Pension Discount Rate Assumptions under SFAS-87 and SFAS-158: The Distorting Influence of Minimum Liability Requirements

摘要

Statement of Financial Accounting Standards number 158 (SFAS-158) changed the reporting requirements for defined benefit pension plans. Under the previous standard (SFAS-87), firms were required to report a minimum liability based on the present value of the expected pension benefits. This reporting requirement is posited to have provided an incentive for firms to manipulate the assumptions used in the computation of this measure. Under SFAS-158 this minimum liability requirement was discontinued, and it is posited that this has removed this particular incentive for assumption manipulation, with a resultant improvement in the accuracy of the reported pension information. The findings in this study are consistent with the above-referenced positions. Based on sample observations from SFAS-87 era and SFAS-158 era financial statements, there does appear to be a pattern of assumption manipulation in the SFAS-87 era, which ceases in the SFAS-158 era.