According to the conceptual framework for the preparation and presentation of the financial statements, “recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the criteria for recognition”, while the “measurement is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement” (NTU, 2011). In other words, during the process of recognition, any item must belong on the financial statements and should have probable future economic benefits flow to or from the enterprise and can be reliable and relevantly measured at the cost or value. So in order to prepare good financial statements, proper recognition and reliable measurement are necessary and important.
Unfortunately, this concept comes with some surrounding issues, and this easy aimed to explore and discuss the issues surrounding the recognition and measurement of the particular item – employee benefits in the financial statements of British Airways plc, which is the UK’s largest international scheduled airline and one of the world’s leading global premium airlines (BRITISH AIRWAYS, 2011). The author planed to critically analysis three mainly employee benefits, which are short-term employee benefits, post-employment benefits and the termination benefits, through the British Airways annual report.
However, the measurement may be complicated. Sometimes the company need to estimate the amount of benefits and recorded in the financial statements, like the holiday pay and health care.
But for one thing, the company still need to figure out a better way to measure the number of employees who will be willing to accept the offer for terminating the employment.
Recognition and measurement of the employee benefits
To be pointed out that the International Accounting Standards (IAS) state that the “employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees” (IFRS FOUNDATION, 2011). And the main categories of employee benefits identified in the standard are short-term employee benefits, post-employment benefits and the termination benefits. For the short-term employee benefits, they usually cover items such as wages, salaries, short-term holiday pay, bonuses and medical care which all should fall due wholly within twelve months; for the post-employment benefits, they consist mainly of retirement benefits such as pensions, and it is important to distinguish between the two types of pension schemes which are defined contribution plans and defined benefit plans; and for the termination benefits, they usually happened when employers are demonstrably committed to determinate employees before retirement date or encourage redundancy (MELVILLE, 2009).
Generally speaking, following the International Financial Reporting Standards, an entity...