Employee benefits and end-of-service obligation

End-of-service benefits payable under KSA labor law are a defined benefit obligation requiring actuarial-style measurement (or a reasonable approximation for smaller entities), not a simple cash-basis accrual of the amount payable if all employees left today; using the undiscounted method understates the true long-term cost of the workforce and can create a large one-off catch-up adjustment as the company scales.

Given current headcount and tenure profile, is a full actuarial valuation (projected unit credit method) warranted, or does a documented simplified approximation remain reasonable? If a full valuation is performed, are actuarial gains/losses recognized in OCI (never recycled to profit or loss)? Has headcount grown or turnover volatility increased enough that a previously used simplified approach should be reassessed?

1) Confirm the end-of-service benefit formula under KSA Labor Law (tenure-based, varies by reason for termination) as the benefit terms to be valued. 2) Assess whether headcount and tenure profile justify a full actuarial valuation (projected unit credit method) versus a reasonable simplified approximation for a small/young workforce. 3) If using the full method, engage a qualified actuary to determine the present value of the obligation using discount, salary growth, and turnover assumptions. 4) Recognize current service cost and net interest cost through profit or loss each period. 5) Recognize actuarial gains/losses (remeasurements) in other comprehensive income, not profit or loss, and never recycle them to profit or loss. 6) Reassess annually whether the simplified approach remains appropriate as the workforce grows or turnover volatility increases.

Use the projected unit credit method for a rigorous measurement, discounting expected future payments using a rate referenced to high-quality corporate or government bonds of a currency and term consistent with the obligation; smaller fintechs sometimes use a simplified undiscounted or partially discounted approximation, which should be reassessed as the business scales and disclosed as a policy choice with its basis; incorporate realistic turnover/withdrawal assumptions rather than assuming full workforce retention to the valuation date.

Disclose: the movement in the obligation (opening balance, current service cost, interest cost, remeasurements through OCI, benefits paid, closing balance); key actuarial assumptions (discount rate, salary growth, turnover, mortality where relevant) and sensitivity to changes in the discount rate; the split between service cost, interest cost and remeasurements; and whether a full actuarial valuation or simplified approximation was used and why.

• Accruing end-of-service benefits at the undiscounted amount payable on immediate termination without considering the time value of money or turnover
• recognizing actuarial gains/losses in profit or loss instead of OCI when using the full method
• not updating assumptions as the workforce and tenure profile change
• continuing to use a simplified approximation well past the point where headcount growth makes it materially inaccurate
• overlooking that the KSA gratuity formula itself differs by reason for termination (resignation versus termination by employer), which affects the projected benefit calculation.