The nation's accounting-standards board voted Thursday to move ahead with a broad overhaul that would require companies to more fully disclose...
NORWALK, Conn. — The nation’s accounting-standards board voted Thursday to move ahead with a broad overhaul that would require companies to more fully disclose the financial health of their pension plans.
The Financial Accounting Standards Board (FASB) approved a project expected to lead to new rules requiring companies to report pension obligations on their balance sheets.
Critics say the current rules allow companies to obscure their future obligations to employees in footnotes, manipulating the profits they report to investors.
“The project intends to make it easier for investors, employees and retirees to understand and assess a company’s financial position as well as its ability to carry out the obligations of its pension and post-retirement benefits,” said Gerard Carney, spokesman for the standards board.
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FASB officials said the new rules could result in hundreds of billions of dollars in defined-benefit pension obligations being shifted onto balance sheets. The move will help retirees determine if their companies can meet pension obligations, officials said.
The board decided to undertake the project in two phases, with the first completed by the end of 2006.
The initial phase will focus on improving transparency by requiring the funded or unfunded status of pension plans be recognized on the balance sheet.
The second phase will tackle issues such as how gains and losses are recognized and how to recognize and display in earnings the elements that affect the cost of providing retirement benefits.
The first phase is not expected to affect how profit is determined, because the pension obligation will be placed in a category known as “other comprehensive income.” But FASB officials said the long-term study could affect the bottom line.
“It’s long overdue,” said Ed Ketz, an associate professor of accounting at Pennsylvania State University and the author of a new book, “Accounting Ethics.”
“They’re moving in the right direction in terms of studying the issue,” he said. “We’re not 100 percent sure what they will do as a final rule.”
The increased-disclosure requirement could show investors how many pension obligations some older companies have, Ketz said. Exposure of the debts may accelerate a trend in which companies have curtailed their pension benefits, he said.