Chapter 14 Post-employment Compensation Contrast the cash and accrual

approach to accounting for pensions.

Understand the nature of pensions.

Describe the similarities and differences between pensions and OPEBS.

Accounting for Post-Employment Compensation

Two topics: Pensions and OPEBs

The basic question? Two answers.

Pensions

Defined? Two types? The four parties involved? Twin Accounting issues: 1. cost (expense) 2. owe (liability)

Pension Pronouncements

Cash Method Accrual and Matching (APB

#8, 1966)• Legal form • Pension expense• Four concerns….

Pension Pronouncements

Liability approach (SFAS No. 87, 1985)• Economic substance• Pension liability• One method• Two questions…..

Two Difficult Pension Questions: 1. Whose liability? When

liable? 2. Pension tension (present or

future liability)? Example: Case 14.1 The

Bonus Case.• Foote & Tick owe?• EOY liability to C.P.?

Updates

OPEBS

Nature Benefits Included

OPEBs

Part of employment contract: “To: Ms. Janine Smith, and subject to change at the

discretion of the firm, at retirement age (60), we will fully cover Ms. Smith and her dependent family members with the following benefits xxx until her death.”

OPEBs vs. Pensions

Characteristics vs pension... Exhibit 14.2 Conclusion?

Accounting for OPEBs

Three Accounting issues• 1) Liability?• 2) How measured?• 3) When reported?

OPEBs Pronouncement

SFAS No. 106, 1990 Four objectives of No. 106 Answers (based on SFAS No. 87): 1. Yes, deferred compensation. 2. Projected costs of healthcare. 3. Amortized over hire to

eligibility date. Counterarguments.

OPEBS Controversy

Current concerns• Cost: $1 trillion• Reliability of estimates

Cancellations: blame who? SFAS No. 132 (1998)

Disclosures about pensions and OPEBS

Updates