Journal of Accounting and Management Information Systems (JAMIS)

Evaluation models and accounting for pension costs

Supp/2006 ,   p250..258

Daniela MARCU

Keywords:   pension accounting, evaluation, employee benefits, actuarial assumption, recognition

There is nothing simple about recognition and evaluation of long term benefits granted to employees. Pension accounting is a term that widely describes a set of accounting problems covering measurement, evaluation, recognition, and reporting issues associated with pension commitments. There are two dimensions of pension accounting: first - costs borne by employers who sponsor a defined benefit funded pension plan for their employees, costs that are recognized and disclosed in their financial statements; and second - financial reports prepared by those responsible for managing the assets of pension plans. Our article concentrates on financial reporting of costs borne by employers.
Pension accounting is a very complex area because it involves estimation, deferral, smoothing and offsetting. Unfortunately, this complexity leads to manipulation of accounting income and to a large spectrum of results depending of the actuarial estimation (economical or demographical) made by the entity.
Starting with 2007 Romania is facing the challenges of private pension plans. European accounting literature being rather poor on that subject, this article briefly reviews all important aspects of accounting for private pension plans as they were debated in applicable international reporting standards and in most relevant worldwide articles but also presents case studies of how to evaluate and recognize cost of pension.
The contribution of our article is to explain through case studies and to ease the understanding of measurement and recognition of pension costs. The results may be used by practitioners in accounting for employee benefits.