End-of-service benefits and other employee benefits

End-of-service indemnity is often one of the largest employee-related liabilities for hospitals given large clinical workforces and long tenure; using a simplified undiscounted formula instead of actuarial valuation, or misclassifying remeasurement gains/losses, can materially misstate both the liability and reported profit versus other comprehensive income.

Is the end-of-service obligation measured using a full actuarial valuation (discount rate, salary growth, turnover, mortality) or a simplified formula-based accrual, and is the simplified method still appropriate given workforce size? Does high staff turnover, common among nursing and expatriate medical staff, get reflected explicitly in the turnover assumption rather than assumed away? Are actuarial remeasurement gains and losses recognized in other comprehensive income rather than run through profit or loss?

1) Confirm whether EOSB is material enough to require full actuarial valuation using the projected unit credit method, versus a simplified approach potentially acceptable for smaller populations. 2) Engage an actuary to select assumptions specific to the workforce: discount rate (based on high-quality corporate/government bond yields), expected salary growth by staff category, and turnover rates segmented between local and expatriate clinical/administrative staff. 3) Recognize current and past service cost, and net interest on the net defined benefit liability, in profit or loss. 4) Recognize remeasurements (actuarial gains/losses from experience adjustments and assumption changes) in other comprehensive income, not profit or loss, and do not recycle them to P&L in later periods. 5) Reconcile the opening and closing obligation each period showing service cost, interest, remeasurements, and benefits paid. 6) Update turnover and salary assumptions periodically against actual experience, particularly for expatriate staff with contract-driven exit patterns.

Use actuarial valuation with assumptions appropriate to the healthcare workforce, including higher turnover for expatriate clinical staff and salary scales that may differ significantly between physicians, nurses and support staff; measure the net defined benefit liability as the present value of the obligation using the projected unit credit method; recognize net interest by applying the discount rate to the net obligation at the start of the period; reassess assumptions at least annually or when a significant plan or workforce change occurs.

Disclose the key actuarial assumptions (discount rate, salary growth, turnover, mortality where relevant); disclose a reconciliation of the opening and closing defined benefit obligation; disclose sensitivity analysis showing the effect of reasonably possible changes in discount rate and salary growth assumptions; disclose the amount of service cost, net interest and remeasurements recognized, and where each is presented (P&L vs. OCI).

• Accruing EOSB using a simplified undiscounted formula calculation instead of actuarial valuation for entities where the difference is material
• recognizing remeasurement gains/losses in profit or loss instead of other comprehensive income
• using generic turnover assumptions that do not reflect the genuinely higher turnover of expatriate clinical staff
• failing to update assumptions for several years, leaving a stale valuation
• omitting current service cost for new hires during the year from the reconciliation.