Changes in Pension Accounting Over Time Have Improved Investor Decision Making and Benefited Other Stakeholders

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Pensions are financial arrangements that allow individuals to receive an income stream during their retirement years (Tatum, 2011). They are found in government institutions, private businesses, professional groups and various other settings. Pensions funds can be found as a part of an institutions or as an independent plan. Pension plans are a major participant in the capital markets. For example, consider the fact that Ontario Teachers’ Pension Plan has a net asset value of $96.4 billion at the end of December 31, 2009. Due to the large stake of pension plans in the local and global economy, there is a persistent pressure to improve pension accounting. These changes have gained momentum with the recent adoption of the International Financial Reporting Standards (IFRS) in Canada and expected adoption by the United States in the near future. It is our belief that the various changes in pension accounting have improved investor decision making and benefited other stakeholders. To illustrate this, we will first explain pensions plans in greater detail and secondly, we will discuss various recent and near future expected changes to pension accounting in the Canada, in particular Section 4600 in Part IV of the CICA Handbook and International Accounting Standards (IAS) 19. These changes will be explored specifically in the context of private entity pension plans and with a particular focus on defined benefit plans. Lastly, we will provide evidence as to why these changes are necessary and how they benefit the stakeholders involved.

Pension plans have various stakeholders including but not limited to investors, employees, management (employers), creditors and analysts (Glaum, 2009). Tax payers and governments can also be added to that ...

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...to IAS 19. Retrieved from http://www.ifrs.org/NR/rdonlyres/0F38AB00-2FC7-4052-A9A9-F13F3759D8FE/0/EDIAS19DiscountRates.pdf.

International Accounting Standards Board. (2010). Defined benefit plans: Proposed amendments to IAS 19. Retrieved from http://www.iasb.org/NR/rdonlyres/A366AC39-6AE3-4516-A81D-ACFB4A9E5D42/0/EDIAS19DefinedBenefit.pdf

International Financial Reporting Standards. (2010). Snapshot summary document of exposure draft. Retrieved from http://www.ifrs.org/NR/rdonlyres/944C6CFC-1EC1-4796-BA56-0BCF590E9329/0/SnapshotAmendstoIAS19new.pdf

Revsine, L. (1989). Understanding Financial Accounting Standard 87. Financial Analysts Journal, 45(1), 61. Retrieved from ABI/INFORM Global. (Document ID: 457232).

Tatum, M. (2011). What is a Pension Plan? Retrieved from http://www.wisegeek.com/what-is-a-pension-plan.htm.

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