Accounting of Defined-Benefit vs. Defined-Contribution Pensions

Discussion Questions
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Discussion Questions
From a financial reporting perspective, the accounting treatment of defined-benefit (DB) pensions is that the employer commits a certain monthly payment to every qualified worker whenever she/he retires at a specified age. The once-a-month benefit is usually based upon a formula for instance a percentage for every year of employment multiplied by the average wages of monthly salary of the worker in the course of a 3-year period before retirement (Broadbent, 2009).Conversely, in financial reporting of defined-contribution pensions, the employer makes a contribution annually basing on the formula that is specified by the plan. As such, the yearly pension expense of the employer is equal to the employer's contribution to the plan. Whenever the employer pays a smaller amount than the defined/expected contribution, then the employer will record a pension obligation/liability. However, whenever the employer pays in excess of the obligated amount to the pension plan, then the employer would record a pension asset (Broadbent, 2009).
SFAS No. 131 defines an operating segment as an organization component: (i) which does engage in business activities incurring expenditures and creating revenues; (ii) whose operating results are reviewed on a regular basis by the chief operating decision maker of the enterprise in assessing performance and allocating resources; and (iii) for which separate fiscal information is available(Albrecht, 2010).Segments which are reportable are the operating segments which report any of: (i) revenues of no less than10 percent of total revenues of every reported operating segment; (ii) loss/profit of not less than 10 percent of the collective revenues, loss or profit, or assets of every operating segment; and (iii) assets of not less than 10% of the collective revenues, assets, loss or profit of every operating revenue (Albrecht, 2010).
Ethics affects financial reporting in that an ethical company will create accurate, truthful and honest fiscal statements that provide the base for accurate, truthful and honest tax reporting. In essence, filing tax returns and providing financial statements that accurately reflect company activity will save the managers money on legal fees, interest as well as penalties in case they are caught. This is actually true although under-reporting might seem to save the company money on tax liabilities over the short-term (Gartenstein, 2012).