The SP / LSP calculator presented here provides a great free alternative of SP / LSP calculation such that employer or employee can have a quick check on the SP or LSP receivable / payable. The interface of our SP / LSP calculator is simpler than that provided by the labour department by focusing on the most common scenarios. For example, ORSO scheme is not considered in our calculator. If you are looking for a more comprehensive calculator, you can visit the Labour Department’s SP / LSP calculator.
Long Service Payment Valuation Services
Past service cost should be recorded in the year of enactment of the Amendment Ordinance. Valtech’s LSP valuation model can incorporate acturaial assumptions and calculate the LSP including the anticipated effects of the Abolition. The calculation process can be adjusted no matter the Company chooses Approach 1 or Approach 2 in the guidance. Valtech can provide similar services on severance payment (SP) and gratuity payment’s valuation.
Methodology: Projected Unit Credit Method
Why are many sizeable companies appoint Valtech to conduct the long service payment valuation?
Valtech Valuation has been appointed by many multinational corporations and prominent employers in Hong Kong. Currently Valtech Valuation is actively helping clients with several thousands of employees in quantifying their LSP obligation under the new legislation in a truly detailed manner. It is far more complicated than one can expect in handling a lot of different possibilities in a sizable workforce. Appointment of specialist is highly recommended. Valtech also appoints qualified acturay (fellow) for continuous improvement of our actuarial model.
In the sector of long service payment valuation, Valtech is truly professional and experienced. All of the track records we share with our clients are directly related to LSP valuaition but not valuation of other nature.
Case References of Valtech’s Actuarial Model for HKAS 19 Employee Benefits Regarding Long Service Payment or Severance Payment
- Multinational corporation’s (MNC’s) Hong Kong office in publication sector
- MNC’s Hong Kong office in production sector
- MNC’s Hong Kong office in telecommunication sector
- An international law firm’s Hong Kong office
- A company with approximately ten thousands of staff in Hong Kong
- A famous medical group in Hong Kong
- MNC’s Hong Kong business in clothing and baby products
- MNC’s Hong Kong business in building product
- The Hong Kong office of a MNC, with headquartered in USA
- A MNC headquartered in Austria in electronics trading industry
- A hotel group in Hong Kong
- An organisation with both MPF and ORSO scheme
- The list above is non-exhaustive.
What inputs do you need to prepare for the valuation?
The details of employee existing salary (monthly or daily salary as applicable), employer contributed MPF, mortality rate, employee resignation rate, salary increase rate, dismissal rate, discount rate, employment types (including part-time and contract), current year’s defined benefit obligation (“DBO”) accumulation and related payments. There is some useful public information available online. For example, Hong Kong Life Table is published by Hong Kong Government regularly online. Statistics on MPF return is also published by Mandatory Provident Fund Schemes Authority regularly. Additional information may include gratuity and voluntary MPF contribution.
Why are you encouraged to hire a valuation specialist to perform the calculation?
The calculation is not too complicated for one single employee. Following the practical example provided by HKICPA, you can calculate the result and project the impact for a single employee under simplified assumptions using a single worksheet of a spreadsheet program. However, when the number of employees increase from one to hundreds or even to thousands, the complexity will increase significantly. Programming technique will be required to handle massive data. On the other hand, according to Hong Kong Accounting Standard 19 (HKAS 19), actuarial assumptions should be used. For example, staff turnover rate should be considered and it should be different for staff in different sex or age groups. Combining the impact of actuarial assumptions and large pool of employees, involvement of valuation specialist can support company in using a proper framework and perform a high-level review on the input data.
Projected Unit Credit Method is mentioned under HKAS 19 in measuring post-employment obligations and costs. Projected Unit Credit Model is an actuarial valuation method that treats each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.
Can you hire a valuation specialist in LSP valuation whom is not an actuary?
A typical HKAS 19 exercise necessitates multidisciplinary knowledge in basic actuarial science, derivative valuation, and accounting standards, to which they are closely interacted. Nevertheless, it is further stated in the accounting standard that a qualified actuary’s report is not mandatory under HKAS 19. A specialist with comprehensive knowledge can best serve the purpose. In particular, the Projected Unit Credit Method involves certain demographic and financial assumptions. Valuation specialists generally have good understanding in return, interest, discounting and fair value of obligations at given scenario. However, that is not enough. Only those valuation specialists with advanced knowledge in probability and statistics are capable of taking into account death rates, dismissal and resignation probability across ages in the LSP model. LSP valuation under HKAS 19 under the new legislation determines the important DBO figure in financial reporting. In addition, a qualified specialist can also help you to identify the past and current services costs, interest impact, change in accounting policy, change in actuarial assumptions. As such, it is highly preferable that the specialist should understand accounting standards’ requirement. Valtech’s qualified valuation specialists are holding CPA qualification. Their knowledge in accounting largely facilitates their communication with auditors. Nevertheless, Valtech also appoints qualified acturay (fellow) for continuous improvement of our actuarial model.
About Valtech Valuation
Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The firm is renowned for its expertise in advanced valuation techniques, customized valuation models, data-driven insights, and adherence to compliance and reporting standards. With a solid track record in valuation advisory for listed companies, private equity, fund managers, and financial institutions, Valtech Valuation has a qualified team of CPA, CFA, Chartered Valuation Surveyor of Royal Institution of Chartered Surveyors, and valuer having Accredited in Business Valuation (ABV) by AICPA.
