IASB Toys With Pension Asset Recording Rule

January 27, 2003 (PLANSPONSOR.com) - An international accounting group has tentatively agreed on a new accounting rule requiring companies to report how much they actually earned on pension investments - not how much in earnings they predict.

The International Accounting Standards Board (IASB) has given the rule initial approval pending other possible pension accounting changes that could come later this year, according to a Dow Jones report. The issue of companies using expected rates of pension returns has prompted questions by some who believe the practice of using expected market returns may produce an inaccurate financial picture.

The mission of the IASB, formed in 2001, is to draft international accounting rules for adoption by companies listed on European and other non-US stock exchanges. IASB is now working on a set of standards, known as the IAS, some of which are in conflict with US generally accepted accounting principles. All publicly listed companies in Europe will be required to adopt international accounting standards by 2005. Australian companies also are converting to IAS.

The international group’s work is closely followed in the US given that the Financial Accounting Standards Board (FASB), the main US accounting rule maker, announced last year a project to harmonize accounting standards in the US and Europe (See  FASB, IASB Study Convergence Items).   FASB is based in Norwalk, Conn.

FASB is considering making changes to US pension accounting rules (See  FASB Reviewing Pension Regulations ). The rule maker has received numerous complaints about the way the rules are now structured. At a meeting next month, FASB will review the pension issues with a newly formed advisory group drawn from various financial and other sectors.

Many US companies are marking down their expected rates of return on pension assets, as it becomes increasingly clear they can no longer hit targets like 10% and even higher with the still slumping US markets.