Pension liabilities and conservative financial reporting*

Heo, Kyongsun; Chu, Jaeyon; Kim, Jennifer Jae-Young; Pae, Jinhan

doi:10.1080/16081625.2019.1584757

Cited by 1 publication

(1 citation statement)

References 24 publications

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“…With regard to the Korean regulatory framework, Heo et al. (2019) relate conditional conservatism in financial reporting to the choice of the discount rate and salary growth rate in the estimation of pension liabilities. They interpret these two primary pension assumptions as a reflection of a firm's unconditional conservatism.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Pension Funding Regulations and Actuarial Gains and Losses

Heo

Pae

2020

Australian Accounting Review

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With pervasive pension funding deficits, Korean firms have been under pressure to improve their funding levels. We examine whether firms have incentives to set obligation‐decreasing pension assumptions when they have large pension deficits (pension obligations in excess of plan assets) and when they make insufficient contributions to external pension funds. We find that firms report larger actuarial gains (or smaller actuarial losses) associated with the remeasurement of pension liabilities when their pension funding ratio (the ratio of the fair value of plan assets to defined benefit obligations) is lower and when contributions to plan assets relative to pension service costs are smaller. Next, upon the introduction of a minimum pension funding guideline, we find that the effect of the funding ratio and contributions to pension funds on actuarial gains and losses is more pronounced for firms whose funding ratios are slightly below the minimum funding ratio than it is for firms whose funding ratios exceed or fall short of the minimum by a large margin. Our results indicate that firms opportunistically exercise discretion regarding corporate pension accounting under International Financial Reporting Standards to comply with pension funding regulations, thereby reducing perceived pension deficits.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%