Accounting changes - Pensions (Insights for the investment community)

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05/30/2013 by PwC Investor Resource Institute
Accounting changes - Pensions (Insights for the investment community)

At a glance

Given the accounting method typically used by companies to report the effects of plan changes, several have made a discretionary change in how they account for their pension plans to increase the transparency of their accounting and improve their financial reporting.

Given the accounting method typically used by companies to report the effects of plan changes, several have made a discretionary change in how they account for their pension plans to increase the transparency of their accounting and improve their financial reporting.

A discretionary accounting change is a change from one acceptable accounting method to another. Given the importance of consistency in financial reporting, public companies must establish that the new method is “preferable” before making a discretionary change. This means the new method must represent an improvement in the company’s financial reporting based on its specific facts and circumstances. To assess whether the change is preferable, a company may consider factors such as:

  • How the change improves consistency of reporting with the company’s peers.
  • How the change aligns with the way the company manages its business.
  • Whether there has been (or is expected to be) a change in the company’s business that supports the accounting change
  • How external factors (market, industry, or economic) support the change.