scholarly journals Teaching The Interrelationships Among Costs, Expense, And Liability Of A Defined Benefit Pension Plan

2008 ◽  
Vol 5 (2) ◽  
Author(s):  
Arlette C. Wilson ◽  
Norman H. Godwin
Keyword(s):  
Balance Sheet ◽  
Accounting Standards ◽  
Pension Plan ◽  
Financial Accounting ◽  
Defined Benefit ◽  
Financial Accounting Standards Board ◽  
Operating Income ◽  
Defined Benefit Pension Plan ◽  
Other Comprehensive Income ◽  
Representational Faithfulness

The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS #158).  Their intent is to comprehensively reconsider the accounting for postretirement benefit plans in phases.  The first phase was to provide timely and significant improvements and resulted in SFAS #158.  The object of this Statement is to improve the understandability and representational faithfulness of the amounts reported in the employer’s statement of financial position by recognizing as an asset or liability the overfunded or underfunded status of a defined benefit postretirement plan.  The purpose of this paper is to provide a logical approach for teaching accounting for a defined benefit pension plan.  This objective will be accomplished by providing a discussion with detailed illustrations of the interrelationships of the effects on income (both operating income and other comprehensive income) and the amount reported on the balance sheet.

The Potential for Inflating Earnings through the Expected Rate of Return on Defined Benefit Pension Plan Assets

2011 ◽  
Vol 25 (3) ◽  
pp. 443-464 ◽  
Author(s):  
Brian Adams ◽  
Mary Margaret Frank ◽  
Tod Perry
Keyword(s):  
Financial Reporting ◽  
Asset Allocation ◽  
Cumulative Effect ◽  
Pension Plan ◽  
Pension Plans ◽  
Rate Of Return ◽  
Defined Benefit ◽  
Operating Income ◽  
Defined Benefit Pension Plan ◽  
Reported Earnings

SYNOPSIS Using a sample of firms over the period of 1991 through 2005, we examine the opportunity that exists for firms to inflate earnings through the expected rate of return (ERR) assumption associated with defined benefit pension plans. The evidence suggests that, on average, the ERR is not overstated relative to several benchmarks, including contemporaneous actual returns, historical cumulative actual returns, and expected future returns based on asset allocation within the pension. We also find that actual changes in the ERR are infrequent and typically have less than a 1 percent impact on annual operating income. We also estimate that a 0.5 percent change (50 bps) in the ERR will result in a cumulative effect on operating income over a five-year period of approximately 0.5 percent or less for the majority of firms. When we examine firms with the highest ERRs or with the greatest opportunity to inflate earnings, again, we find that the ERR is not overstated relative to several benchmarks. Although we do not observe pervasive inflating of reported income through the ERR during our sample period, we do find that for some firms, small increases in ERR can have a material impact on reported earnings. Our results provide evidence related to the pervasiveness, materiality, and impact of overstated earnings through the ERR, which helps regulators assess the costs and benefits of eliminating this discretion in financial reporting.

scholarly journals Constructive Capitalization of Operating Leases in the Hong Kong Fast-Food Industry

2013 ◽  
Vol 3 (1) ◽  
pp. 128 ◽  
Author(s):  
Benjamin Y. Tai
Keyword(s):  
Hong Kong ◽  
Fast Food ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Return On Assets ◽  
Fast Food Industry ◽  
Operating Leases ◽  
Lease Contracts

The current study is undertaken to investigate the potential problems resulting from the proposed adoption of a new accounting standard concerning mandatory capitalization of all lease contracts.  In 2010, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued a joint exposure draft (ED2010/9) on accounting for leases.  Under the new standard, lessees are required to capitalize all lease contracts as assets and liabilities.  The distinction between operating leases and capital (finance) leases will no longer exist.  The long-standing off-balance sheet treatment of operating leases will be prohibited.  After the adoption of the proposed standard, companies with significant operating leases are likely to experience an increase in assets, increase in liabilities, and decrease in equity, resulting in the deterioration of their return-on- assets and debt-to-equity ratios.  This research examines two large fast-food restaurant chains based in Hong Kong; and through constructive capitalization, demonstrates how the companies’ key financial ratios are negatively impacted if the new standard is implemented.  The results indicate that both the return-on-assets and debt-to-equity ratios of the two companies, under various discount rates assumptions, suffer serious deterioration when their operating leases are capitalized.

