US - The Financial Accounting Standards Board (FASB) has approved a project to improve reporting on pensions and other post-retirement benefit plans.
FASB also called for pension fund surpluses and deficits to be recognised on balance sheets. Robert Herz (pictured), chairman of FASB, said there did not seem to be a simple fix to accounting and reporting issues, but highlighted the need to look for areas that could be quickly improved.
The first phase of the project will look to address the fact that, under current accounting standards, important information about the financial status of a company’s plan is reported in the footnotes, but not in the basic financial statements, FASB said in a statement.
“Accordingly, this phase will seek to improve transparency by requiring that the funded or unfunded status of DB and other post-retirement benefit plans, measured as the difference between the fair value of plan assets and the current measure of the benefit obligation incurred for past employee service, be recognised in the balance sheet,” FASB said.
As part of the second, broader, phase the project would look at issues including how best to recognise and display in earnings and other comprehensive income the various elements that affect the cost of providing post-retirement benefits, and whether post-retirement benefit trusts should be consolidated by the plan sponsor.
Rebecca McEnally, CFA project director of the Capital Markets Policy Group applauded FASB’s project, claiming it would overhaul financial reporting standards for pension funds and other employee-retirement benefits.
“Too many examples exist of companies leaving shareholders in the dark about the effects of pension and other benefit plan expenses and liabilities on the companies' operations,” she said. “Investors must have relevant, clear, accurate, and complete information. The move by FASB is an important step forward in serving the needs of investors.”
FASB said the accounting and reporting issues involved touched on many fundamental areas of accounting, including measurement of assets and liabilities, consolidation, and reporting of financial performance.
“They are also impacted by complex funding and tax rules that, while not directly associated with accounting standards, affect the economics the accounting seeks to depict,” the board said.
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