Week 5 eActivity Research the Internet for several recent (within the last three

Question

Week 5 eActivity

Research the Internet for several recent (within the last three years) articles on financial accounting reporting on pension plans. Be prepared to discuss.

"Accounting for Pension Plans" Please respond to the following:

From the e-Activity, create an argument for the use of the mark-to-market accounting method for pension accounting. Evaluate the impact of earnings volatility on financial reporting using mark-to-market accounting, and indicate whether or not you believe this is a fair representation of pension obligations.

Defend the current GAAP rules for pension accounting reporting on the balance sheet and the income statement. Recommend a change you would make to the current pension accounting to more accurately reflect the future obligations of a company.

Explanation / Answer

Solution:

Mark to market accounting method is an upcoming trend amongst many US incorporations to record its pension obligations. Since 2010 more than 40-45 companies have switched to MTM method of accounting. Also Fedex has adopted the MTM method to record its pension obligations in 2015.

Apparently MTM method creates a negative impact on the financial statements of the company due to its enormous expenditure. Despite its exorbitant cost the companies have adopted the MTM approach for the following reasons:

- The immediate recognition of the actuarial gains and losses will make the performance of the companies transparent and easier to understand.

It shows a current picture of the pension plan performance.

Further rising interest rates and strong market performance can boost a company's bottom line.

The implementation of ASC 715(SFAS 158) made pension related disclosures to be presented in the financial statements and not as a footnote. These disclosures will be more accesible to the investors by using MTM. Dual listed companies will be mandatorily required to report using mark to market. Also convergence with IFRS will require to use Mark to market in recognising pension obligations.

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