You Decide: Should deferred compensation packages be disclosed in the notes to the financial statements, or should they be recorded as liabilities?
Response to the following problem:
Recently, corporate accounting scandals have brought about an increased scrutiny of executive compensation. Companies are being criticized for their role in accounting for stock options, inflated salaries, and personal loans to executives. However, there is one hidden treasure that should not be overlooked: deferred compensation packages for executives. These are retirement packages that will allow executives to set aside, pretax, up to 100% of their cash compensation, earning as much as a 10% return. For many companies, these deferred compensation packages represent corporate liabilities that are not in the financial statements or even disclosed in the notes.
How should they be reported and/or disclosed, if at all?