The convergence of Taiwan Pension Accounting Standard into Universal Standards
Date Issued
2007
Date
2007
Author(s)
Huang, Pei-Fen
DOI
zh-TW
Abstract
The Financial Accounting Standards Board (FASB) initiated a two-phase review of all aspects of employer accounting for pensions, retiree medical, and other postretirement benefits since 2005. The issuance of Statement No. 158 in September 2006 completes the first phase of the Board’s comprehensive project to improve the accounting and reporting for defined benefit pension and other postretirement plans. Under FAS 158, previous balance sheet recognition of pension liability of FAS 87, FAS 88, FAS 106, and FAS 132 (R) were amended. Following the modified edition, plan sponsors with fiscal years ending late in 2006 are required to adopt the projected benefit obligation (PBO) instead of the accumulated benefit obligation (ABO) in measuring their balance sheets pension liability for their 2006 year-end financial statements. For business entities required to comply with the General Accepted Accounting Principles of financial statements, FAS 158 will severely diminish owners' equity and other issues related to it. The second phase of the review, aimed at improving transparency and convergence with international standards, will cover all other measurement, recognition, and reporting aspects and may take several years to complete.
On a more domestic level, the Financial Accounting Standards Board of Taiwan had FAS 87 as the model and promulgated the No. 18 Pension Accounting Standards on December 19, 1991. In 2001, the FASB of Taiwan made minor revision on No.18 of Pension Accounting Standard after examining the IAS 19 Employee Benefits, published by the IASB in 1998. And content of No. 18 Pension Accounting Standards remain the same since then, which implicitly signal that the presentation methods have far behind the international standards.
This study empirically implements standards set up by FAS 152 to evaluate pension liability and financial status of the most representative business entities in Taiwan. The most representative business entities are composed of 50 public listing companies which are also the components of Taiwan Exchange Trade Fund. One main purpose of this study is to evaluate the severity of impact on owners’ earnings assuming that new standards become effective on December 31st of 2005.
The second purpose of this study is to examine the significance of discount rate in pension liability calculation if FAS152 adopted. This research arrives at 3 discount rate assumptions (2.25%、2.5%以及2.75%) to perform scenario tests, based on the common principles advised in FASB, IASB and Society of Actuary. In order to measure the impact on NPPC and NI, modified duration has applied to redefine the actuarial valuation results.
According to the outcomes from this study, under current actuarial assumptions, projected benefit obligations as compared to equity, the greatest percentage yield is 12%. If FAS158 is implemented, the average owners' equity will decrease by 0.6% (or a maximum of 6%). On the contrary, the average owners' equity will decrease by a shocking 20% in the United States market. In addition, if the discount rate is set at 2.25%, then the average drop in owners' equity will increase from 0.6% to 0.9%. Pension financial status will drop from 46.8% to 41.9%. Average pension cost will increase by 9%.
In conclusion, not only FAS 158 suitably expresses the enterprise's pension status, the level of influence FAS158 has on business accounting book is less severe than previously anticipated. Thus it is worth implementing and researching. In addition, since the discount rate matters valuation results materially thus the Accounting and Actuary Authority should establish a clear criterion standard when determining the appropriate discount rate in performing valuation.
Subjects
折現率
十八號公報
八十七號公報
一五八號公報
Discount Rate
Pension Accounting
FAS 18
FAS 87
FAS 158.
Type
other