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tions for defined benefit plans are determined annually by an
independent actuary using the projected unit credit method.
The present value of a defined benefit plan is determined by
discounting the future cash flows at an interest rate equal to
that of high-quality corporate bonds issued in the liability’s
settlement currency and which reflects the duration of the
related pension plan. Actuarial gains and losses arising
from the above adjustments and the changes in actuarial
assumptions are recorded directly in equity.
Past service costs resulting from a plan amendment are re-
cognised immediately in the income statement in the period
the plan amendment occurs.
Other post-employment obligations
Some Group companies provide medical benefit plans for
retired employees. The expected cost of these benefits is
accrued over the period of employment using the same
accounting method as for defined benefit plans. Actuarial
gains and losses arising from the valuation and the effects
of changes in the actuarial assumptions are accounted for
in equity. These liabilities are valued annually by a qualified
independent actuary.
Termination benefits
The Group recognises termination benefits when it can be
shown that the termination of employment complies with
a formal plan communicated to the parties concerned that
establishes termination of employment, or when payment of
the benefit is the result of voluntary redundancy incentives.
Termination benefits payable more than twelve months after
the reporting date are discounted to present value.
Share-based payments (equity-settled)
Stock options are valued on the basis of the fair value deter-
mined on their grant date. This value is charged to the income
statement on a straight-line basis over the option vesting
period with a matching entry in equity. This recognition is
based on an estimate of the number of stock options that
will effectively vest in favour of eligible employees, taking
into consideration any vesting conditions, irrespective of the
market value of the shares.
B.19 PROVISIONS FOR RISKS AND CHARGES
Provisions for risks and charges are recognised for losses
and charges of a definite nature, whose existence is certain
or probable, but the amount and/or timing of which cannot
be determined reliably. A provision is recognised only when
there is a current (legal or constructive) obligation for a
future outflow of economic resources as the result of past
events and it is likely that this outflow is required to settle
the obligation. Such amount is the best estimate of the ex-
penditure required to settle the obligation. Where the effect
of the time value of money is material and the obligation
settlement date can be estimated reliably, the provisions
are stated at the present value of the expected outlay, using
a rate that reflects market conditions, the variation in the
cost of money over time, and the specific risk attached to
the obligation.
Increases in the provision due to changes in the time value of
money are accounted for as interest expense.
Risks for which the emergence of a liability is only possible
but not remote are indicated in the disclosures about com-
mitments and contingencies and no provision is recognised.
Any contingent liabilities accounted for separately when
allocating the cost of a business combination, are valued
at the higher of the amount obtained using the method
described above for provisions for risks and charges and the
liability’s originally determined present value.
Further details can be found in Note 29. Contingent liabilities.
The provisions for risks and charges include the estimated
legal costs to be incurred if such costs are incidental to the
extinguishment of the provision to which they refer.