Defined benefit pensions are an exception to traditional accounting rules. Accountants are allowed to offset the assets and liabilities of a pension plan and disclose only the net amount on the balance sheet. You discover a company that reports both a defined benefit pension surplus (Asset) AND a defined benefit shortfall (Liability). Why didnt the 2 offset each other?

a. Two separate pension plans. One is over-funded, the other is under-funded.

b. They are being conservative in their reporting and following the accounting principle of conservatism.

c. Theyve made a typical analyst adjustment for you in order to improve reporting quality.