Hey Is it necessary to use the corridor approach under FAS i.e. is it OK to recognise all gains & losses immediately in the P&L or do you have to use the corridor approach? Regards, Barney.
Fas 87 (fas 158) But note that under FAS 158, FAS 87 was amended so that the actuarial gains and losses are now recognised in OCI. This is straight from Core Reading, but the consequences of this do not appear to have been applied to all the sections about FAS 87. Either way, you can only use the corridor under IAS 19 and only until the new IAS 19 comes in (March 2013!!). It appears from the Core Reading that we can safely ignore any more details on the new IAS 19 for 2012 exams. Am I right?
As far as I know, the corridor approach can still be used for FAS. Don't confuse OCI and AOCI (accumulated other comprehensive income). One is a revenue item and the other is a capital item. Also, just because IAS 19 specifies that if you opt to account for gains via OCI, then you recognise it immediately, doesn't mean the same applies to FAS. Under FAS gains and losses go straight to the Accumulated OCI but then come back out via the corridor approach as an entry in the Net Periodic Pension Cost (and an entry in earnings). The AOCI under FAS is similar to the unrecognised gains/losses figure under IAS19, but they aren't quite the same thing either. Yes the corridor is being removed from IAS 19 (for financial periods starting on or after 1 Jan 13) but I'm not sure if there is a similar movement to remove it from FAS. Not sure how much of this is expected for SA4, and I may not be using the correct terminology.
My understanding is any method that recognises the losses quicker than the 10% corridor approach is acceptable, although firms don't usually want to do this. In the case of recognising a gain, I think it should be another way round and the 10% corridor must be applied.
