U.S. companies with an interest in how pension gains and losses are reported through income should take note of some potentially hair-raising plans at the International Accounting Standards Board.

IASB and the Financial Accounting Standards Board are working on separate but coordinated projects to revise their respective rules on pension accounting. The goal for both boards is to create more transparency by eliminating many of the “smoothing” mechanisms that have allowed entities to minimize volatility in reported earnings as a result of gains or losses in pension plans.

Now the IASB is taking the lead with plans to publish a proposed standard this year that would require entities to report pension gains and losses through net income and earnings per share, said Murray Akresh, a partner at PricewaterhouseCoopers. “Every time the pension assets are remeasured, the changes in those asset values today are deferred and smoothed out in the income statement over future years,” he said. “Now under this proposal it would be reflected immediately in net income and earnings per share,” which would lead to dramatic volatility.

FASB has said it is monitoring IASB’s project and will decide how U.S. Generally Accepted Accounting Principles should be revised after IASB makes the first move. The boards generally are in agreement to converge accounting rules to eliminate significant differences between them.

IASB published a discussion paper in March 2008 and expects to complete deliberations on the feedback in July. In the current phase, the board is focused on recognition and presentation of changes in defined benefit obligations and plan assets, as well as disclosures and other issues raised in comment letters. It expects to publish an exposure document of a proposed new standard in the fourth quarter.

Akresh said there was some expectation that IASB would require such changes to be reflected in other comprehensive income on the balance sheet rather than net income on the income statement. “I think there was some hope that tIASB would not take these changes through the income statement, but that’s not where they have come out at this point,” he said.

There’s good reason to expect plenty of opposition to the plan, Akresh predicted. “I would think there will be just as much resistance outside the United States as in the United States,” he said. PwC is alerting companies to get involved in the comment and deliberation process if they want to voice their views.