OPEB: improved reporting or the last straw? The FASB should rethink parts of its proposal on postretirement benefits other than pensions.
Journal of Accountancy › Vol. 170 Nbr. 5, November 1990
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OPEB: improved reporting or the last straw? The FASB should rethink parts of its proposal on postretirement benefits other than pensions.
The Financial Accounting Standards Board's Exposure Draft (ED) Employers' Accounting for Postretirement Benefits Other Than Pensions, usually referred to as OPEB, has been characterized as a way to improve financial reporting and, alternatively, as a pronouncement that will devastate reported corporate profits needlessly. Simply stated, the FASB is proposing accrual-basis reporting of the cost of, and the obligations for, postretirement benefits, instead of the prevalent current practice of report-as-you-pay (cash-basis) reporting. Though the ED encompasses all postretirement benefits currently owed and expected to be provided to current and future retirees, healthcare will constitute the bulk of the cost. The amounts involved can affect financial statements materially and adversely, and that has the preparers of financial statements worried.
COMPARISON TO PENSION ACCOUNTING When companies intially offered postretirement benefits, healthcare costs were relatively low and the ratio of covered retirees to active workers was small. Since cash payments for these costs were generally immaterial, cash-basis expense recognition was acceptable. But a combination of escalating healthcare costs and changing demograp...See the full content of this document
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