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

• In Event: Accounting Policies and Financial Reporting

Abstract

Workers’ compensation costs represent a major portion of many manufacturing companies’ production costs, which like many other incurred but not reported [IBNR] liabilities are difficult to measure. While companies can self-insure or pay insurance companies and others to satisfy such liabilities, measuring such costs remains highly 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 paid and payable. Moreover, such factors as changing state statute of limitation laws, companies idling plants due to mergers, acquisitions and other business interruptions [often resulting in spiked workers’ compensation claims] 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 Patterson University

• Natalie T Churyk, Northern Illinois University