Alternative Measurement Bases in Pension Accounting: A Simulation Analysis

This paper explores the financial statement implications of alternative measurement bases underlying defined benefit pension accounting rules via a simulation analysis.

Author(s) :

Paul Klumpes

Professor of Financial Accounting, EDHEC Business School

Simulation analysis can be used to examine the effect of alternative discount rate assumptions on the strength of associations between an economic or generational accounting basis, an actuarial funding basis of measurement and two alternative accounting measurement bases of pension assets and liabilities; value-in-use and value-in-exchange. Accounting measures are found to be more highly correlated with economic unfunded pension liabilities when they are discounted using market instead of value in use rates. The value at use rates are also more highly sensitive to differences in funding method, real versus nominal interest rates and plan initiation dates. The findings suggest that the use of alternative measurement bases for pension reporting and funding involves a trade-off between the relevance and reliability of the resulting pension disclosures. The transparency of reported corporate pension exposure would be improved through enhancing the logical consistency between combining key discount assumptions and various measurement bases. We also develop policy implications concerning the appropriateness of alternative measurement bases in reporting by various types of reporting entity, and propose the re-classification of various liability and equity-related components of pension contracts.
Pdf
Alternative Measurement Bases in Pension Accounting: A Simulation Analysis...
(-1.00 B)
Type : Working paper
Date : le 21/10/2010
Extra information : For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ] The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.
Research Cluster : Finance

See Also

Actualités
- 10-12-2017
    A very high-level programme offering unique learning experiences Four partners at the forefront of innovation in their fields of expertise   Press Release   Lille...
FT European Business School rankings 2017: EDHEC cements its position among the top 15
Actualités
- 04-12-2017
EDHEC Business School has consolidated its standing among the top 15 business schools...
QS Ranking 2018: EDHEC Global MBA among best programmes in Europe and worldwide
Actualités
- 28-11-2017
EDHEC Global MBA ranked as the 15th MBA in Europe and 29th MBA in the world : the...
Dean of Sungkyunkwan Graduate School of Business visits EDHEC Business School
Actualités
- 27-11-2017
Dean of SKK GSB visits EDHEC Business School in the framework of strategic agreement...