Assuming the Worst: The Shifting Sands of Pension Accounting

Alistair Byrne, Iain Clacher (), David Hillier and Allan Hodgson
Additional contact information
Alistair Byrne: Towers Watson Actuarial Consulting, London, United Kingdom
Iain Clacher: University of Leeds, United Kingdom
David Hillier: University of Strathclyde, United Kingdom
Allan Hodgson: University of Queensland Business School, Australia

Journal of Accounting and Management Information Systems, 2013, vol. 12, issue 2, 190-212

Abstract: Accounting for defined benefit pension plans is complex, and given the magnitude of many of these schemes relative to their corporate sponsor, understanding whether pension disclosures are value relevant is key to improving the quality of financial reports. The application of fair value accounting for pensions allows for a high level of managerial discretion with respect to ex ante accounting choices. Utilizing a sample of firms that apply FRS-17, we examine the main determinants of the assumptions managers use to arrive at pension scheme valuations. We find significant differences in the stated assumptions across companies, auditors and actuaries. Further, managers display considerable variation in conservatism when implementing fair value accounting, and this variation is related to scheme-specific characteristics, such as asset allocation and pension plan solvency. Crucially, pension disclosures are found to be value relevant, therefore, managers are able to present pension disclosures in a more favorable light, and this is reflected in prices. As a result of the observed inconsistency in reporting across firms, and the value relevance of these disclosures, this brings into question the efficacy of fair value accounting for assessing pension values.

Keywords: Pension Accounting Standards; FRS-17 Pensions Valuation; Managerial Pension Discretion; Pensions and Fair Value Accounting (search for similar items in EconPapers)
JEL-codes: G14 M41 M48 (search for similar items in EconPapers)
Date: 2013
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://online-cig.ase.ro/RePEc/ami/articles/12_2_3.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ami:journl:v:12:y:2013:i:2:p:190-212

Access Statistics for this article

More articles in Journal of Accounting and Management Information Systems from Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies
Bibliographic data for series maintained by Cristina Tartavulea ().