Accounting changes - Pensions

May 2013
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Accounting changes - Pensions

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.

Insights for the investment community

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.