Questioning The Basic Assumptions

Leib, Barclay T.
September 2002
Financial Executive;Sep2002, Vol. 18 Issue 6, p35
Academic Journal
This article focuses on the U.S. pension fund accounting and the current pension return assumptions underlying it. Companies regularly overstate pension investment returns, which can then result in erroneous earnings reports. Under accounting standards, if pension returns are realized above the assumed rate, and pension liabilities remain static, companies may accrue the excess returns directly to earnings over the average life of a pension plan. If returns fall short of the assumed return, the loss does not have to be realized right away, but again, can be accrued over time. Investor Warren Buffett believes that pension accounting could become the next large corporate scandal.


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