Which statement is TRUE regarding pension obligation bonds (POBs)?

The correct statement regarding pension obligation bonds (POBs) is that POBs are reported as a liability in the employer's financial statements. This is accurate because when an entity issues pension obligation bonds, it is essentially borrowing money to fund its pension liabilities. The proceeds from these bonds are typically used to make pension contributions or to address pension underfunding.

Since these bonds represent a legal obligation to repay the borrowed amount, they are classified as a liability on the balance sheet. This ensures that the financial statements accurately reflect the financial position of the employer, including both its assets and its obligations. The recognition of POBs as liabilities provides transparency to stakeholders about the employer's obligations related to pension plans, thereby facilitating a clearer understanding of its financial health.

In contrast, the other statements may imply misunderstandings about the treatment of pension-related debt in financial reporting. Proper accounting principles dictate that liabilities, such as those arising from the issuance of pension obligation bonds, must be reflected in the financial statements to provide a true picture of an entity's financial obligations.