A worked long service leave provision under AASB 119

The inputs

Employee

Alex Example (fictional), employee EX-001

Valuation date

2026-06-30

Start of continuous service

2018-02-12

Service at the valuation date

8.38 years

Ordinary weekly pay

$1,600.00

Leave already taken

0.00 weeks

Entity type

For-profit

Discount rate: AASB 119 para 83 requires high quality corporate bond yields where a deep market exists, as it is accepted to in Australia; only not-for-profit public sector entities use government bond yields (para Aus83.1). The default is the RBA 10-year government bond yield. For-profit entities and private sector not-for-profits (such as charities) should replace it with a corporate bond rate, for example from the Group of 100 discount rate report.

Staff turnover: Assumption, higher in early years of service. Replace it with the entity's own turnover history, which is what an auditor will ask for.

On-costs: Payroll tax, workers compensation and superannuation payable on leave, as a share of the provision. It depends on state thresholds and the entity's premiums.

Step 1: entitlement by state

Each state and territory has its own Act and its own point at which the full entitlement is reached. Vestline counts the leave accrued to the valuation date in a straight line towards that entitlement: accrued weeks = accrual rate × service to date − weeks already taken. South Australia and Northern Territory count completed years of service only. The table puts Alex Example in each jurisdiction in turn, on the same pay and dates.

These are the general private-sector Acts. Portable schemes (for example construction, cleaning and community services), enterprise agreements and pre-modern awards can give different entitlements; value those employees separately.

The rest of the example follows New South Wales. Alex Example has 8.38 years' service and the full entitlement there comes at 10 years, so it is still ahead. That is why the next step is needed: the leave is not certain to be paid.

Step 2: the probability that the leave is paid

The full entitlement is 1.62 years away. Vestline steps through each year to that point. In each step some staff leave, at the turnover rate for their length of service. The New South Wales Act pays pro-rata leave on leaving, from 5 years' service, only for some reasons for leaving. Vestline counts 50.00% of those exits as paid (the qualifying exits assumption) and none before 5 years. Staff still employed when they reach 10 years are paid, 1 year later (the take-up lag). Adding up the shares that are paid gives the probability that Alex Example's accrued leave is paid: 93.67%.

Step 3: salary growth and discounting to present value

The leave is paid at the pay rate on the day it is paid, so Vestline grows weekly pay at the salary growth rate to each possible payment date, then discounts that amount back to the valuation date at the discount rate. For one payment date the combined factor is (1 + 3.50%) ÷ (1 + 5.00%), raised to the number of years until payment. Weighting each step's factor by the probability that it is paid, and adding the steps, gives the present value factor: 0.9037.

The table below builds the provision up from the accrued leave. Each line from the second to the fourth is the engine's own present value for Alex Example with some assumptions switched off: probability only, with salary growth and the discount rate set to nil; then with salary growth added; then with discounting added, which is the full present value. The lines are running values, not separate effects, because the effect of each assumption depends on the order it is applied in.

Step 4: current and non-current

Alex Example has 8.38 years' service, which is short of the 10 years from which New South Wales shows the leave as current, so the whole provision is non-current.

One employee falls wholly on one side of the line. The split in a financial report is the total of each employee's current amount and the total of each employee's non-current amount. The table below shows how the line moves with the state: the same employee, valued under each Act.

What this example is not

Vestline is a calculation tool. It does not give accounting, legal or financial product advice, and the preparer remains responsible for the assumptions and the figures in the financial report.

• It values one employee. A client file has many, and the calculator adds up each employee's amounts.
• Its assumptions are examples. Turnover, salary growth, the discount rate and on-costs are the preparer's to set for the entity.
• It uses the general private-sector Acts only, as the note under Step 1 says.