IAS 19 in the Czech Republic: who must apply it and how the actuarial valuation works

This is an English translation of the Czech guide IAS 19 v České republice. Quotations from Czech sources are our translation; IAS 19 is quoted from its official English text.

Who prepares financial statements under IFRS

Act No. 563/1991 Coll. on Accounting (version from 1 January 2026; § 1d, § 19a, § 22 and § 23a are also unchanged in the version from 10 January 2028) refers to IFRS as “international accounting standards regulated by European Union law” (§ 1d(4)) and builds on Regulation (EC) No 1606/2002 (§ 1(1)), under which these standards are adopted in the EU. IAS 19 is one of them.

The government bill for a new Accounting Act (parliamentary print 63) extends the range of entities that must use IFRS to banks, insurers, investment funds and other financial institutions; the state of the parliamentary process and the proposed effective date are described in the guide Czech Republic: new Accounting Act.

Required: listed commercial companies (§ 19a(1))

“An accounting entity that is a commercial company and an issuer of investment securities admitted to trading on a European regulated market shall use international accounting standards for its bookkeeping and for preparing its financial statements.”

By choice: entities in an IFRS consolidation (§ 19a(7) and (8))

If it can be expected that at the balance sheet date a controlled person or an entity under joint influence (§ 22(3)(a) or (b)) will be required to be included in consolidated financial statements prepared under IFRS, it may decide to use IFRS for its own financial statements as well (subsection 7). A consolidating entity (§ 22(2)) that will prepare its consolidated financial statements under IFRS may decide the same (subsection 8). The decision is subject to approval by the entity’s highest body. If the original assumption ceases to apply, the entity stops using IFRS (subsection 9).

Consolidated financial statements (§ 23a)

• A consolidating entity that is an issuer of investment securities admitted to trading on a European regulated market must prepare its consolidated financial statements under IFRS (subsection 1).
• Other consolidating entities may use IFRS for their consolidated financial statements (subsection 2).

Subsidiaries of international groups

Most Czech companies prepare their own financial statements under Czech accounting regulations. The employee benefit obligations of subsidiaries included in consolidated financial statements under IFRS are measured in them under IAS 19. Interpretation NÚR I-52 concerns the companies’ own financial statements under Czech regulations.

Employee benefits under IAS 19

Employee benefits are employees’ entitlements to compensation for work performed in a given period.

From an accounting point of view, they are on the one hand an expense, because the amounts of the benefits affect the company’s profit or loss. At the same time, until these entitlements are settled, they are also a liability of the employer to its employees.

The official Czech translation of the standard is titled “IAS 19 Zaměstnanecké požitky”; the Czech version of this guide uses “zaměstnanecké benefity” and “zaměstnanecké požitky” (employee benefits) interchangeably.

Categories of employee benefits under IAS 19

• Short-term employee benefits (krátkodobé zaměstnanecké požitky)
• Termination benefits (požitky při ukončení pracovního poměru)
• Post-employment benefits (zaměstnanecké požitky po skončení pracovního poměru)
• Other long-term employee benefits (ostatní dlouhodobé zaměstnanecké požitky)

The category names follow paragraph 8 of IAS 19; the names in brackets are those of the official Czech text.

Typical examples of employee benefits for which a provision is made are:

• Financial benefit on retirement (old-age pension)
• Financial benefit on the award of a disability pension
• Financial benefit on reaching a life jubilee (milestone birthday)
• Financial benefit on a work jubilee (service anniversary)

In the Czech Republic, the Labour Code only permits these benefits: the employer “may” grant a bonus on a life or work jubilee and on the first termination of employment after the award of an invalidity pension for third-degree invalidity or after becoming entitled to an old-age pension (§ 224(2)). The entitlement to them arises from collective agreements and internal rules. How often and in what amounts they are agreed is shown by the IPP 2025 data in the guide Czech Republic: retirement and jubilee bonuses.

Retirement bonus and jubilees: two categories, two accounting treatments

A lump-sum bonus on retirement is a post-employment benefit; jubilee bonuses are other long-term employee benefits. Service cost and net interest go to profit or loss in both cases. Remeasurements (actuarial gains and losses, for example from a change in the discount rate) are recognised in other comprehensive income for post-employment benefits (OCI, paragraph 120) and in profit or loss for other long-term benefits (paragraph 156).

The projected unit credit method

The employer knows in advance, usually several years ahead, the likely amount of employee benefits it will pay in the following years. Because a long time passes between making the provision and actually using it, the amount of the provision, that is, the amount of employee benefits paid in the future, needs to be converted to its present value.

The provision is calculated using the projected unit credit method (in the official Czech text “přírůstková metoda”). To apply it to the calculation of the provision, the demographic and economic assumptions have to be set and correctly used in the mathematical model.

For each employee, the calculation essentially goes through four steps:

1. Expected payment: the amount under the collective agreement in the year of payment (for amounts linked to wages, taking salary growth into account).
2. Probability of payment: whether the employee stays with the organisation until the jubilee or retirement (turnover, mortality).
3. Discounting: conversion to the value at the balance sheet date. IAS 19 (paragraph 83) sets the discount rate by reference to market yields on high quality corporate bonds at the end of the reporting period; where there is no deep market in such bonds, by reference to the yields on government bonds.
4. Share of service rendered: the part of the entitlement the employee has already earned.

IAS 19 prescribes the projected unit credit method in paragraph 67; paragraph 68 also calls it the “benefit/years of service method”. Benefit is attributed to periods of service under the plan’s benefit formula (paragraphs 70 to 74). If the amount of the bonus does not depend on the length of employment, attribution need not start on the date of joining: according to the agenda decision of the IFRS Interpretations Committee of April 2021, service that affects neither the timing nor the amount of the benefit does not lead to the benefit. The standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations (paragraph 59).

Demographic assumptions used in the calculation

• Mortality rate
• Disability rate
• Employee turnover rate
• Employee data (age, sex, date of joining)

Economic assumptions used in the calculation

• Yield curve
• Inflation rate
• Salary growth rate
• Social security contribution rate

Selected official data on Czech government bond yields, wages, inflation and mortality are on the page Aktuárské předpoklady (in Czech).

Sources

• Act No. 563/1991 Coll. on Accounting, § 1(1), § 1d(4), § 19a, § 22(2) and (3), § 23a (e-Sbírka, in Czech, version from 1 January 2026; the version from 10 January 2028 does not change § 1d, § 19a, § 22 and § 23a)
• Act No. 262/2006 Coll., Labour Code, § 224(2) (e-Sbírka, in Czech, version from 29 August 2026)
• Parliamentary print 63/0: government bill on accounting, § 168(1) (in Czech)
• Regulation (EC) No 1606/2002 on the application of international accounting standards
• Commission Regulation (EU) 2023/1803 adopting certain international accounting standards (including IAS 19), IAS 19 paragraphs 8, 59, 67, 68, 70 to 74, 83, 120 and 156
• IFRS Interpretations Committee: Attributing Benefit to Periods of Service (IAS 19), agenda decision of April 2021
• Czech Republic: NÚR I-52 Employee Benefits: what the interpretation means for your financial statements