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28 Sep 2019
CA20-5 WRITING (Implications of GAAP Rules on Pensions) JillVogel and Pete Dell have to do a class presentation on GAAP rulesfor reporting pension information. In developing the classpresentation, they decided to provide the class with a series ofquestions related to pensions and then discuss the answers inclass. Given that the class has all read the rules related topension accounting and reporting, they felt this approach wouldprovide a lively discussion. Here are the questions:
1. In an article in Businessweek prior to new rules related topensions, it was reported that the discount rates used by thelargest 200 companies for pension reporting ranged from 5% to 11%.How can such a situation exist, and does GAAP alleviate thisproblem?
2. An article indicated that when new GAAP rules were issuedrelated to pensions, it caused an increase in the liability forpensions for approximately 20% of companies. Why might thissituation occur?
3. A recent article noted that while âsmoothingâ is notnecessarily an accounting virtue, pension accounting has long beenrecognized as an exceptionâan area of accounting in which at leastsome dampening of market swings is appropriate. This is becausepension funds are managed so that their performance is insulatedfrom the extremes of short-term market swings. A pension expensethat reflects the volatility of market swings might, for thatreason, convey information of little relevance. Are thesestatements true?
4. Understanding the impact of the changes required in pensionreporting requires detailed information about its pension plan(s)and an analysis of the relationship of many factors, particularlythe:
(a) Type of plan(s) and any significant amendments.
(b) Plan participants.
(c) Funding status.
(d) Actuarial funding method and assumptions currentlyused.
What impact does each of these items have on financialstatement presentation?
5. An article noted âYou also need to decide whether toamortize gains and losses using the corridor method, or to use someother systematic method. Under the corridor approach, only gainsand losses in excess of 10% of the greater of the projected benefitobligation or the plan assets would have to be amortized.â What isthe corridor method and what is its purpose? (Kieso 1176)
Kieso, Donald E., Jerry Weygandt, Terry Warfield. IntermediateAccounting, 16th Edition. Wiley, 2016-03-21. VitalBook file.
CA20-5 WRITING (Implications of GAAP Rules on Pensions) JillVogel and Pete Dell have to do a class presentation on GAAP rulesfor reporting pension information. In developing the classpresentation, they decided to provide the class with a series ofquestions related to pensions and then discuss the answers inclass. Given that the class has all read the rules related topension accounting and reporting, they felt this approach wouldprovide a lively discussion. Here are the questions:
1. In an article in Businessweek prior to new rules related topensions, it was reported that the discount rates used by thelargest 200 companies for pension reporting ranged from 5% to 11%.How can such a situation exist, and does GAAP alleviate thisproblem?
2. An article indicated that when new GAAP rules were issuedrelated to pensions, it caused an increase in the liability forpensions for approximately 20% of companies. Why might thissituation occur?
3. A recent article noted that while âsmoothingâ is notnecessarily an accounting virtue, pension accounting has long beenrecognized as an exceptionâan area of accounting in which at leastsome dampening of market swings is appropriate. This is becausepension funds are managed so that their performance is insulatedfrom the extremes of short-term market swings. A pension expensethat reflects the volatility of market swings might, for thatreason, convey information of little relevance. Are thesestatements true?
4. Understanding the impact of the changes required in pensionreporting requires detailed information about its pension plan(s)and an analysis of the relationship of many factors, particularlythe:
(a) Type of plan(s) and any significant amendments.
(b) Plan participants.
(c) Funding status.
(d) Actuarial funding method and assumptions currentlyused.
What impact does each of these items have on financialstatement presentation?
5. An article noted âYou also need to decide whether toamortize gains and losses using the corridor method, or to use someother systematic method. Under the corridor approach, only gainsand losses in excess of 10% of the greater of the projected benefitobligation or the plan assets would have to be amortized.â What isthe corridor method and what is its purpose? (Kieso 1176)
Kieso, Donald E., Jerry Weygandt, Terry Warfield. IntermediateAccounting, 16th Edition. Wiley, 2016-03-21. VitalBook file.
Nestor RutherfordLv2
28 Sep 2019