Ruth Moore and Carl Nies have to do a class presentation on the pension pronouncement “Employee Benefits.” In developing the class presentation, they decided to provide the class with a series of questions related to pensions and then discuss the answers in class. Given that the class has all read IAS 19, they felt this approach would provide a lively discussion. Here are the situations:

1. In an article prior to the recent amendments to IAS 19, it was reported that the discount rates used by the largest 200 companies for pension reporting ranged from 5% to 11%. How can such a situation exist, and does the pension pronouncement alleviate this problem?

2. An article indicated that when IAS 19 was issued, it caused an increase in the liability for pensions for a significant number of companies. Why might this situation occur?

3. A recent article noted that most gains and losses are recognized in net income. However, pension accounting has long been recognized as an exception—an area of accounting in which at least some dampening of market swings is appropriate. This is because pension funds are managed so that their performance is insulated from the extremes of short-term market swings. A pension expense that reflects the volatility of market swings might, for that reason, convey information of little relevance.

Are these statements true?

4. Many companies held assets twice as large as they needed to fund their pension plans at one time.

Are these assets reported on the statement of financial position of these companies per the pension pronouncement? If not, where are they reported?

5. Understanding the impact of the changes required in pension reporting requires detailed information about its pension plan(s) and an analysis of the relationship of many factors, particularly:

(a) The type of plan(s) and any significant amendments.

(b) The plan participants.

(c) The funding status.

(d) The actuarial funding method and assumptions currently used.

What impact does each of these items have on financial statement presentation?

Instructions What answers do you believe Ruth and Carl gave to each of these questions?