Does your company need a PAS 19 actuarial valuation?

If your company prepares audited financial statements and has employees, the answer is almost certainly yes. Philippine law gives nearly every private sector employee a retirement benefit, and accounting standards require you to measure and disclose that obligation every year. Here is how it works, in plain language.

What is a PAS 19 actuarial valuation?

PAS 19 is the Philippine Accounting Standard on Employee Benefits, the local equivalent of IAS 19. It governs how a company recognizes and discloses the cost of employee retirement benefits in its financial statements.

A retirement benefit is a future promise. An employee earns it gradually over years of service, but the company pays it out much later, at retirement. To put a credible number on that future promise today, an actuary projects the expected payout and discounts it back to a present value. That calculation is the actuarial valuation, and the resulting figure is your defined benefit obligation, the amount your company owes its employees for retirement as of the reporting date.

Why is it required?

Two things work together here. First, the law creates the obligation. Under the Retirement Pay Law (Republic Act 7641), every qualified private sector employee is entitled to a minimum retirement benefit, even if the company has no formal retirement plan. That means the obligation exists whether or not you have set money aside for it.

Second, the accounting standards require you to measure and disclose that obligation. PAS 19 (and, for smaller entities, Section 28 of the PFRS for SMEs) requires the retirement liability and the related expense to appear in the financial statements. Because companies file audited financial statements with the Securities and Exchange Commission and the Bureau of Internal Revenue, the valuation is what makes those statements complete and defensible.

Which companies need one?

As a practical rule, if your company has employees and prepares audited financial statements, you need an annual actuarial valuation. This applies even when:

• You have no formal retirement plan. The RA 7641 minimum still applies, so the obligation must be measured.
• Your plan is unfunded. Whether or not you have set aside assets, the liability still has to be recognized.
• You are an SME. Entities reporting under the PFRS for SMEs still measure and disclose the obligation, using a measurement approach that can be simpler than full PAS 19.

Companies with a funded plan in a retirement trust often need a valuation for two reasons: the PAS 19 accounting valuation for the financial statements, and a separate funding valuation to decide how much to contribute. They are related but not the same.

What goes into the valuation?

An actuary measures the obligation using the projected unit credit method, which spreads the cost of the benefit over an employee's working life. To do that, the valuation relies on a set of assumptions about the future:

• Discount rate, used to bring future payouts back to today's value.
• Salary increase rate, since most plans base the benefit on final pay.
• Employee turnover, because not everyone stays until retirement.
• Mortality and retirement age, which shape when and whether benefits are paid.

The valuation then produces the figures your auditors and finance team need, including the defined benefit obligation, the current service cost for the year, the net interest cost, the remeasurements recognized in other comprehensive income, and the full set of disclosures and sensitivity analyses that PAS 19 requires.

What you will need to provide

A clean valuation starts with clean data. Most companies provide an employee census (dates of birth, hire dates, and current pay), the retirement plan rules or a confirmation that only the RA 7641 minimum applies, and, for funded plans, the trust fund balance. A good actuary will give you a clear checklist so nothing is missed.

PAS 19 valuation versus funding valuation

These two are often confused. A PAS 19 valuation is an accounting exercise. Its job is to measure the obligation for disclosure in the financial statements, using assumptions set by accounting rules. A funding valuation is a financing exercise. Its job is to determine how much the company should contribute to a retirement trust fund to build assets toward the obligation at a sustainable, tax efficient pace. Same underlying promise, different questions, different assumptions.

When is it done, and how often?

The PAS 19 valuation is performed annually, as of your financial reporting date, so the numbers can be recognized in that year's audited financial statements. In practice it is best scheduled alongside your year end close, with the actuary coordinating directly with your external auditors so the figures move through the audit without friction.

What happens if you skip it?

If the retirement liability in your books is not supported by a current valuation, auditors will usually flag it. That can mean audit adjustments, delays, or in some cases a qualified audit opinion. Since regulators, lenders, and investors all rely on audited financial statements, an unsupported or missing retirement liability creates downstream problems that are far more expensive than the valuation itself. Keeping a current actuarial valuation is the simplest way to stay compliant and keep your numbers defensible.

This article is general information, not accounting or legal advice. Accounting standards and regulations are updated from time to time, so confirm the specifics that apply to your company with your auditor or advisor.