FASB, IASB Will Discuss Joint Pension Accounting Project

The Norwalk, Connecticut-based Financial Accounting Standards Board decided yesterday to forgo its own pension project with a limited scope.   Rather, the US accounting decision makers will discuss with the International Accounting Standards Board (IASB) whether to mount a broader project together, according to a Dow Jones report.

“The idea would be that we would really dissect all the pieces of the existing accounting, and then do two things: try to come up with the correct way to handle post-retirement benefits, and do it so we could come up with an international standard, or at least limit the differences between standards,” Peter Proestakes, pension project manager at FASB, told Dow Jones.

London-based IASB has already undertaken the heady take of a pension rule overhaul, but the project is on hold temporarily. IASB members have said the delay is due to the complexity of some of the accounting issues involved.  (See   FASB Proposals Latest in International Accounting Conformity Effort).

Complex may be an understatement when describing pension standards that have been under fire in the United States over the past year, as defined benefit plans, ravaged by the effects of a down market, have been reporting record levels of underfunding.   Key among many of the criticisms launched by pension watchers are current regulations that allow for “smoothing” – a process by which companies amortize gains and losses over the course of several years, has been one of the biggest hot buttons (See  Accounting Rules Smooth Over Pension’s Potholes).   Utilizing smoothing provision, a company whose pension plan actually experienced a big loss in a given year could report a pension gain during that period using the technique .

Another accounting wrinkle that often draws fire is a rule that lets companies report as actual earnings the money that they merely expect to earn on pension assets for a given period.

FASB issued a rule on December 23 requiring companies to report more details about their plans, including how assets are invested and how pension contributions could affect overall cash flow (See  FASB Mandates More Pension Disclosures ). Companies are facing a tight deadline to comply, with the first new disclosures due in annual reports this year.