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 2007) introduced some important changes to the way the TFR is regulated and introduced the possibility for workers to transfer their TFR maturing as from January 1 2007 to pension schemes of their choice. All TFR that had accumulated as of December 31 2006 for employees who exercised this choice, while still remaining as a defined benefit plan, was determined using actuarial methods which, however, excluded the actuarial/financial elements that refer to future salaries. In view of the fact that this new calculation method reduces the fluctuation of actuarial gains/losses, the decision was made to abandon the so-called corridor method and to recognize all actuarial gains and losses to the Income Statement.
Accounting standard IFRS 2 “Share-based payments” issued in February 2005 with validity as form January 1 2005 requires in its transitional instructions that application should be retrospective in all cases where stock options were assigned after November 7 2002 and for which on the date on which this condition took effect the vesting conditions of the plans had not yet matured.
In accordance with this principle the CIR Group now measures and recognizes the notional cost of stock options to the income statement under personnel costs and apportions them throughout the vesting period of the benefit, with an offset in the appropriate reserve of shareholders’ equity.
The cost of the option is determined at the moment when the plan is awarded using special models and multiplying by the number of options exercisable in the reporting period, which are determined using the aid of appropriate actuarial variables.