportioned over future years based
on the assumed payment pattern
- The amount expected to be paid in the next 12 months is adjusted to
allow for salary increases using:
Nominal liability  compounded wage inflation rate
- The amount expected to be settled in each year after the first is
inflated and discounted as follows:
Nominal liability  compounded wage inflation rate ÷
compounded discount rate
Model Overview – Methodology (cont’d)
• Non-current liability
- This represents the present value of unconditional LSL and is calculated
by summing the following across each year prior to eligibility for LSL:
Nominal liability for y years of service
 compounded wage inflation rate
÷ compounded discount rate
 probability of reaching eligibility period
- This is then multiplied by the ratio that the current LSL liability bears to
the nominal value of unconditional LSL
Model Overview – Disclosure Format
Department of Technology
Discounted Long Service Leave Provision for for the 12 months ended June 2008
Current liability
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
On-costs
Non current liability
Years of VPS service
0
1
2
3
4
5
6
Total
On-costs
Nominal
liability
$
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
500,000
94,050
Inflated
liability
$
52,375
54,863
57,469
60,199
63,058
66,053
69,191
72,477
75,920
79,526
400,000
350,000
300,000
250,000
200,000
150,000
100,000
1,750,000
329,175
553,526
462,373
378,348
300,993
229,875
164,588
104,750
Reported
Discounted LSL liability Retention Indexation
liability
(a)
rate (b)
factor (c)
$
$
52,375
52,375
49,105
49,105
48,664
48,664
48,227
48,227
47,793
47,793
47,364
47,364
46,938
46,938
46,516
46,516
46,098
46,098
45,684
45,684
478,763
95.8%
90,056
Current
Employee benefits:
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
Provisions related to employee benefit on-costs:
Unconditional and expected to be settled within 12 months
Unconditional and expected to be settled after 12 months
Non-current
Employee benefits
Provisions related to employee benefit on-costs
Other information
Discount rate:
Inflation rate:
Staff retention rate:
375,503
331,545
286,759
241,133
194,656
147,316
99,101
6,286
9,894
15,254
22,866
32,904
44,390
53,232
184,826
34,766
1.7%
3.1%
5.6%
9.9%
17.7%
31.5%
56.1%
1.6%
2.8%
5.1%
9.1%
16.5%
29.6%
53.2%
52,375
426,388
9,852
80,204
184,826
34,766
5.7%
4.8%
56.1%
Notes:
(a) For the non current liability this is the discounted liability adjusted by the retention rate and the ratio
of the present value to nominal current liability.
(b) Probability of an employee remaining with organisation until eligible for LSL by years of VPS service.
(c) Indexation factor that can be used to allocate total LSL liability to cost centres.
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Potential Differential
• The LSL Model results are likely to differ from those produced
by the 2004 Model
• This is primarily due to:
- discounting all LSL entitlements that are expected to be paid after 12
months;
- the use of an average retention rate; and
- the assumed payment pattern
• While the magnitude and direction of the change is likely to
vary by agency, in many cases a lower estimate is expected due
to the increased application of discounting
Demonstration
Clive Brooks, Senior Adviser, Economic and Financial Policy
Josephine Galea, Senior Financial Analyst, Accounting Policy
Model Report 2008
Anna Hooi, Manager – Accounting Policy
TRIM reference: F07/2109 / D08/15429
2008 Departmental Model Report – Main
Features
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Scope and purpose
Published and distributed last week
Access from DTF website
Accompanying documentation
- Summary of Changes
- Annual Report Preparation Guide
Website Access – 2008 Model Report
3.
1.
2.
Model Report 2008
Summary of Changes
Report of Operations – Main Changes
• FRD 24C Environmental data disclosures
• FRD 29 Workforce Data disclosures
- FRD 15A Exec Officer disclosures
- FRD 22B Standard disclosures
• Accounting Officer’s declaration
• Machinery of Govt changes reporting
• Attestation on Risk Mgmt
Financial Report – Main Changes
• AASB 7 Fin Instruments disclosure
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Overview of AASB 7 Fin Instruments Disclosure
Commentary – Operating Statement, Bal Sheet
Note 32 Fin Instruments
Other changes
–Note 4 Income
–Note 5 Expenses
–Note 10 Receivables
–Note 11 Other Fin Assets
–Note 24 Payables
–Note 25 Interest bearing liabilities
–Note 29 Leases
Financial Report – Main Changes
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Machinery of Government changes
FRD 103C Non-current Physical Assets
Financial guarantees
Provisions for employee benefit on-costs
Administered Items Note
AAS 27, 29 and 31 replacements
Appendices
• Disclosure Index
• Budget Portfolio Outcomes
• FRD 24C disclosures
Enquiries
• Letterbox - AccPol@dtf.vic.gov.au
Feedback
• Letterbox - AccPol@dtf.vic.gov.au
Model Report 2008