Question

In: Accounting

Describe the changes that were made to the GASB rules in 2012? How might these lead...

Describe the changes that were made to the GASB rules in 2012? How might these lead to improved accountability in the management of future pension policies?

Solutions

Expert Solution

1)As per the changes to the GASB rules in 2012, reporting of unfunded pension liabilities needs to be done in the balance sheet of government, whereas previously, they were supposed to be disclosed only in the notes. Recognising them as obligations with other liabilities would lead to better depiction of the financial position of the government because it would indicate a much more clear and better picture of the finances or resources of the government as well as enhanced visibility of the total amount of liabilities in the books of accounts.

2) As per new standards, net pension liability means the difference between total pension liability and plan assets' fair value with no smoothing whereas previously, it means the difference between actuarial accrued liability and actuarial value of assets, which is not the fair value of the plan's investments as on the measurement date of the obligation. This would result in better & up reflection of the prevailing current conditions.

3) Under new standards, there is a new five-year period to recognise pension expense because it represents a typical cycle of the market, whereas previously it was upto a period of thirty years. Consequently, there would be much quick recognition of pension expenses by the government.


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