Benefits to be paid to employees after the termination of their employment and other long term benefits are subject to actuarial valuation.
Following this methodology, liabilities recognized represent the present value of the obligation adjusted for any actuarial gains or losses which have not been accounted for.
Financial Law no. 296/2006 (Budget) made important changes to severance and leaving indemnity (TFR) regulations, introducing the possibility for workers to transfer their TFR maturing after January 1 2007 to selected pension schemes. Thus the TFR accruing as of December 31 2006 for employees who exercised the above option, while remaining within the sphere of defined benefit plans, was determined using actuarial methods that exclude the actuarial / financial components relating to future salary dynamics. Given that this new method of calculation reduces the volatility of actuarial gains / losses the decision was taken to abandon the corridor method and recognize all the actuarial gains and losses to the Income Statement.
Accounting principle IFRS 2 “Share based payments” issued in February 2005 but applicable as from January 1 2005 (and amended effective January 1 2010) stated that application would be retrospective for all transactions where stock options were awarded before November 7 2002 and where, as of the date of its taking effect, the vesting conditions contained in the various plans had not yet been satisfied.
In compliance with this principle the CIR Group measures the notional cost of stock options and recognizes it to the income statement under personnel costs during the vesting period of the benefit, with a corresponding posting to the appropriate equity reserve.
The cost of the option is determined at the award date of the plan applying special models and multiplying by the number of options exercisable over the respective period, which is evaluated with the aid of appropriate actuarial variables.
Similarly the cost resulting from the award of phantom stock options is determined in relation to the fair value of the options at the award date and is recognized to the income statement under personnel costs throughout the vesting period of the benefit; the offsetting entry, unlike for stock options, is made in the liabilities (miscellaneous personnel provisions) and not in an equity reserve. Until this liability is extinguished its fair value is recalculated at each balance sheet date and on the date of actual disbursement and all the fair value changes are posted to the income statement.