Pension Accounting Treatment: A Review of the Literature (original) (raw)
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This paper provides a review of empirical research on pension accounting. Empirical research on pension accounting has focused mainly on two issues, the value relevance of pension accounting information and earnings management in pension accounting. Further work has been done on the information efficiency of capital markets with regard to pension accounting information. I outline how research in these areas has evolved over the past decades and discuss the results that have been obtained. I also point out methodological issues. Furthermore, this review reveals that almost all existing studies on pension accounting are based on US accounting and capital-market data. I therefore discuss which effects national or regional differences in, for instance, pension regulation, taxation, funding, have on the production of pension accounting information by preparers, and on the processing of this information by analysts, investors and other users. Finally, I highlight that national institutional differences as well as ongoing changes to pension accounting standards raise interesting opportunities for future empirical research on pension accounting.
The logic of pension accounting
Accounting and Business Research, 2009
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Discussion of ‘The logic of pension accounting’
Accounting and Business Research, 2009
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GASB 67 and GASB 68: What the New Accounting Standards Mean for Public Pension Reporting
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In 2012 GASB updated its guidance for the reporting and measurement of public pension plan data, and in fiscal year (FY) 2015, state and local governments began to adopt the new standards, known as GASB 67 and GASB 68, in their comprehensive annual financial reports (CAFRs). The new standards were released in response to criticism that the previous standards, GASB 25 and GASB 27, did not fully measure or report plan liabilities and generated misleading information. While GASB 67 and 68 improve financial transparency by requiring fuller pension reporting in government financial statements, what is being reported still falls short of accuracy in measurement. GASB should improve the current guidance to reflect economic measurement of risk and eliminate the use of deferrals and delayed reporting. A review of 144 public pension plans contained in 34 state CAFRs for FY 2014 reveals considerable variation in how the new guidance is applied by governments. In this paper we review each of th...
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GE, IBM, Verizon, SBC Communications all boosted pre-tax earnings by hundreds of millions, if not billions, of defined-benefit pension plans 'fund earnings' while their pension funds are actually under-funded by billions. While consistent with current GAAP standards, management assumes 'expected' rates of returns to be positive at the high single digit levels (≈ +9.5 per cent) whereas actual returns are ranging from negative 10 to 15 per cent. Stakeholders are entitled to intervention at all levels through new statutes, regulations, and professional codes of ethics to eliminate the widespread practice of 'earnings management' and to restore the belief in the quality of reported corporate earnings. Various initiatives by institutions regarding 'pension expensing' -such as by the IASB, FASB, S&P, Merrill Lynch, and many other involved stakeholders are reviewed. The pros/cons of taking definedbenefit pension plan earnings into income, and issues flowing there from, afford an interesting and informative contrast to further investigate and extend the 'earnings management' literature. The paper suggests that initiatives in these regards need to be expanded to beyond mere accounting and actuarial ontology. Broader Board of Directors' driven protocol covering its pension plan fiduciary role and a keener understanding of the cause/effect interplay between executives' rationale for certain decisions in these regards and the potential for inflating their own executive compensation levels is shown to be warranted.
Cash balance pension plans: A case of standard-setting inadequacy
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Accounting for and ownership of U.S. private employee pensions has long been a controversial and politically contested terrain. The uniqueness in the U.S. of using employers as the principal provider of pensions makes the reporting of pensions more problematic since the corporate employers providing pensions are not strictly accountable to only the pensioners. Over the last quarter century there has been a marked swing in power toward management and away from employees making it possible for increasing numbers of U.S. companies to switch from conventional defined benefit plans to cash balance plans. This paper provides a "case" study of how accounting standard-setters framed the pension reporting problem vis-à-vis how they frame the "reporting problem" in general. Utilizing various sources of commentary about the phenomenon of cash-balance conversions, we triangulate on the pension problem to demonstrate how current FASB disclosure rules fail to satisfy the condition of neutrality and how those rules have facilitated the shifting of economic risk from shareholders to employees.