At a general level, this research presents a comparison of standard financial accounting principles in the United Kingdom with those in the United States. More specifically, this comparison is made with respect to accounting and reporting by retirement benefit plans (pension plans).
There are two general types of pension plans (retirement benefit plans). The first type requires a stipulated contribution (by an employer or by a combination of employer and employee) 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 (Bodie, 1990, pp. 11- 22).
The second general pension plan type stipulates the categories and amounts of benefits that will be paid upon retirement. Benefit levels are not contingent (directly) on the asset value of the pension fund at any given time point. This type of pension plan is referred to as a defined benefit plan (Bodie, 1990, pp. 11-22).
Retirement Benefit Plan Accounting Standards and Requirements
Financial accounting practices with respect to employer administered pension plans were established in both the United Kingdom and the United States in the 1960s. Generally, in each country employers are required to administer employee pension funds by selecting an accounting basis that permits the firm to:
(1) recognize pension expense in the period in which employees render service; (2) provide for the accrual of pension costs over the working lives of employees; (3) apply accounting procedures consistently; and (4) incorporate realistic assumptions into the accounting procedures.
The general requirements stated above apply to all employer administered pension plans in both the United Kingdom and the United States. Problems arose in the United States, however, with respect to defined benefit plans (D...