For defined benefit pension plans, a formula has been devised for calculating the pension expense to be recognized each accounting period. The amount of funding (i.e., cash transferred from the company to the pension plan trustee) is usually a different amount than the expense. When the amount of cash that is transferred is less than the pension expense that is recognized a liability for the difference results. When the opposite occurs (i.e., the amount of cash transferred to the trustee is greater than the pension expense), an asset results. The difference between the two amounts in any particular period is a reflection of the pension plan being either overfunded or underfunded that individual period. However, these amounts are usually insignificant compared with the corporation's total liability for the pension plan and its cumulative status in terms of being overfunded or underfunded.
Required:
Describe the current disclosure requirements for pensions. Should a company be required to include a liability on the statement of financial position that reflects its total future obligation with respect to its pension plan? What impact would such a requirement have on the debt to total assets ratio? Are users of financial statements being given enough information about pension plans to allow them to make informed decisions?