I see the question does increase/decrease in expected return to do Pension accoutning as far as PBO? Funded Status? and Pension Expense? As far as I know it only changes pension expense becuase the actuarial gain/loss cancels out the change in PBO… Is this correct?
bump
changes in Expected return would affect your “Fair plan assets” so anything that has a component of Fair plan assets would get affected. So your Funded status, Economic Expense Periodic Cost would all be affected.
thats not right, i know for a fact that it does not affect economic expense
It only affects your pension expense. Nothing else.
pepp, You trying to bring all of us down with you?..
“I see the question does increase/decrease in expected return to do Pension accoutning as far as PBO? Funded Status? and Pension Expense?” only pension expense = svc cost + interest cost - E(ROA) + amortized stuff PBO is the liability so the expected return of the asset won’t affect it. funded status is FV plan assets - PBO and the fair value of plan assets are affected by ACTUAL returns, not expected returns.
Ok. i am on record for saying, I hate FRA. I still think it affects your funded status under (US GAAP). US GAAP FUNDED STATUS = DBO - Fair value of plan assets. I still think it affects your Period Cost Period Cost = Srv cost + past service cost + int cost ± actuairal gain/loss - expected returns I still think it affects your economic expense (indirectly though) Economic expense = Company Contributions - Net Funded position at End + Net funded Position at the Begin Economic expense = Change in DBO - Change in plan assets - Company contributions tozert, i am already down in the gutter but I am looking at the stars.
paulblart is on the money. Expected Return is a smoothing mechanism…we use expected return in the reported pension expense in order to smooth our expense & earnings to reduce the volatility.
^ This. Andrew’s got it. Another relevant point is that GAAP doesn’t allow income smoothing. So another question, would this mean the pension expense reported under GAAP will have an adjustment to reflect the actual returns on plan assets? If so the following should be true… - if returns on plan assets are GREATER than expected, GAAP pens exp < IFRS pens exp - if returns on plan assets are LESS than expected, GAAP pens exp > IFRS pens exp any ideas?
US GAAP reports net funded status, net pension assets/liabilities; IFRS reports gross amount. The impact will be more on mixed ratios (ROE, ROA), rather than economic or reported expenses. Expenses are computed in the same manner under GAAP and IFRS. Right?
I think I catch your drift…but I’m not sure and don’t think the material goes that deep
magic i don’t think yours makes sense…the actual return does not impact the reported pension expense
I am 100% confident that Pension expense is affected by earnings on pension plan assets. (Now whether its expected earnings, or actual earnings) depends on the questions, cuz if you take a look at 1-6 on pg 240, you’ll notice they are counting expected plan assets earnings to reduce your pension expense.
I dunno, the mock seemed to go about that deep. for example, they had that question about how to show an adjustment on the CF statement for pension expense, and I had no idea. I know now: adjustment to NI under CFO = (pension expense - employer contributions) but I had no idea until I saw the solutions.
Magic, I remember reading somewhere saying if economic expense > contribution, it is like borrowing money so you need to move (economic expense-contribution)*(1-t) from CFO to CFF. Company treats reported pension expense as CFO. Not sure if this makes sense.
Its not somewhere, its in Pension accounting adjustments to Cash flow section. lol.
^ wow, wtf is that… screw this section, right in its face
you need to add (1-t) to this correct? adjustment to NI under CFO = (pension expense - employer contributions)*(1-t) because you are reducing a interest-based liability
not sure, they didn’t seem to do that in the mock, so I’m gonna go with no; not because I disagree with you on some fundamentals, just cuz monkey see monkey do