A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases

2011 ◽  
Vol 25 (4) ◽  
pp. 861-871 ◽  
Author(s):  
Yuri Biondi ◽  
Robert J. Bloomfield ◽  
Jonathan C. Glover ◽  
Karim Jamal ◽  
James A. Ohlson ◽  
...  
Keyword(s):  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board ◽  
Operating Leases ◽  
Key Issues ◽  
Definition Of ◽  
The Impact ◽  
Lease Accounting

SYNOPSIS The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-of-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications. We are sympathetic to the standard setters' concern that the current lease standard is being manipulated improperly by managers, resulting in large amounts of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios. JEL Classifications: M40.

scholarly journals Goodwill Impairment: A New Window For Earnings Management?

2010 ◽  
Vol 8 (2) ◽  
Author(s):  
Yousef Jahmani ◽  
William A. Dowling ◽  
Paul D. Torres
Keyword(s):  
Earnings Management ◽  
Balance Sheet ◽  
Accounting Information ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Font Size ◽  
Rates Of Return ◽  
Public Companies ◽  
Goodwill Impairment

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none; mso-layout-grid-align: none;"><span style="font-size: 10pt; mso-bidi-font-weight: bold; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">The Financial Accounting Standards Board promulgated standard No. 142 in an attempt to improve the understandability of accounting information. <span style="mso-spacerun: yes;">&nbsp;</span>This new rule eliminated the practice of automatically amortizing goodwill. <span style="mso-spacerun: yes;">&nbsp;</span>No. 142 requires public companies to test goodwill for possible impairment at least annually. <span style="mso-spacerun: yes;">&nbsp;</span>An unintended consequence of this new standard is the opportunity for companies to use it in earnings management.<span style="mso-spacerun: yes;">&nbsp; </span>To test the possibility that the rule is being used for this purpose, a sample of companies was chosen, all of which had amounts of goodwill on their balance sheet during the 2003-2005 interval. <span style="mso-spacerun: yes;">&nbsp;</span>The results reveal that the number of companies experiencing losses or low rates of return on total assets who actually impaired goodwill was statistically insignificant during the period under consideration.<span style="mso-spacerun: yes;">&nbsp; </span>Thus, the results strongly suggest that companies are using No. 142 in an attempt to manage the volatility of earnings.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span></span></span></p>

scholarly journals The Joint FASB/IASB Lease Project: Discussion And Industry Implications

2011 ◽  
Vol 9 (9) ◽  
pp. 29 ◽  
Author(s):  
John Kostolansky ◽  
Brian Stanko
Keyword(s):  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board ◽  
Font Size ◽  
Operating Leases ◽  
Accounting Rules ◽  
The Impact ◽  
Lease Accounting

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">Over several decades, the Financial Accounting Standards Board and International Accounting Standards Board have enacted numerous changes to the controversial lease accounting rules. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability - a situation generally referred to as off-balance sheet financing. In an attempt to increase transparency and comparability, the FASB and IASB will soon require all leases to be capitalized. This paper quantifies the impact of the new leasing standard on the financial statements and ratios of the firms and industries represented in the S&amp;P 100 under a variety of discount rates. </span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

scholarly journals ¿Ingresos integrales, teoría de la entidad o concepto de entidad? Un compromiso diplomático en la redacción de informes financieros

2017 ◽  
Vol 13 (25) ◽  
pp. 8
Author(s):  
Marco Angelo Marinoni ◽  
Andrea Cilloni
Keyword(s):  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Statements ◽  
Financial Accounting ◽  
International Accounting ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board ◽  
Accounting Systems ◽  
Generally Accepted Accounting Principles ◽  
Income Statement

The globalizations of markets and increased international cooperation in the harmonized accounting systems have highlighted the difficulties inherent in the development of generally accepted accounting principles. The Financial Accounting Standards Board, FASB, and the International Accounting Standards Board, IASB, are therefore working - through shared projects – in conducting a “Conceptual Framework Project”, which will lead to increased knowledge and understanding of the principles of international accounting convergence.The process of international harmonization has defined the concept of “Comprehensive Income”, i.e. a new structure of the Income Statement, in which they reside clearly even charges and unrealized gains (as final assets adjustments, monetary exchange variations and so on). The Balance Sheet and the Financial Statements in general, continue to maintain an approach prone to theory of property valuation, given the shareholder, as the main carrier of social interest.

scholarly journals Comprehensive Income Options: A Detriment To Transparency

2010 ◽  
Vol 9 (8) ◽  
Author(s):  
Brian D. Fitzpatrick ◽  
Sudhakar S. Raju ◽  
Anthony L. Tocco
Keyword(s):  
Performance Studies ◽  
Foreign Currency ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Net Income ◽  
Financial Accounting Standards Board ◽  
Corporate Managers ◽  
Nonprofessional Investors ◽  
Comprehensive Income ◽  
Other Comprehensive Income

