FASB ISSUES PROPOSED IMPROVEMENTS TO FINANCIAL REPORTING OF PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Norwalk, CT, January 26, 2016—The Financial Accounting
Standards Board (FASB) today issued two proposed Accounting Standards
Updates (ASUs) intended to improve financial reporting by employers
related to defined benefit pension and other postretirement benefit
plans.
The proposed ASU, Compensation—Retirement
Benefits—Defined Benefit Plans—General (Subtopic 715-20): Changes to
the Disclosure Requirements for Defined Benefit Plans, is part of
the FASB's broader disclosure framework project aimed at improving the
effectiveness of disclosures in the notes to financial statements by
focusing on the information that is most relevant to financial statement
users.
As part of that project, the FASB decided to re-examine existing
disclosure requirements in certain areas within the context of the
proposed disclosure framework. Pensions was one of four areas—including
income taxes, inventory, and fair value—to be re-examined.
The proposed ASU, Compensation—Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost, seeks to improve guidance related to the presentation of defined benefit costs in the income statement.
Under Generally Accepted Accounting Principles (GAAP), defined benefit
pension cost and postretirement benefit cost (net benefit cost) comprise
several components that reflect different aspects of an employer's
financial arrangements, as well as the cost of benefits provided to
employees. Those components are aggregated for reporting in the
financial statements.
Many stakeholders have observed that the current presentation of defined
benefit cost on a net basis combines elements that are distinctly
different in their predictive value. This makes it more costly for
investors and other users to analyze and understand that information,
resulting in financial statements that are more opaque and less useful
than they could be.
The proposed ASU would address these issues by requiring a reporting
organization to separate the service cost component from the other
components of net benefit cost for presentation purposes. It also would
provide explicit guidance on how to present the service cost component
and other components of net benefit cost in the income statement. The
proposed ASU would allow only the service cost component of net benefit
cost to be eligible for capitalization.
Stakeholders are asked to provide comment on the proposed ASUs by April 25, 2016.
The proposed ASUs—and a high-level FASB in Focus overview of both—are available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector,
not-for-profit organization based in Norwalk, Connecticut, that
establishes financial accounting and reporting standards for public and
private companies and not-for-profit organizations that follow Generally
Accepted Accounting Principles (GAAP). The FASB is recognized by the
Securities and Exchange Commission as the designated accounting standard
setter for public companies. FASB standards are recognized as
authoritative by many other organizations, including state Boards of
Accountancy and the American Institute of CPAs (AICPA). The FASB
develops and issues financial accounting standards through a transparent
and inclusive process intended to promote financial reporting that
provides useful information to investors and others who use financial
reports. The Financial Accounting Foundation (FAF) supports and oversees
the FASB. For more information, visit www.fasb.org.