AS 15 (Employee Benefits) is the Indian accounting standard that prescribes the recognition and measurement of all forms of employee benefits in financial statements. It requires enterprises to recognise a liability when an employee provides service in exchange for future benefits.

The Institute of Chartered Accountants of India (ICAI) issued revised AS 15 in March 2008, notified by the Ministry of Corporate Affairs (MCA) under the Companies (Accounting Standards) Rules. The standard is effective from 1 April 2007 for Level I enterprises and supersedes the original AS 15 issued in 1995.

For FY 2026-27, many manufacturing SMEs continue to fund gratuity obligations through Life Insurance Corporation (LIC) group schemes. Under AS 15, employers must recognise any surplus or deficit between actuarial liability and LIC fund value on the balance sheet.

AS 15 at a Glance

AS 15 sets out the principles for recognising and measuring all types of employee benefits, short-term, post-employment, long-term and termination, in Indian company accounts. Its primary users are finance teams and statutory auditors preparing or reviewing financial statements under the Accounting Standards framework.

What is AS 15: Employee Benefits?

AS 15 defines how Indian companies must account for all forms of employee benefits, such as salaries, gratuity, provident fund contributions, pensions and leave encashment, by recognising costs as employees render service rather than when paid out. The standard ensures that obligations are measured using actuarial techniques where relevant.

ICAI introduced revised AS 15 to address gaps in the earlier guidance on retirement benefits and to align Indian practice more closely with international norms such as IAS/IFRS standards. The revision brought actuarial valuation into focus and expanded required disclosures.

Statutory auditors, CFOs and finance teams in non-Ind-AS companies regularly use this standard to ensure compliance with Schedule III reporting requirements under the Companies Act.

Objective of AS 15

The objectives of AS 15 are:

• Prescribe the accounting and disclosure for employee benefits, requiring an enterprise to recognise a liability when an employee has provided service in exchange for benefits to be paid in the future.
• Establish principles for measuring defined benefit obligations using the projected unit credit method.
• Specify disclosure requirements that enable users to understand the nature of employee benefit costs and obligations.

By achieving these objectives, AS 15 supports faithful representation of employee benefit liabilities in company accounts. This upholds the "true and fair view" requirement mandated by Section 129 of the Companies Act, 2013.

Who Must Apply AS 15?

Entities covered

AS 15 applies to all enterprises preparing financial statements under Indian Accounting Standards other than Ind AS. Applicability varies by enterprise size:

Ind AS-applicable companies must follow Ind AS 19 instead.

Scope exclusions

AS 15 does not apply to:

• Employee benefits provided through share-based arrangements
• Reporting by retirement benefit plans themselves

When the standard does not apply

Employee share-based payments are covered separately under ICAI’s Guidance Note on Accounting for Employee Share-based Payments. Reporting by retirement benefit plans follows separate ICAI guidance specific to plan financial statements.

Key Definitions under AS 15

Recognition and Measurement under AS 15

When to recognise

An enterprise recognises employee benefit costs as soon as an employee renders service giving rise to an obligation, regardless of when payment occurs. For defined contribution plans like provident fund or superannuation schemes funded externally, expense equals contribution due for each period.

Defined benefit plans such as gratuity or pension require recognition based on actuarially determined obligations using current assumptions at each reporting date. For other long-term benefits (e.g., long-service leave), similar principles apply but with simplified actuarial measurement if immaterial.

Short-term employee benefits, such as salaries or annual leave due within twelve months, are accrued based on earned entitlement at each balance sheet date.

Termination benefits are recognised when an enterprise is demonstrably committed either via formal plan communication or irrevocable offer acceptance by employees.

Initial measurement

For defined contribution plans:

Recognise expense equal to contributions payable for services rendered during reporting period.

For defined benefit plans:

Obligation is measured using projected unit credit method, an actuarial approach that attributes each year’s service as building up incremental entitlement towards final benefit. The present value of obligation is discounted using yields available on government securities matching currency/term profile at balance sheet date per Para 78.

Plan assets are measured at fair value at reporting date regardless of funding instrument used (including LIC group gratuity funds).

Present Value of Defined Benefit Obligation = Σ (Benefit attributed per year × Discount factor based on government bond yield)

Subsequent measurement

At every balance sheet date:

Recalculate net defined benefit liability as present value of obligation less fair value of plan assets.

Components recognised in profit and loss comprise:

Current service cost, present value attributed during current period

Interest cost, unwinding discount on opening obligation

Expected return on plan assets

Actuarial gains/losses arising from changes in assumptions or experience

Past service cost amortised over average vesting period if unvested; immediately if vested

No portion is recognised directly in OCI, unlike Ind AS/IFRS treatment, all items affect profit/loss immediately per Para 92-93.

Asset ceiling test applies per Para 59: Recognise asset only up to present value of economic benefits available via refunds or reduced future contributions from surplus funding.

Projected Unit Credit Method with P&L Recognition

AS 15 mandates use of projected unit credit method for all defined benefit obligations regardless of plan type or funding status. This method mirrors Ind AS/IAS approach but differs critically in treatment:

All actuarial gains/losses must be recognised immediately within profit/loss, not OCI, as clarified by ICAI Announcement March 2008.

Past service cost is spread over average vesting period unless already vested.

This approach can introduce volatility into reported earnings but ensures timely reflection of changes in underlying assumptions affecting future outflows.

