Actuarial Valuation of Gratuity/Leave Encashment

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Srinivasan Arun (Querist)
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21 July 2008 Can the Statutory Auditor of the Company question the correctness of the "Discount Rate" taken by the Actuary for the valuation of Gratuity/Leave Encashment Liability as at end of March'08? For eg: Actuary has taken 7% as the discount rate where as Auditor feels it should be 10%

Amit Bajaj

Amit Bajaj (Expert)
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25 July 2008 Yes it can be questioned very much. It is the auditors responsibility to satisfy himself about all material assumptions used for the preparation of financial statements.

If actuary does not agree you may consider qualifying audit report

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S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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05 October 2008 Yes the auditors have the right to satisfy themselves as to the fairness of assumptions, especially in view of the AS.

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SURESH

SURESH (Expert)
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04 November 2014 Firm can take opinion from another independent actuary to validate the assumptions used by the valuation actuary.
If actuary has taken 7% as discount rate he must have taken the same as methodology mentioned in the sections on "Discount Rate" in the AS 15 (R). Actuary can easily explain the logic behind the same to the auditor. eg Firm/Auditor can seek the information as what is the expected balance future service of the group. Based on that G-Sec rates can be referred to arrive at to value the gratuity liability. eg If the attrition rates used in the valuation are very high then the expected balance future service will be short and vice versa.