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: