OPEB Costs: The FASB Establishes Accountability

The Financial Accounting Standards Board (FASB) is about to issue a standard providing guidance on accounting for costs of other postretirement benefits (OPEB). Based on reactions to the exposure draft of the Board's proposal at public hearings, almost no one is satisfied with what the FASB is proposing. What few seem to recognize is that the FASB has focused attention on a significant social problem in the US. Amid all the criticisms, corporate America is reassessing its commitments under postretirement health care programs. The issue the FASB is dealing with is whether accountability should commence with the granting of the benefits or later with the expenditure of cash to settle claims made. Accounting for postretirement benefits provides new and dramatic evidence of the superiority of accrual accounting over cash-basis accounting in dealing both with the notions of accountability and income determination. To the extent that a firm has agreed to provide OPEB to its workers, it is essential that the costs and related obligations be reported fully and forthrightly on a timely basis.