U.S. GAAP v. IFRS: The Basics - Financial Executives International

Employee Benefits Other Than
Share-Based Payments
Similarities
Multiple standards apply under U.S. GAAP, including FAS 87 Employers’ Accounting for Pensions,
FAS 88 Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, FAS 10 Employers’ Accounting for Postretirement Benefits Other
than Pensions, FAS 112 Employers’ Accounting for Postemployment Benefits, FAS 1 2 (Revised)
Employers’ Disclosures about Pensions and Other Postretirement Benefits, and FAS 158 Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans. Under IFRS, IAS 19
Employee Benefits is the principal source of guidance for employee benefits other than share-based
payments. Under both GAAPs, the periodic pension cost under defined contribution plans is based
on the contribution due from the employer in each period. The accounting for defined benefit plans
has many similarities as well. The defined benefit obligation is the present value of benefits that
have accrued to employees through services rendered to that date, based on actuarial methods of
calculation. Additionally, both U.S. GAAP and IFRS provide for certain smoothing mechanisms in
calculating the period pension cost.
Significant Differences
Actuarial method
used for defined
benefit plans
Valuation of defined
benefit plan assets
Treatment of actuarial
gains and losses for
annual pension cost
Amortization of
deferred actuarial
gains and losses
U.S. GAAP IFRS
Different methods are required dependent on
the characteristics of the benefit calculation
of the plan.
Valued at “market-related” value (which is
either fair value or a calculated value that
smoothes the effect of short-term market
fluctuations over five years) within three
months of the balance sheet date. (Note: for
fiscal years ending after December 15, 2008,
the valuation must be done as of the balance
sheet date.)
May be recognized in income statement
as they occur or deferred through either a
corridor approach or other rational approach
applied consistently from period to period.
Over the future service lives of employees or,
for inactive employees, over the remaining life
expectancy of those participants.
4 u.s. gaaP v. iFrs: t h E Basics
Projected unit credit method is required in all
cases.
Valued at fair value as of the balance sheet
date.
May be recognized in the income statement
as they occur or deferred through a corridor
approach. If immediately recognized, can elect
to present in either the income statement or
the SORIE.
Over the average remaining service period (that
is immediately for inactive employees).