The Financial Accounting Standards Board (FASB) in 1997 compromised its belief that comprehensive income (CI) should be listed either in a combined statement of net income and CI or in a separate statement of CI and allowed corporations to choose using the statement of changes in stockholders’ equity (SCSE).  Of course, the latter option implies just as Jordan and Clark (2002) suggest, that CI is not a measure of financial performance.  Studies incorporating professional analysts by Hirst and Hopkins (1998) and a study of nonprofessional investors by Maines and McDaniel (2000) both conclude that format presentation matters and behaviors can be affected.  We believe that FASB should revisit the format structure of CI and eliminate the SCSE option, which was their initial intent before they compromised with corporate managers in 1997.  In addition, we believe that all items of other comprehensive income (OCI) – foreign currency translation adjustment, pension value adjustments and adjustment to securities-for-sale should be presented on an after-tax basis only in order to prevent investors from being forced to comb through the footnotes.

scholarly journals Financial Reporting Impact Of The Operating Lease Classification

2012 ◽  
Vol 28 (6) ◽  
pp. 1509 ◽  
Author(s):  
John Kostolansky ◽  
Dora Altschuler ◽  
Brian B. Stanko
Keyword(s):  
North America ◽  
Financial Reporting ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Statements ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board ◽  
Operating Leases ◽  
The Impact

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are preparing to make changes to accounting standards for leasing that will have a significant impact on the financial statements of a large number of companies. The proposed standard will eliminate the operating lease classification, and if passed, companies using this classification will be required to report additional assets and liabilities on the balance sheet. This study estimates the impact of this change in accounting standards on the financial statements and several key financial ratios for an extensive sample of companies and industries from the Compustat North America database. It is important that users of financial statements understand and are prepared for these changes prior to implementation, particularly for industries in which operating leases are heavily utilized.

scholarly journals Footnotes aren't enough: the impact of pension accounting on stock values

2008 ◽  
Vol 7 (3) ◽  
pp. 257-276 ◽  
Author(s):  
JULIA CORONADO ◽  
OLIVIA S. MITCHELL ◽  
STEVEN A. SHARPE ◽  
S. BLAKE NESBITT
Keyword(s):  
Accounting Standards ◽  
Financial Accounting ◽  
Defined Benefit ◽  
Financial Accounting Standards Board ◽  
Pension Accounting ◽  
Current Accounting ◽  
Portfolio Managers ◽  
Pertinent Information ◽  
Current Reform ◽  
The Impact

AbstractRecent research has suggested that companies with defined benefit (DB) pensions are sometimes significantly misvalued by the market. This is because the measures of pension cost and pension net liabilities embedded in financial statements can provide a very misleading picture of pension finances, if taken at face value. The more pertinent information on pension finances is relegated to footnotes, which may not receive much attention from portfolio managers. Dramatic swings in the financial conditions of large DB plans around the turn of the decade focused attention on pension accounting practices, and growing dissatisfaction with current accounting standards has prompted the Financial Accounting Standards Board (FASB) to launch a project revamping DB pension accounting. Arguably, the increased attention should have made investors wise to the informational problems, thereby eliminating systematic mispricing in recent years. We test this proposition and conclude that investors continued to misvalue DB pensions, inducing sizable valuation errors in the stock of many companies. Our findings suggest that FASB's current reform efforts could substantially aid the market's ability to value firms with DB pensions.

Standard-Setting Issues and Academic Research Related to the Accounting for Financial Asset Transfers

2007 ◽  
Vol 21 (1) ◽  
pp. 59-80 ◽  
Author(s):  
Katherine Schipper ◽  
Teri Lombardi Yohn
Keyword(s):  
Cross Section ◽  
Financial Reporting ◽  
Academic Research ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Future Research ◽  
Financial Asset ◽  
International Accounting Standards ◽  
Financial Accounting Standards Board

A large number and cross-section of firms undertake financial asset transfers. The Financial Accounting Standards Board and the International Accounting Standards Board have been grappling with the appropriate accounting for financial asset transfers, especially with respect to derecognition—that is, when the assets should be removed from the transferor's balance sheet. This paper discusses the financial reporting issues surrounding financial asset transfers and summarizes the related academic research. It also discusses potentially useful future research that could provide insights for standard-setters and suggests some impediments to that research.

Sign in / Sign up

Export Citation Format

Share Document