An actuarial valuation of End of Service Benefits (EOSB) liability is mandatory for companies adopting IFRS. It is done using investment, economic and demographic assumptions via a model to determine the year end liability of end of service benefit as per IAS 19. In conducting an actuarial valuation or when projecting the EOSB status over the long term, many future events must be assumed, or predicted. Among others, these assumptions include:
- How long employee will remain part of the entity?
- What level of salary increases they will receive?
- When they will retire?
- How long they will live?
Considerable time and effort are expended before selecting each actuarial assumption so that actuary can estimate the future financial condition of the plan. Actuary performs stress testing and sensitivity analysis on key assumptions in order to understand the impact of experience deviating from the actuarial assumptions. The assumptions are based on a mix of statistical studies and experienced judgment. Since assumptions are often derived from long-term data, unusual short-term conditions or unanticipated trends can occasionally cause deviations from forecasts.