Accounting for Accrued Workers’ Compensation Costs: Recognizing Incurred but not Reported Accounting Liabilities

• In Event: Financial Accounting and Reporting 5

Abstract

Workers’ compensation costs represent a major portion of many manufacturing companies’ production costs, which like other incurred but not reported [IBNR] liabilities are difficult to measure. While companies can self-insure or pay insurance companies to satisfy such liabilities, measuring such costs remains problematic, because the periods when the employee’s output [during one’s working life] often do not match easily with the ultimate workers’ compensation payments. Moreover, such factors as changing state statute of limitation laws, companies idling plants due to mergers, acquisitions and other business interruptions add complexity to measuring such liabilities. We summarize this matter and provide examples and references of how companies and their auditors can better grasp workers’ compensation concepts.

Authors

• Alan Reinstein, Wayne State University

• Avinash Arya, William Paterson University of New Jersey

• Natalie T Churyk, Northern Illinois University