The Financial Accounting Standards Board will develop guidance on how companies present the net periodic cost of pensions and other postretirement benefits on their income statements.
FASB members agreed Monday to add the project to their technical agenda.
Currently, there is no specific guidance in generally accepted accounting principles and only limited guidance in International Financial Reporting Standards on where an employer’s income statement should present the net benefit cost, and stakeholders have criticized a lack of transparency into which elements are included. “The lack of transparency in the presentation of net benefit cost also reduces usefulness of financial information,” a board meeting handout said.
FASB members considered three modified alternatives for presenting net pension cost, with additional components such as service cost, interest cost and expected return on assets. The project will add service cost to the employer compensation costs already included in income statements. Cost components that are eligible to be capitalized would be limited to service cost.
Companies would also have to disclose which other components are included, following guidelines that FASB officials are working on as part of a separate project on disclosure frameworks for defined benefit plans.
FASB staff recommended a retrospective transition for the proposed amendments and a prospective transition for the proposed changes on capitalization of net benefit cost in the assets.
