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The Governmental Accounting Standards Board (GASB) has approved two new accounting and financial reporting standards for public pension plans that will affect KPERS and its affiliated employers.
Remaining the most complete source for explaining and ensuring effective pension compliance, Pensions, 3rd Edition has been updated to incorporate new Financial Accounting Standards Board Statement Numbers 87 and 88 and provisions of the Tax Reform Act of 1986.
The present paper reviews the research evidence on the impact of changes in pension accounting methods on pension provision. We show that decisions to freeze, terminate or convert defined benefit (DB) plans have been driven primarily by a desire to limit contributions, though financial reporting has played a part as well. The introduction of accrual accounting requirements for post-retirement health care benefits in the U.S. similar in character to those required for DB pension liabilities appear to have motivated some firms to curtail health care provision. Changes in accounting for DB schemes have affected how firms allocate pension plan assets. We conclude that accounting matters, though perhaps not as much as is sometimes claimed. Increased costs of providing DB pensions, coupled with the greater volatility of employers' cash contributions, have undoubtedly played the major part in the decline of DB schemes.
The primary subject matter of this case concerns ethical dilemmas accountants and other executives may face when selecting required estimates in accounting for and reporting of defined benefit pensions and other postretirement benefit plans and complying with the requirements of Statement of Financial Accounting Standards No. 158, the new accounting standard. Accountants' professional and ethical responsibilities and resolutions of the ethical dilemmas are explored. Secondary, yet important issues are the effects of the choice of estimates on financial statement results and on the usefulness and integrity of the financial statements. This case has a difficulty level of three to four and can be taught in about 45 minutes. Approximately two hours of outside preparation is necessary to fully address the issues and concepts. This case can be utilized in intermediate accounting as part of the coverage of pensions, or in a more advanced graduate class focusing more extensively on underlying conceptual issues and the research components of this case. The case has ethical, conceptual, analytical, and research components. Utilizing this case can enhance students' oral and written communication skills.This is an illustrative case. Any similarities with real companies, individuals, and situations are solely coincidental.
In this paper we examine the effect of FAS 158 on some key financial ratios that are used for financial statement analyses. FAS 158 changes only the presentation of a company's pension obligations--not the substance. However, most key financial ratios will be affected because of the changes in reporting caused by FAS 158. For companies with overfunded pension plans, their assets and equity will decrease; for underfunded pension plans, their liabilities will increase while equity decreases. In this paper we explore the magnitude of the changes in key financial ratios brought about by implementing FAS 158.