Under Japanese GAAP the pension deficit is recognized but companies can select what period the deficit is amortized over. It seems that from 2012 the rules are changing & this will be reflected in instant write downs.
With a major change in pension accounting expected to take effect next fiscal year, Japanese companies with unfunded pension obligations face the prospect of an erosion in their capital.
The Accounting Standards Board of Japan on Thursday endorsed draft rules on new pension accounting. These rules, which are expected to gain final approval from the ASBJ by year-end, are designed to require listed firms to book unfunded pension obligations in a lump sum as liabilities on their balance sheets, starting in the fiscal year ending March 2012.
Under the current standards, unfunded pension obligations are booked on income statements. Companies are allowed to book expenses to cover the underfunded portion of pension obligations over a decade or longer.
Firms saddled with large pension asset shortfalls can lessen the burden by improving investment yields or cutting pension payouts, but the hurdles are high. For instance, companies seeking to change their pension payouts must obtain at least two-thirds approval from beneficiaries, followed by the approval of the Labor and Welfare Ministry.
Unfunded pension obligations already weigh on many companies. At Japan Airlines Corp., which filed for bankruptcy protection in January, these obligations came to 1.8 times its capital as of the end of March 2009. Kinki Nippon Tourist Co.’s (9726) figure came to more than six times its capital as of Dec. 31.
Unfunded obligations at 2,313 major listed nonfinancial firms reached an estimated 14 trillion yen in fiscal 2008, or roughly 7% of their combined equity capital of roughly 220 trillion yen. This suggests that a large number of companies could see their capital decrease and therefore may have to take steps to strengthen their finances.