How should unused sick leave that can be credited for pension benefits be treated?

Unused sick leave that can be credited for pension benefits should not be accrued as part of leave liability because it typically represents a future benefit rather than an obligation that has been incurred. When considering leave liabilities, only those amounts that are expected to be paid out as cash or benefits in the near term should be recognized.

The rationale here is that while sick leave benefits may add value towards pension calculations, they are not immediately payable as a cash liability and thus do not meet the criteria for accrual in financial reporting. These benefits will only be realized in the future once an employee retires or claims the pension benefit. Therefore, recording this as a liability would misrepresent the company's current financial obligations, which are focused on liabilities that require immediate settlement.

This treatment aligns with general accounting principles that favor recognizing actual liabilities based on duty or obligation that have already occurred and are expected to be settled in the near term. As a result, the approach taken is consistent with prudence in financial reporting.