GLOBAL - The International Accounting Standards Board (IASB) is set to review post-retirement benefits in an effort to improve pensions accounting.
Following in the footsteps of the Accounting Standards Board, the IASB has added a project to its agenda to review the way pensions are accounted for on company balance sheets.
The project will be broken down into two phases, the first aiming to make “targeted improvement to pensions accounting”, an IASB spokesperson said.
Smoothing devices will be part of the focus of the first phase of the review, as will cash balance plans.
According to the US department of labor, a cash balance plan is a “defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan”. In other words, a cash balance plan “defines the promised benefit in terms of a stated account balance”.
These types of pension plans are viewed as problematic because there is currently no system to account for them. Therefore, finding a standard to fit this new structure is vital to the future of pensions accounting.
During phase two of the review, the IASB will converge with the Financial Accounting Standards Board (FASB) which is carrying out a review of its own.
The first phases of both reviews differ, but the IASB and the FASB will come together for the second part of the project to look more comprehensively at pensions accounting.
The ASB will not be directly involved in this, but the IASB spokesperson said there were lessons to be learned from the study the ASB had undertaken.
By Angele Spiteri Paris
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