US accounting rules: new disclosure requirements
The Financial Accounting Standards Board (FASB) issued in March 2017 an update to Accounting Standards Codification 715 - Compensation – Retirement Benefits (ASC-715), titled “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. This update has no impact on the way the costs are calculated for pension and other postretirement benefits, but rather in the presentation of these costs in the financial statements.
The update requires that the “service cost “component be reported separately from the other components of net benefit cost in the income statement. The “service cost” component must be reported together with other compensation costs arising from services rendered during the period. The update allows only the “service cost” component to be eligible for capitalization as part of an asset such as inventory.
Effective dates and transition requirements
- Public business entities: annual periods beginning after December 15, 2017 (including interim periods within those annual periods)
- All other entities: annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019
Early adoption is also permitted as of the beginning of an annual period for which financial statements have not been issued, or within the first interim period if an employer issues interim financial statements.
For the presentation of the “service cost” component, this change should be applied retrospectively. As a practical expedient, the employer can use the amounts disclosed in its pension and other postretirement benefits plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.
For the capitalization of the “service cost” component in assets, this change should be applied prospectively, on and after the effective date.