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IF a company has a year end of December and an employee joined the company in February 2014 and salary is currently 5000 $ and the accounts are being prepared for the year end 2014, auditors will usually make a provision for the employees annual leave, by taking ($5000x 11/12). The reason is, supposedly :
The estimated monetary liability for employees’ accrued leave entitlement at the balance sheet date is recognized as an expense accrual.I do not understand this.
I currently work in an audit firm
Well, there will be no accrual if the employee has taken their full entitlement to leave within that 11 month period. If full entitlement has not been taken, then an appropriate accrual should be made.
For the sake of easy numbers, let’s assume that annual leave is 24 working days and the employee has taken just 20 days during calendar year 2014. As an employee for 11 months, entitlement to leave in 2014 should be 11/12 x 24 = 22 days. 20 days have been taken so an accrual should be made for 2 more days (24 – 22)
Does that do it for you?
That’s assuming that those 20 days were paid leave, right?. In your example, if those 20 days were paid leave, then the accrual made would be 2/24 x 5000 usd? Right?
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