What must be recognized as a liability related to special termination benefits?

Special termination benefits are typically offered to encourage employees to leave their positions, and they often include a range of payments. The correct answer indicates that both expected future payments and lump sum payments must be recognized as a liability.

When an entity provides special termination benefits, it creates an obligation to pay the employees. This obligation is not limited to one type of payment. Expected future payments might include ongoing benefits that are to be paid over time, whereas lump sum payments refer to one-time payouts that might occur upon termination.

Recognizing both types of payments ensures that the financial statements accurately reflect the company’s liabilities related to these benefits. This comprehensive approach aligns with accounting principles, which require that all potential obligations related to employee benefits be recorded to give stakeholders a complete view of the company's financial commitments. This is especially important for financial reporting and ensuring that the information presented is useful for decision-making purposes.

In summary, recognizing both expected future payments and lump sum payments as liabilities ensures a more accurate depiction of the company's obligations arising from special termination benefits.