Accounting for employee layoffs

Guidance under TFRS for NPAEs and full TFRS 

When a company decides to reduce headcount, whether due to cost pressures, restructuring, or strategic realignment, the financial reporting impact may be material. This article outlines how such layoffs should be accounted for and disclosed under both TFRS for NPAEs and full TFRS, particularly when the decision occurs near the financial reporting date.  

1. Termination benefits: Recognition and measurement  

TFRS for NPAEs  

• When to recognise: A liability and expense should be recognised when the company has a detailed formal plan for termination and is demonstrably committed (e.g. announcement to employees, board approval).  
• What to recognise: The expected severance or termination payment as required by Thai labor law or employment contracts.  
• Measurement: Measurement is generally at the expected payout amount. Discounting is optional but may be applied if the settlement is significantly delayed (e.g., beyond 12 months). 

Full TFRS (TAS 19)  

• More detailed guidance: Requires recognition at the earlier of:  
  • When the entity can no longer withdraw the offer, or  
  • When a constructive obligation arises because the entity has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected.  
• Measurement: Estimate based on the best available information. Discounting is required for payments due beyond 12 months..  
• Presentation: Expense is recognised in profit or loss; discount impact goes to finance cost.  

2. Provision for restructuring (if part of a broader plan)  

If layoffs are part of a larger restructuring plan, e.g. closing a factory or eliminating a product line: 

TFRS for NPAEs  

• Recognise a provision when:  
  • A present obligation exists from a detailed plan, and  
  • A reliable estimate can be made for unavoidable costs (e.g. penalties, relocation).  

Full TFRS (TAS 37)  

• Same recognition criteria, but with additional constraints:  
  • Cannot include costs related to future operations.  
  • Must disclose the nature, timing, and uncertainties of the restructuring provision.  

3. Adjustments to other employee benefits  

If the layoff affects long-term benefits (e.g. post employment defined benefit plans):  

1. TFRS for NPAEs: Adjustments may be required if benefit assumptions (e.g. number of eligible employees) change.  

2. Full TFRS: Requires remeasurement of the defined benefit obligation. Actuarial gains or losses are recorded in OCI.  

4. Disclosure requirements  

Both frameworks require appropriate disclosure if the impact is significant. 

5. Layoffs occurring near period-end: Adjusting vs. Non-adjusting events  

Understanding timing is crucial when the layoff plan is communicated or approved shortly after the reporting date (e.g. in January for a 31 December year-end): 

6. Audit and documentation considerations  

• Audit evidence: Document board resolutions, internal memos, and employee communications to support the date of commitment.  
• Legal compliance: Ensure severance calculation aligns with the Thai Labor Protection Act.  
• Internal controls: Confirm that HR, finance, and legal teams are aligned on obligations and timelines.  
• Consistency: Align layoff-related costs with internal budgeting and restructuring documentation to support accounting judgments.  

Final thoughts 

Layoffs can trigger significant accounting consequences, even for smaller entities. Proper recognition, disclosure, and timing assessment are critical for presenting a faithful picture of the entity’s financial position and performance. Whether applying TFRS for NPAEs or full TFRS, early planning and cross-functional coordination (HR, finance, legal) are key to ensuring compliance.  

References (in Thai):  

• TFRS for NPAEs (Revised 2022). Retrieved from Thailand Federation of Accounting Professions.  
• TAS 19. Retrieved from Thailand Federation of Accounting Professions. 
• TAS 37. Retrieved from Thailand Federation of Accounting Professions.