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Compensation—Retirement Benefits (Topic 715) - FASB

Compensation Retirement Benefits (Topic 715) No. 2017-07 March 2017 Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost An Amendment of the FASB Accounting Standards Codification The FASB Accounting Standards Codification is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Please ask for our Product Code No.

type. Added text is underlined, and deleted text is struck out. Part I—Amendments Related to the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Amendments to Master Glossary 2. Amend the Master Glossary term Net Periodic Pension Cost, with a link to transition paragraph 715-20-65-3, as follows:

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Transcription of Compensation—Retirement Benefits (Topic 715) - FASB

1 Compensation Retirement Benefits (Topic 715) No. 2017-07 March 2017 Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost An Amendment of the FASB Accounting Standards Codification The FASB Accounting Standards Codification is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Please ask for our Product Code No.

2 ASU2017-07. FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published monthly with the exception of July, September, and October by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Periodicals postage paid at Norwalk, CT and at additional mailing offices. The full subscription rate is $255 per year. POSTMASTER: Send address changes to Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. | No. 451 Copyright 2017 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation.

3 Financial Accounting Foundation claims no copyright in any portion hereof that constitutes a work of the United States Government. An Amendment of the FASB Accounting Standards Codification No. 2017-07 March 2017 Compensation Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Accounting Standards UpdateFinancial Accounting Standards Board Accounting Standards Update 2017-07 Compensation Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost March 2017 CONTENTS Page Numbers Summary .. 1 3 Amendments to the FASB Accounting Standards Codification.

4 5 41 Background Information and Basis for Conclusions .. 42 51 Amendments to the XBRL Taxonomy .. 52 1 Summary Why Is the FASB Issuing This Accounting Standards Update (Update)? The Board is issuing this Update primarily to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost, as discussed below. This Update also includes amendments to the Overview and Background Sections of the FASB Accounting Standards Codification (as discussed in Part II of the amendments section) as part of the Board s initiative to unify and improve these sections across Topics and Subtopics. Under generally accepted accounting principles (GAAP), defined benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects of an employer s financial arrangements as well as the cost of Benefits provided to employees.

5 Those components are aggregated for reporting in the financial statements. Topic 715, Compensation Retirement Benefits , does not prescribe where the amount of net benefit cost should be presented in an employer s income statement and does not require entities to disclose by line item the amount of net benefit cost that is included in the income statement or capitalized in assets. Many stakeholders observed that the presentation of defined benefit cost on a net basis combines elements that are heterogeneous. As such, these stakeholders stated that the current presentation requirement is less transparent, reduces the decision usefulness of the financial information, and requires users to incur greater costs in analyzing financial statements.

6 To improve the reporting of net benefit cost in the financial statements, the Board added a standard-setting project to provide additional guidance on the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. Who Is Affected by the Amendments in This Update? The amendments in this Update apply to all employers, including not-for-profit entities, that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of Benefits accounted for under Topic 715. 2 What Are the Main Provisions? The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.

7 The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this Update also allow only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset).

8 How Do the Main Provisions Differ from Current Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement? The amendments in this Update require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendments in this Update improve the consistency, transparency, and usefulness of financial information to users that have communicated that the service cost component generally is analyzed differently from the other components of net benefit cost.

9 The amendments in this Update are considered an important part of the Board s continuing efforts to improve the accounting related to defined benefit pension or other postretirement benefit plans. What Are the Transition Requirements and When Will the Amendments Be Effective? The amendments in this Update are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those 3 annual periods. For other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.

10 That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.


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