Certified Government Financial Manager (CGFM) 2025 – 400 Free Practice Questions to Pass the Exam

Termination benefits, often referred to as severance pay or termination compensation, are recognized when the conditions for liability are met. In this context, the critical moment for recognizing termination benefits is when the employee accepts the offer. This is because acceptance signifies a mutual agreement between the employer and the employee regarding the terms of the severance or other benefits, creating a clear obligation for the employer to fulfill that commitment.

Recognizing termination benefits relies heavily on the contractual nature of the employer-employee relationship following termination. Once the employee accepts the offer, the company is bound to provide those benefits, establishing a liability on the financial statements.

The concept emphasizes the importance of the agreement in recognizing expenses, contrasting with other scenarios like estimation of costs or allocation of funds, which do not constitute the formal acceptance needed to trigger recognition of termination benefits.