The Financial Accounting Standards Board (FASB) issued an accounting standards update on March 10, 2017 designed to enhance the transparency of financial reporting on pension plans and other postretirement benefits.
Details of the FASB’s accounting standards update are issued in ASU 2017-07 , Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
Defined benefit pension cost and the postretirement benefit cost (net benefit cost) include components under GAAP that reflect an employer’s financial arrangements and the cost of the benefits for employees. GAAP requires these components to be aggregated in financial statements.
However, stakeholders stated the current presentation lacks transparency by aggregating these components, not only resulting in ineffective financial reporting but also causing users to incur additional costs.
The new accounting standards update addresses these issues by separating the service cost component from other components of net benefit cost. The FASB’s update notes only the service cost component is eligible for capitalization.
Changes become effective for public entities for annual periods beginning after December 15, 2017 and private entities the following year.
To learn more about the latest accounting standards update, contact GSG’s Audit and Accounting Team here.