5. FASB Accounting Standards

Sample Page: Comprehensive GAAP Guide

Pension Plans-Employers
Overview

Promulgated GAAP for employers' accounting for pension plans center on the determination of annual pension expense (identified as net periodic pension cost) and the presentation of an appropriate amount of pension liability in the statement of financial position. Net periodic pension cost has often been viewed as a single homogeneous amount, but it is actually made up of several components that reflect different aspects of the employer's financial arrangements, as well as the cost of benefits earned by employees.

In applying principles of accrual accounting for pension plans, the FASB has emphasized three fundamental features:

1. Delayed recognition-This feature means that changes in the pension obligation and changes in the value of pension assets are not recognized as they occur, but are recognized systematically and gradually over subsequent periods.
2. Net cost-This feature means that the recognized consequences of events and transactions affecting a pension plan are reported as a single net amount in the employer's financial statements. This approach results in the aggregation of items that would be separately presented for any other part of the employer's operations: the compensation cost of benefits, interest cost resulting from deferred payment of those benefits, and the results of investing pension assets.
3. Offsetting-This feature means that pension assets and liabilities are shown net in the employer's statement of financial position, even though the liability has not been settled. The assets may still be controlled and substantial risks and rewards associated with both are clearly borne by the employer.

Promulgated GAAP for accounting for pensions by employers are located in the following pronouncement:
FASB-87, Employer's Accounting for Pensions

GAAP Guide/30.01

Comprehensive GAAP Guide

In this section:

2. Hoover's Handbooks
3. Standard & Poor's
4. Robert Morris Associates' Annual Statement Studies
5. FASB Accounting Standards
6. The Wall Street Journal
7. Occupational Outlook Handbook
8. Harvard Business Review
9. Who's Who in America
10. MIT's Technology Review
11. Small Business Sourcebook
12. Peterson's Guide to Four-Year Colleges
13. American Heritage
14. The Worldly Philosophers

Browse this chapter: