Statement of Financial Accounting Standards

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 empl

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). These regulations are contained primarily in section 401(k) of the Internal Revenue Code. Preliminary regulations were issued in 1981; however, it was not until August 1988 that final regulations were issued (Mercer Meidinger Hansen, 1988). Between the issuance of the preliminary regulations in 1981 and the issuance of the final regulations in 1988, the enactment and implementation of the Tax Reform Act of 1986 (TRA 1986) changed some of the planned provisions of 401(k), and complicated others. As IRS regulations covering CODAs are contained in Section 401(k), qualified plans are referred to as 401(k) plans. Generally, to be qualified in Section 401(k), a cash or deferred arrangement must be "a part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural electric cooperative plan under which an eligible employee may elect to have the employer make certain payments to a trust under the plan on behalf of the employee, or to the employee in cash" (Prentice-Hall, Inc., 1988). Possibly the most significant of the provisions of the regulations included in 401(k) deal with discrimination by employers between highly paid employees and other employees, and with early withdrawal by individuals from a

Category: Economics - S