How the New Pension Accounting Rules Affect the Dow 30's Financial Statements

The Securities and Exchange Commission (SEC) completed its study on Jun 15, 2005, and pension accounting was a primary target of the report's standards-setting recommendations. It pointed out that large amounts of pension liabilities are not recognized on the balance sheet. In Sep 2006, a new s...

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Bibliographic Details
Published inThe CPA journal (1975) Vol. 77; no. 3; p. 16
Main Authors Bryan, Stephen H, Lilien, Steven, Mooney, Jane
Format Journal Article
LanguageEnglish
Published New York New York State Society of Certified Public Accountants 01.03.2007
Subjects
Accounting
Accounting standards
Balance sheets
Defined benefit plans
Discount rates
Employers
Exposure drafts
FASB statements
Liability
Other postemployment benefits
Pension plans
Profitability
Profits
Public Company Accounting Reform & Investor Protection Act 2002-US
Retained earnings
Special purpose entities
United States > US
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Summary:The Securities and Exchange Commission (SEC) completed its study on Jun 15, 2005, and pension accounting was a primary target of the report's standards-setting recommendations. It pointed out that large amounts of pension liabilities are not recognized on the balance sheet. In Sep 2006, a new standard SFAS 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans requires balance-sheet recognition of the funded (or unfunded) status of pension and other postemployment benefits plans. The estimated impact of SFAS 158 on owners' equity and debt for the Dow 30 companies is that aggregate owners' equity is reduced by over 12%; aggregate total liabilities are increased by almost 4%. The implications likely mean that analysts who use earnings multiples for setting target prices for companies' stock will either adjust their multiples or normalize the companies' earnings streams. This standard may well be used as justification for firms to abandon defined benefit pension plans and other postemployment benefits.
ISSN:0732-8435