Starting with 1st of January 2007 Romania is facing the challenges of private pension plans. There are two dimensions of pension accounting: first - costs borne by employers who sponsor a defined benefit funded pension plan for their employees, costs that are recognized and disclosed in their financial statements; and second - financial reports prepared by those responsible for managing the assets of pension plans. Our article concentrates on financial reporting of costs borne by employers.
The subject being rather new in Romania, this article briefly reviews all important aspects of accounting for private pension plans as they were debated in applicable international reporting standards and in most relevant worldwide articles and mainly intends to illustrate using case studies how to measure and recognize every year the cost of pensions, what steps are to be followed in computing annual expense and liability, what kind of assumption are to be made and how to illustrate in financial statement the costs of pension. Not less important, a short review of Romanian laws regarding facultative pension is exposed.
The contribution of our article is to explain through case studies and to ease the understanding of measurement and recognition of pension costs. The results may be used by practitioners in accounting for employee benefits.