Pension Plans
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Pension plans are one of the most popular benefits a company can offer to its employees. By helping long-term employees plan for retirement and reducing the reliance on Social Security, pension plans benefit both the employee, through the future payments after retirement, and the company, by encouraging long-term employee tenure. Because pension plans are considered employee benefits, some employees will accept lower salaries when a pension plan is included as part of the compensation package. Pension plans represent the largest institutional investors in the securities markets, and control billions of dollars in the economy. Even small, one person companies use pension plans to help their owners shelter money from taxes and defer those taxes until retirement. Because pension plans are an integral part of the business environment, accounting and auditing procedures are also an important part of the financial services department. This research examines the accounting and auditing function as it relates to pension plans.There are two key assumptions that govern the flow of funds into a pension plan: the age of the participants at retirement, and the plan's projected rate of return on investment (the interest rate assumption). The higher the retirement age and interest rate assumptions, the lower the annual contribution needed to achieve the targeted pension benefits; conversely, the lower the retirement age and interest rate assumption, the higher the contribution to
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SFAS 35 requires that plan investments, except for contracts with insurance companies, be reported at fair value. The exception to fair value reporting has been applied to similar contracts issued by financial institutions other than insurance companies. In 1992, this statement was amended to require that all investment contracts be reported at fair value.
The amended Statement 35 was reissued as Statement 110, "Accounting and Reporting by Defined Benefit Pension Plans," and went into effect for fiscal years which began after December 15, 1992. The statement requires that all investment contracts, including those with insurance companies, be reported at fair value. There remains the exception of those insurance contracts incorporating mortality or morbidity risk, which are still to be reported at contract value.
Auditing employee pension plans is a critical accounting function. Audits are necessary to assess client compliance with new accounting rules, and to gather sufficient and competent evidence to verify management's assertions regarding the valuation and presentation of employee benefit related items. The value of strong audit techniques can be seen in the ability of small companies to challenge findings by the IRS t
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Some common words found in the essay are:
According SFAS, Benefit Plans, Board FASB, Social Security, Pension Plans, OPEB SFAS, Obligation APBO, Service IRS, pension plans, , Journal Accountancy, sfas 87, employee benefit, plan assets, fair value, employee benefit plans, pension plan, benefit plans, internal control, accounting rules, service cost, internal control structure, audit risk materiality, reported fair value, prior service cost,
Approximate Word count = 2818
Approximate Pages = 11 (250 words per page)
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