On 9 June 2022, the HKSAR Government announced the abolition of the use of accrued benefits derived from employers' mandatory MPF contributions in offsetting the Long Service Payment ("LSP") and Severance Payment ("SP") effective 1 May 2025 ("Transition Date").
Under this legislation, employers in Hong Kong would no longer be granted the right to adopt the mechanism for offsetting the post-transition portion of LSP/SP after the Transition Date. However, employers may continue to use the accrued benefits derived from employers' mandatory MPF benefits for offsetting the pre-transition portion of LSP/SP.
The abolition of MPF offsetting arrangement is applicable to employees who join:
In light of the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022, the Financial Reporting Standards Committee of the Hong Kong Institute of Certified Public Accountants ("HKICPA") recommended that all entities in Hong Kong reassess the accounting for the offsetting mechanism, as it is likely to have an immediate impact on the financial statements.
A LSP provision assessment would be required to determine the extent of LSP liability, which involves sophisticated programming techniques to handle massive data and determine various actuarial and financial assumptions, so that the accounting provision for LSP obligations is made under the requirement of Hong Kong Accounting Standards ("HKAS") 19.
According to the educational guidance published on 4 July 2023 and "Financial Reporting Alert 44" issued on 22 February 2023 by HKICPA, employers may choose either one of the two approaches to account for LSP liability in reflection of the change.
Under Approach 1, employers' portion of accrued benefits in MPF shall be accounted for as a reduction of the LSP liability, while the portion of LSP subject to offsetting mechanism before the Transition Date shall be deemed as a contribution towards the LSP. An immediate expense shall be recognized in the profit and loss during the exact date of the change.
Under Approach 2, instead of a direct offset of the employer's contributions in MPF against the LSP, the contributions previously made shall be recognized as an asset, with subsequent remeasurement at fair value. As a result, the impact of the change in the LSP liability would be amortized on a straight-line basis over the period in which the LSP is earned throughout the period.
Under either Approach, nonetheless, employers would need to determine the present value of the LSP, which is estimated with the Projected Unit Credit Method.
Our LSP assessment model is developed by valuation specialists and qualified actuary, which is meticulously designed to handle the complexities involved in LSP provision assessment. Our model accommodates various retirement savings schemes, including MPF, ORSO, voluntary contributions, vested portions, gratuities, and withdrawals, etc.
We have extensive experience and a proven track record of assisting clients in performing LSP provision assessments. We have conducted numerous LSP assessments for listed companies, MNCs, NGOs and private companies of varying sizes, from those with less than 50 employees to those with over 7000 employees across various industries.
Moreover, we have collaborated closely with many audit firms in Hong Kong on the LSP provision assessment. Our understanding of audit and disclosure requirements enables us to address auditors' questions effectively.
To meet the diverse requirements and budgets of different companies, we offer two distinct types of LSP provision assessment services, both tailored to effectively manage the assessment process and deliver accurate results. Whether you are a listed company, a MNC, an NGO, or a private company of any size in Hong Kong, our services are designed to provide you with the flexibility and expertise necessary to successfully navigate the complexities of LSP provision assessments.
The WeValue LSP 365 Calculator is a sophisticated, user-friendly web-based tool designed to help companies of any size to conduct self-assessments of LSP provisions under HKAS 19, providing an efficient and cost-effective solution for businesses of all scales.
Developed by WeValue, the WeValue LSP 365 Calculator intelligently handles complex employment data and automatically applies HKICPA's prescribed parameters. With simple and minimal input, companies can quickly obtain accurate, audit-ready LSP provision assessment results. Once the information is submitted, the system performs automated calculations based on HKAS 19 principles and generates a comprehensive assessment result, allowing clients to review, reconcile, and archive the results for management, financial reporting and audit purposes — all without building manual models or performing repetitive recalculations.
Subscription plans are flexibly tailored to the number of employees, making the WeValue LSP 365 Calculator an ideal solution for companies seeking to calculate LSP provision liabilities in accordance with HKAS 19, particularly those requiring fast, reliable and budget-friendly results.
For companies seeking comprehensive and hands-on support services, our LSP Premium Services is your perfect option. Our experienced team will collaborate closely with you and your HR department throughout the entire assessment process — from initial planning discussions tailored to your company's specific structure to the preparation of customized data templates.
In addition, we will assist you in preparing the necessary financial disclosure information for your financial statements, including sensitivity analyses and responses to auditor inquiries. The results of the LSP provision assessment will be presented in a written and signed valuation report in English.
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