Question

How do U.S. GAAP and IFRS differ with regard to reporting prior service costs?

Please give a detailed explanation of the question.

Answer 1

The IFRS and the U.S. GAAP both report prior service cost a bit different. Both the IFRS and the U.S. GAAP recognized the initial deferral of the pensions gain and losses as part of the OCI.The OCI is then closed and transferred to the Accumulated Other Comprehensive Income (AOCI), where it is the reported in the Equity section of the balance sheet (Watson, 2011). Here is where the IFRS and the U.S. GAAP vary in treatment of the reporting of the prior service cost.Under the IFRS the deferred net pension gains or losses just stays in AOCI forever, while the U.S. GAAP utilizes a corridor approach. A corridor approach requires the disclosure of a pension actuarial gains or losses. This approach as a limit of 10%, which if exceeded allows the,access of the actuarial gains or losses to be amortized gradually, over time of the service, into the income statement.