Current effects of IFRS pension reporting at Coca-Cola and PepsiCo

IFRS Pension Reporting 2009

IAS 19 is the equivalent to FAS 158, but there are differences in the two standards. (Meg, 2009) Under IAS 19 the current rates of return is used on high quality corporate bonds with maturities consistent with the duration of benefit obligations, where under FAS 158, the discount rate is used at which the obligation could be effectively settled. Under IAS 19, the rate is based on current market expectations over the life of the obligation, where under FAS 158 the rate of return on the plan assets is the expected long-term rates over the life of the obligation. The cost recognized is calculated almost the same way under both standards with the exception being under FAS 106, the temporary deviations from the plan can be added or subtracted.

IFRS methodology is very similar to U.S. GAAP with deferred recognition of actuarial gains and losses except past service costs are recognized immediately instead of being amortized over the service period, or the life expectancy of the workers. (Epstein) The actuarial gains and losses can be recognized in equity under IFRS, but not under U.S. GAAP. There is no minimum liability reported in the statement of financial position under IFRS, but there is under U.S. GAAP. IFRS limits the recognition of pension assets, where U.S. GAAP has not limitations. The curtailment gains and losses are recognized when announced under IFRS and is calculated different from U.S. GAAP. Termination benefits are expensed when the employer is committed to pay under IFRS where U.S. GAAP they are expensed when the employee accepts and they can be estimated.

In Pepsi Company's 2009 Annual Report there is no mention about the changes of the IFRS in the pensions of the foreign subsidiaries (Pepsi Co 2009 Annual Report, 2009). Pepsi Company's pension fund would still be impacted by the IFRS standards, simply because of the foreign subsidiaries having pension assets and being included in the overall pension fund of the company. The pension assets and the way expenses and costs are expensed under IFRS instead of being deferred under U.S. GAAP will have an impact on the outcome of the fund at the end of the year and in future years, as well as some of the amounts recognized in the financial statements.

In Coca Cola's 2009 Annual Report, the company no longer has control over the assets contributed to individual pension plans outside the U.S., but will still be impacted indirectly due to the subsequent fair value adjustments to the assets in the funds (Item 8. Fnancial Statements & Supplementary Data, 2009). The actual return on assets contributed will impact the company's future net periodic benefit cost, as well as amounts recognized in the consolidated balance sheets. The assets and expenses from the foreign funds will impact the way the funds are calculated and recorded in future years as well. Expenses will no longer be deferred, but will instead be expensed in present periods.