Document ID: chunk:federal_register_of_legislation:F2023C00383:front:0:p10
Version: federal_register_of_legislation:F2023C00383
Segment Type: other
Provision Reference: 
Character Range: 24316–27362

such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus. The measurement of the constructive obligation reflects the possibility that some employees may leave without receiving a bonus.
22 An entity can make a reliable estimate of its legal or constructive obligation under a profit-sharing or bonus plan when, and only when:
(a) the formal terms of the plan contain a formula for determining the amount of the benefit;
(b) the entity determines the amounts to be paid before the financial statements are authorised for issue; or
(c) past practice gives clear evidence of the amount of the entity's constructive obligation.
23 An obligation under profit-sharing and bonus plans results from employee service and not from a transaction with the entity's owners. Therefore, an entity recognises the cost of profit-sharing and bonus plans not as a distribution of profit but as an expense.
24 If profit-sharing and bonus payments are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, those payments are other long-term employee benefits (see paragraphs 153–158).

Disclosure
25 Although this Standard does not require specific disclosures about short-term employee benefits, other Australian Accounting Standards may require disclosures. For example, AASB 124 requires disclosures about employee benefits for key management personnel. AASB 101 Presentation of Financial Statements requires disclosure of employee benefits expense.

Post-employment benefits: distinction between defined contribution plans and defined benefit plans
26 Post-employment benefits include items such as the following:
(a) retirement benefits (eg pensions and lump sum payments on retirement); and
(b) other post-employment benefits, such as post-employment life insurance and post-employment medical care.
Arrangements whereby an entity provides post-employment benefits are post-employment benefit plans. An entity applies this Standard to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits.
27 Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions.
28 Under defined contribution plans the entity's legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in