Accounting for benefits the global way.

• Author: Akresh, Murray S.

Here are the key provisions of a new international accounting standard on employee benefits. How could they affect you? And how did the benefit plans of eight multinationals fare under the new standard?

Early in 1998, the International Accounting Standards Committee is expected to issue an international accounting standard (IAS) on employee benefits that will mean major changes in recognizing and measuring employee benefit costs and obligations for the companies affected by the standard. Even though U.S. firms do not report under international accounting standards, you should understand the IAS to compare your firm to the many multinational competitors that follow these rules. You also should monitor any implications on the future direction of U.S. accounting standards, since some experts warn that companies will face changes in U.S. accounting requirements under FASB Statements 87, 88, 106 and 112 on pension, postretirement and postemployment benefits - to conform to international standards.

The new IAS rules have many similarities to the rules under Statements 87, 88 and 106, yet are different in certain respects. The IASC has gone beyond the FASB, moving toward faster or immediate recognition of certain actuarial gains and losses and plan amendments something once proposed by the FASB but not adopted in its "evolution" of benefits accounting standards. So, recognizing the growing importance of international accounting, we conducted a study, completed in June of 1997, to assess the impact of these proposed rules, using actual data from eight large international companies.

WHERE IT HURTS

Under the principles set forth in the new IAS, the financial statements of companies sponsoring defined benefit pension and postretirement benefit plans face the following:

Major changes in annual expense For six of the eight study companies, expense on average during the study period (1993 to 1996) was 23 percent to 178 percent higher than under Statements 87, 88 and 106, while the other two companies reported reduced expense of 84 percent and 227 percent. In general, amortization of unrecognized amounts that would typically reduce expense or generate income under Statements 87, 88 and 106 (for example, transition assets, other actuarial gains and negative plan amendments in the postretirement plans) were reflected as part of the cumulative catch-up adjustment required to be recorded upon initial application of the new standard. As a result, reductions to...