Liabilities for social benefits: what estimates would be needed?

The Accounting Standards Board approved an Exposure Draft (ED) on Social Benefits at its July 2023 meeting.

Previous articles considered when liabilities for social security insurance benefits and social assistance benefits should be recognised. The next question is what is the boundary of these liabilities? In other words, what is the end point that needs to be estimated for these liabilities?

Ongoing eligibility criteria

Where a social benefit consists of multiple payments to a beneficiary, certain eligibility criteria may continue to apply during the period the individual and/or household receives the benefit. The ED refers to these eligibility criteria as “ongoing eligibility criteria”. For example, the following eligibility criteria apply for an old age benefit:

Substantive ongoing eligibility criteria

The ED proposes that the satisfaction by each beneficiary of the eligibility criteria required to continue receiving a social benefit gives rise to a new liability when the eligibility criteria are substantive.

This means that where the eligibility criteria are substantive, an entity recognises a social benefit liability until the beneficiary would next be required to meet the substantive ongoing eligibility criteria. The boundary of the social benefit liability is therefore when the beneficiary would next be required to meet substantive ongoing eligibility criteria.

The eligibility criteria are substantive when:

• in accordance with a benefit’s rules, existing beneficiaries do not qualify to continue receiving social benefits until they have satisfied the required eligibility criteria; and
• the entity has a past history of enforcing the eligibility criteria. An entity enforces eligibility criteria by verifying that existing beneficiaries meet the required ongoing eligibility criteria to receive social benefits, and no social benefits are paid to beneficiaries who do not meet the criteria.

The ED proposes the following indicators that an entity enforces eligibility criteria:

• The entity communicates the verification process to beneficiaries and may ask beneficiaries to submit documentation.
• The entity communicates the outcome of the process to beneficiaries.
• The entity has dedicated resources to the verification process, such as staff resources and integrated IT systems.
• The entity has an established verification process with internal controls, such as external data confirmations and supervisory reviews.

Other considerations

The ED further proposes that an entity should estimate whether there are beneficiaries that would no longer qualify to receive benefits before the satisfaction of substantive ongoing eligibility criteria (where applicable). In those instances, the boundary of the liability is the point when it is expected that the beneficiary would no longer satisfy the eligibility criteria.

Using the eligibility criteria in the example above, the entity estimates the boundary by considering the beneficiaries’ mortality, whether their income may increase above the threshold, and those who may no longer be residents. The entity recognises liabilities for those beneficiaries for the shorter period.

Provide your comment on the proposals

Access ED 205 on Social Benefits on the ASB website. Comment is due by 17 November 2023. Contact elizna@asb.co.za for more information.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.