BC25 Some argue that an employee's entitlement to future paid absences does not create an obligation if that entitlement is conditional on future events other than future service. However, IASC concluded in 1998 that an obligation arises as an employee renders service that increases the employee's entitlement (conditional or unconditional) to future paid absences; for example, accumulating paid sick leave creates an obligation because any unused entitlement increases the employee's entitlement to sick leave in future periods. The probability that the employee will be sick in those future periods affects the measurement of that obligation, but does not determine whether that obligation exists.

BC26 IASC considered three alternative approaches to measuring the obligation that results from unused entitlement to accumulating paid absences:

(a) recognise the entire unused entitlement as a liability, on the basis that any future payments are made first out of unused entitlement and only subsequently out of entitlement that will accumulate in future periods (a FIFO approach);

(b) recognise a liability to the extent that future payments for the employee group as a whole are expected to exceed the future payments that would have been expected in the absence of the accumulation feature (a group LIFO approach); or

(c) recognise a liability to the extent that future payments for individual employees are expected to exceed the future payments that would have been expected in the absence of the accumulation feature (an individual LIFO approach).

These methods are illustrated by the following example.