Alert: FASB Accounting Standards Update No. 2017-07 – Compensation: Retirement Benefits

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2017-07 – Compensation: Retirement Benefits

On March 10, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-07 Compensation: Retirement Benefits (Topic 715). The ASU seeks to improve the presentation of pension and post-retirement benefit costs by disaggregating the service cost component from the other components of net benefit cost. The ASU requires that the service cost be reported in the same line item(s) as other compensation costs arising from services rendered by employees during the period.

The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 should be presented in the income statement outside a subtotal of income from operations, and must be appropriately described if a separate line item(s) is used. If a separate line item(s) is not used, the line item(s) used to present the other components must be appropriately disclosed.

The ASU also allows only the service cost component to be eligible for capitalization, if applicable.

The amendments apply to all entities, including not-for-profit entities, that offer defined benefit pension plans, other post-retirement benefit plans or other types of benefits within the scope of Topic 715. The amendments are effective as follows:

  • Public business entities – annual periods beginning after December 15, 2017, including interim periods therein.
  • All other entities – annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.

Early adoption is permitted and should be within the first interim period if an entity 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 ASU should be applied retrospectively for the presentation of the service cost component and other components of net benefit cost in the income statement. The ASU should be applied prospectively, on and after the effective date, for the capitalization of the service cost component.

The ASU provides a practical expedient that permits an entity to use the amounts disclosed in its pension and other post-retirement benefit plan note for the comparative periods as the estimation basis for applying the retrospective presentation requirements. Disclosure of the use of this practical expedient is required.

To access the full script of ASU No. 2017-07, click here.

This communication contains a general overview of the topic and is current as of March 10, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.