Auditing Ind AS 19 — testing the defined benefit obligation

Auditing a defined benefit obligation under Ind AS 19 means treating the actuarial report as a management expert's work, which requires the auditor to independently evaluate the expert's competence, the appropriateness of the assumptions used (discount rate, salary escalation, attrition, mortality), and — critically — to trace the employee census data supplied to the actuary back to payroll and HR records, since a flawed input invalidates an otherwise correct valuation method.

Assumptions to independently assess, not just accept

• Discount rate — should reference government bond yields of a currency and term consistent with the obligation, not an arbitrary round number carried forward from last year.
• Salary escalation rate — should be consistent with the entity's own increment history and stated compensation policy, not a generic market assumption.
• Attrition/withdrawal rate — should reflect the entity's actual historical attrition by age band or grade, not an industry average that doesn't match observed experience.
• Mortality table — should be the current Indian Assured Lives Mortality table in use, not a superseded version.

Data the auditor must trace independently

1. 01Reconcile headcount in the census to payrollThe employee census sent to the actuary — date of birth, date of joining, salary, service — should tie to the payroll master as at the valuation date, not an outdated extract.
2. 02Agree opening DBO and plan assets to prior year closingThe opening defined benefit obligation and plan asset balances in the current actuarial report should match the prior year's closing figures exactly; any restatement needs an explanation.
3. 03Test the split between service cost, interest cost and remeasurementCurrent service cost and net interest go through profit or loss; actuarial gains and losses on remeasurement go through other comprehensive income and are never recycled to profit or loss — confirm the split is correctly applied, not all taken to P&L.
4. 04Verify plan asset values independently, where fundedFor a funded gratuity scheme, confirm the fair value of plan assets to the insurer's or trust's fund statement as at the balance sheet date, not an estimate.