CONCLUSION
A corporation’s pension plan is not an obvious place to look for artificially inflated profits. In principle, the company does not derive benefits from the plan, which is administered by the trustees for the sole benefit of the employees.
Rather, the corporation’s chief role in the pension fund is to contribute money to it. By rights, the main reason that users of financial statements should be concerned about the pension accounting is that if the plan is inadequately funded, the required contributions may strain the corporation’s finances. In the event of a bankruptcy, creditors might find themselves waiting in line behind a huge claim on the company’s assets, in the form of unfunded liabilities.That, at least, is how things ought to work. Clever corporate managers, however, have transformed pension plans into devices for smoothing earnings and shifting income from the nonoperating to the operating category. Analysts must be on the lookout for potential abuses, notwithstanding the arcane calculations that underlie the pension plans’ stated assets, liabilities, and investment returns.
Source:
Fridson M., Alvarez F.. Financial Statement Analysis. John Wiley & Sons, Inc.,2002. — 413 p. 2002
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