Final answer:
U.S. GAAP traditionally allowed companies to defer and amortize actuarial gains and losses over time, limited by a 'corridor' approach. In contrast, IFRS requires immediate recognition of these gains and losses in other comprehensive income, not reclassified to profit or loss, providing a more volatile but timely reflection of pension obligations.
Step-by-step explanation:
The recognition of actuarial gains and losses in income differs between U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). Under U.S. GAAP, prior to the update known as ASU 2017-07, companies were allowed to defer actuarial gains and losses and amortize them over time into income. However, this practice was limited by introducing a 'corridor' approach whereby the unrecognized gains and losses that exceed 10% of the greater of plan assets or the benefit obligation need to be amortized.
In contrast, under IFRS, the approach to recognizing actuarial gains and losses is typically more immediate. These gains and losses are recognized immediately in other comprehensive income (OCI) and are not subsequently reclassified to profit or loss. This approach is part of a broader concept of IFRS known as the 'remeasurement component' of the net defined benefit liability (asset).
The result of these differences is that IFRS tends to provide a more volatile but timely view of an entity's pension obligations, while U.S. GAAP traditionally allowed for smoother income effects over time, although recent updates have somewhat narrowed this discrepancy.