Some current issues in accounting for the cost of defined benefit pension schemes

This paper discusses the issues underlying the International Accounting Standards Board (IASB)'s review of accounting for pension obligations. Pension obligations are currently dealt with by International Accounting Standard 19. This contains three important features, which are currently under review: (1) A smoothing mechanism (the ‘corridor’) for recognizing actuarial gains and losses. (2) An expected rate of return on plan assets, which is different from the actual (achieved) return. (3) An asset ceiling, which limits the extent to which surplus plan assets are recognized in the accounts of the employer. The IASB's current thinking on these issues is explained, and comparisons are made with the UK's controversial Financial Reporting Standard 17. The paper concludes with a brief discussion of two important aspects of measuring defined benefit obligations that are not being considered in the present review.