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CONTENTS

•Introduction to Pension Plans

•The Defined Benefits Plan
•Accounting for defined benefit plans
•Financial reporting guidelines of such plans
•Areas for concern in the chosen Case Study
•Recommendations
•Questions

INTRODUCTION

1 Pension Funds make up Huge Long Term Liabilities

2 Funding is not shown in the Balance Sheet – ‘off balance sheet’

3 Reporting is essential 

4 Even though accounting for pension funds is extremely complex, a basic understanding of the principles will help the individual appropriately analyse companies and the manner in which they manage the funds.

MAIN TYPES OF PENSION FUNDS

1 Defined Contribution Plan - Company may make contributions to the plan but no promises on the value of the future benefit to the employee

2 Defined Benefit Plan - Employee is aware of the terms of the benefits that he/she https://www.51lunwen.org/liuxuezuoyedx.html will receive at retirement. Company is responsible for investing in a fund that will meet promised benefit upon retirement of employee 3 Factors taken into consideration for Defined Benefit Plans

4 Length of Service

5 Salary history at time of retirement

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ACCOUNTING FOR DEFINED BENEFIT PLAN

Three main areas of complexity in accounting for a Defined Benefit Plan

1 First – Series of payments that have been promised far into the future
2 Second – Accrual Accounting is necessary
3 Third – Necessary to smooth the year to year fluctuations

ACCOUNTING FOR DEFINED BENEFIT PLAN FAIR VALUE AT THE START OF THE YEAR

(+) Return on the Plan Assets
(+) Employer Contributions
(-) Benefits Paid

PROJECTED BENEFIT OBLIGATION AT THE START OF THE YEAR

(+) Service Cost
(+) Interest Cost
(+/-) Actuarial Gain/Loss
(+/-) Plan amendment Gain/Loss
(-) Benefits Paid

Figures follow

REFERENCES

1 Camfferman, K., & Zeff, S. A. (2007). Financial Reporting and Global Capital Markets: A History of the International Accounting Standards Committee, 1973-2000. New York: Oxford University Press. 

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2 Coronado, J. L., & Sharpe, S. A. (2003). Did Pension Plan Accounting Contribute to a Stock Market Bubble?. Brookings Papers on Economic Activity, (1), pp. 323 - 327.

3 Cullinan, C. P. (1997). Audit Pricing in the Pension Plan Audit Market. Accounting and Business Research, 27(2), pp. 91 - 101.

4 Fung, A., Hebb, T., & Rogers, J. (Eds.). (2001). Working Capital: The Power of Labor's Pensions. Ithaca, NY: Cornell University Press.

5 Gold, J. (2005). Accounting/actuarial Bias Enables Equity Investment by Defined Benefit Pension Plans. North American Actuarial Journal, 9(3), pp. 1 - 8.

6 James, M. L. (2008). The Effect of Changes in Accounting for Defined Benefit Pensions and Other Postretirement Benefit Plans on Companies' Financial https://www.51lunwen.org/liuxuezuoyedx.html Statements and Stakeholders. Journal of the International Academy for Case Studies, 14(2), pp. 51 - 57.