Could someone please tell me how the calculation differs in each method, specifically relating to the way “past service costs” are dealt with? Shot.
Under IFRS the vested portion is recognized and expensed immediately, while the unvested portion is amortized over the average vesting period. Unamortized past service costs are included in the footnotes and need to be included in the calculation of the funded status of the pension plan. Under US GAAP past serive cost can either be recognized directly or amortized over the average working lives of the employees. The unamortized portion of past service cost is not included in the calculation of the funded status. I hope this is right…
past service costs are recognized immediately in each case , but the treatment differs. IFRS: vested employees’ are recognized in current period as pernsion expense. For unvested , part of the costs are amortized in current period. This smooths the reporting somewhat. GAAP: No such difference ( vested or unvested ) . Amortize all the past services costs for employees that are benefiting irrespective vested/unvested ( recognize only a portion each year). In the year reported show the entire expense in “other comp income” ( IS ) , in subsequent periods show it in "accumulated other com income "( BS ) which affects the shareholder equity directly without touching the IS ( except amortized part ) Also in reporting piece for pensions in the BS , IFRS will show the unrecognized past service costs in funded status adjustments in the footnotes, while GAAP will ignore it ( SFAS 158 ) . So , because they eliminate the Past Service cost numbers IFRS will smooth the expense reporting ( keep it closer to the income statement numbers ) . IFRS treatment makes the reporting of past service costs closer to economic reality
little bit confused since gaap shows more realistic condition of pension on bs,should the past service cost be recognized on bs under gaap? despite of the unamortized amount be shown in the footnotes under ifrs?