Financial Education

SFAS 158, adopted in September 2006, requires companies to include on the balance sheet the full net value of pension assets and obligations, measured as the difference between the fund assets and the projected benefit obligation. The company does not have to show the full value of assets and the full value of liabilities - just the net of the two. If the fund assets are higher than the pension obligation it will show as an asset, and if not it will be a liability.

Prior to adopting SFAS 158, U.S. rules were similar to those still in effect for International Accounting Standards. Certain gains and losses due to changes in the plan or market returns were smoothed over several years rather than recognized at once. As a result, the balance sheet would generally not reflect the full net asset or liability. In some cases, such as after the Internet bubble burst, many plans were being shown on balance sheets as having net assets (due to past market returns being smoothed in) when the actual funded status was a net liability.

For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis

See also:

Balance Sheet Recognition of Pension Liabilities Under International Accounting Standards (IAS)

Using Pension Disclosures to Understand the Underlying Economic Position

Long Term Debt

Residual Interest

How Lessors Report Operating Leases