The corridor approach previously permitted has been withdrawn, the immediate recognition model now applies universally across all enterprises falling within full-scope coverage.

Worked Examples on AS 15

Example 1: Gratuity actuarial valuation under AS 15

Maharashtra Cement Ltd (Level I enterprise) has a gratuity obligation valued at Rs 9.50 crore at year-end (up from Rs 8.20 crore last year). Plan assets’ fair value stands at Rs 7.20 crore (previously Rs 6 crore). Service cost is Rs 1.10 crore; interest cost Rs 0.65 crore; expected return from plan assets Rs 0.48 crore; actuarial loss on DBO Rs 0.45 crore; actuarial gain on plan assets Rs 0.20 crore; contributions paid during year Rs 1.10 crore; benefits paid out Rs 0.50 crore.

Computation Table

Net liability movement:

Opening = Rs 2.20 crore (8.20 - 6);

Closing = Rs 2.30 crore (9.50 - 7.20).

Journal Entry

Dr Employee Benefit Expense (P&L) Rs 1.52 crore

Cr Net Defined Benefit Liability Rs 0.10 crore

Cr Bank Rs 1.10 crore

Cr Bank (benefits paid) Rs 0.50 crore

Example 2: Long-service leave provision

Sundaram Engineering Pvt Ltd grants employees thirty days’ leave after ten years’ continuous service, encashable upon retirement only.

Actuarial valuation gives closing obligation at Rs 1.85 crore versus prior year’s Rs 1.65 crore.

Service cost this year is Rs 0.18 crore; interest cost Rs 0.13 crore; actuarial loss recognised this year is Rs 0.09 crore.

No benefits paid during year.

Computation Table

Provision movement:

Opening = Rs 1.65 crore;

Closing = Rs 1.85 crore;

Increase = Rs 0.20 crore carried forward as provision addition.

Journal Entry

Dr Employee Benefit Expense (P&L) Rs 0.40 crore

Cr Provision for Long-Service Leave Rs 0.20 crore

Cr Provision for Long-Service Leave Rs 0.20 crore

Disclosure Requirements under AS 15

Disclosures under AS 15 are critical for compliance with Schedule III to the Companies Act, 2013. They ensure users of financial statements understand the nature, amount, and timing of employee benefit obligations. Para 120 of AS 15 prescribes detailed reconciliations and actuarial assumptions that must be transparently presented.

Statutory auditors must verify these disclosures align with SA 700 and provide a true and fair view as required by Section 134 of the Companies Act.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Failing to obtain actuarial valuation for defined benefit obligations exceeding the prescribed threshold (Level I enterprises with 50+ employees on the rolls)
• Treating gratuity as a defined contribution plan when employer bears the actuarial risk (e.g., Sec 4 of Payment of Gratuity Act ceiling changes)
• Using outdated discount rate not reflecting government bond yields at balance sheet date
• Inadequate disclosure of five-year history under Para 120(n)
• Recognising actuarial gains/losses in OCI (this is Ind AS 19 treatment, not AS 15)
• Misclassifying accumulated leave as short-term when it can be carried forward over multiple years (qualifies as other long-term benefit)

Industry application notes

Many SMEs in manufacturing fund gratuity through Life Insurance Corporation group schemes. The LIC contribution is treated as a plan asset under AS 15. Any surplus or deficit between the actuarial liability and LIC fund must be recognised in the balance sheet. Smaller enterprises may use simplified disclosures.

In banking and financial services, pension obligations to retired employees are often significant. AS 15 requires full provision based on actuarial valuation. The transition relief available during initial adoption no longer applies after FY 2007-08.

Public sector enterprises frequently have unfunded pension liabilities for pre-2004 employees. AS 15 mandates full recognition based on actuarial valuation even if no funding exists. This can materially impact the reported liabilities for older PSUs.

AS 15 vs Ind AS 19 vs IFRS: Key Differences

The table below summarises major differences between AS 15 (Accounting Standards), Ind AS 19 (Indian Accounting Standards), and IFRS/IAS 19 in accounting for employee benefits:

India’s Accounting Standards framework retains immediate P&L recognition for all actuarial gains/losses under AS 15. Ind AS 19 aligns more closely with IFRS by routing these amounts through OCI without subsequent recycling to profit or loss. The discount rate under Indian GAAP remains anchored to government securities yields rather than high-quality corporate bonds.

Latest Amendments to AS 15 (FY 2026-27)

No amendments have been notified to AS 15 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 19](/ind-as-19-employee-benefits/), Equivalent employee benefits standard for Ind AS-applicable companies; differs in treatment of actuarial gains/losses.
• [AS 22](/as-22-accounting-for-taxes-on-income/), Tax effect of timing differences arising from accrued employee benefits.
• [AS 29](/as-29-provisions-contingent-liabilities/), Termination benefits accounted as provisions when criteria met.
• [AS 5](/as-5-net-profit-prior-period-changes/), Treatment of changes in employee benefit estimates as change in accounting estimate.

Need Help with AS 15 Compliance?

Patron Accounting LLP supports Indian companies with practical solutions for all aspects of AS 15 Employee Benefits compliance. Our team combines technical expertise with sector-specific experience to ensure accurate recognition and disclosure under Schedule III requirements.

Our services include:

• Statutory Audit
• Financial Reporting & Schedule III
• Disclosure Review
• Ind AS Advisory

Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.

About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (revised AS 15 notified March 2008; reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation