Discussion Paper

Pension accounting and corporate earnings: the world according to GAAP

Abstract: This study?s underlying premise is that current pension plan accounting has two important negative effects. First, it distorts the measurement of earnings and net worth in the short run, as well as the pattern of earnings over future periods. Second, this distortion can send incorrect signals to investors about a firm?s health, resulting in the mispricing of a firm?s outstanding debt and equity instruments. The author demonstrates how these distortions are introduced, examines the magnitude of the distortions, and discusses proposals for reform.

Keywords: Corporations - Accounting; Pensions;

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Public Policy Discussion Paper

Publication Date: 2005

Number: 06-2