July 31, 2020   |   Definitiv

Accounting for the full cost of leave

When it comes to leave, especially long service leave, the value you want to account for is not always straightforward.

For example, what oncosts will be paid out with the entitlements; and after how many years of service do you want to start accounting for LSL on the balance sheet?

We have recently made some updates to enable customers to capture and report on a more accurate representation of your company’s leave and accrual provisions within product.

What can you now record?

You can now add and report on the following;

  • Discount rate: To account for the time value of money
  • Inflation rate: To take into consideration inflation
  • Oncost rate: To account for additional costs associated with the payment of this entitlement, i.e. payroll tax and super
  • Probability of entitlement: To account for the growing probability of entitlement with the additional years of service.

See below on how you can now capture the above information;

Leave Provisions

By being able to capture the above, as a customer, you are now able to set up and automate enhanced accrual calculation logic that is in-line with the Australian Accounting Standards.

The best part about this update is that as the customer, you can now control and update these values on your terms. Plus, going forward, you will no longer have to adjust liability provisions manually in Excel.

We also realise that our client base is highly diverse and many of our clients have multiple awards and/or agreements. This means entitlement calculations between groups of employees can be different. In recognition of this, we have added a leave loading rate field in the Leave Policies section of the employee master record.

What does this mean? It means you can now account for the additional liability provision required in your general ledger for only the applicable employees this cost needs to be accrued for.

What about reporting?

It’s great being able to capture this information but the end result is that it can now be reported on in Definitiv.

The Accrual Balances report has been expanded on to report on the oncost rate, inflation rate, probability and discount factors calculations. As this report is a grid report, you have the flexibility to sort, filter, group, summarize and chart data to your heart’s content.

Plus, the ultimate benefit, is now it can be extracted as standard from the product for financial reporting purposes.

Find out more about our reporting capabilities here.