Question

Accounting for pensions receives more attention in the United States (US) than in other countries. Discuss reasons that would explain why pension accounting has less emphasis in many foreign countries than the US.

Answer 1

There are a few reasons why pension accounting has less emphasis in foreign countries than it does in the US. One of these fundamental reasons is that pensions are much less common outside of the US and therefore the currency volume and significant impact on companies is less in foreign accounting. Some differences between US GAAP accounting and IFRS accounting for pensions are :

• Under FAS 158, valuations require the use of a qualified actuary. Under IAS 19, the use of an actuary is only recommended, not required.
• Under FAS 158, the discount rate used is the rate at which obligation could be effectively settled, generally current rates of return on high-quality fixed income investments with maturities matching duration of benefits obligation. Under IAS 19 the rate used is current rates of return on high-quality corporate bonds with maturities consistent with the duration of benefit obligations.
• Under FAS 158, the rate of return on plan assets is the expected long term rates over life of the obligation. Under IAS 19, the rate is based on current market expectations over the life of obligation.
• Cost recognized under FAS 158 and IAS 19 is calculated almost exactly the same way. The only difference is that under FAS 106 you can add or subtract temporary deviations from plans.