This research provides an analytical critique of Statement of Financial Accounting Standards No. 87: Employers' Accounting for Pensions (Financial Accounting Standards Board (FASB), 1985), hereinafter referred to as FAS87. The essence of the Statement involves the application of accrual accounting principles to pension fund accounting by employers, with a special emphasis on the single-employer defined benefit plan (FASB, 1985).
In this research, the issues involved in pension fund accounting are considered, together with the provisions of FAS87 designed to address those issues. FAS87 is also assessed within the contexts of Statement of Financial Accounting Concepts No. 1: Objectives of Financial Reporting by Business Enterprises (FASB, 1978), Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information (FASB, 1980), and Statement of Financial Accounting Concepts No. 6: Elements of Financial Statements (FASB, 1985), hereinafter referred to as CON1, CON2, and CON6, respectively. Finally, the researcher's opinion of FAS87 is presented, with respect to validity and conformity to good accounting practice.
There are two general types of pension plans. The first requires a stipulated contribution (by an employer, or by a combination of employer and employees) to a pension plan. Payouts from such plans are largely determined by the value of the fund (or the value of an employee's share of the fund). This type of pension plan is referred to as a defined contribution plan (Winklevoss, McGill, Allison & Neff, 1984).
The second general pension plan type stipulates the types and amounts of benefits which will be paid upon retirement. Benefit levels are not contingent (directly) on the asset value of the pension fund at any given point in time. This type of pension plan is referred to as a defined benefit plan (Winklevoss, McGill, Allison & Neff, 1984).
Financial accounting practic...