About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 3 3 Pensions and Other Post-Retirement Benefits Explained

3 3 Pensions and Other Post-Retirement Benefits Explained

Key Concepts

Pension Plans

Pension plans are retirement plans that provide employees with a fixed income after they retire. These plans are designed to ensure that employees have a steady income stream during their retirement years.

Defined Benefit Plans

Defined benefit plans promise a specific retirement benefit to employees, typically based on factors such as salary history and years of service. The employer bears the investment risk and is responsible for funding the plan to meet the promised benefits.

Example: A company promises to pay an employee $50,000 per year after retirement, based on their 30 years of service and average salary over the last five years.

Defined Contribution Plans

Defined contribution plans specify the amount of contributions that will be made to the plan, but the retirement benefit received by the employee depends on the investment performance of the plan's assets. The employee bears the investment risk.

Example: A company contributes 10% of an employee's salary to a 401(k) plan each year. The final retirement benefit depends on the performance of the investments within the 401(k).

Post-Retirement Health Benefits

Post-retirement health benefits are medical and health-related benefits provided to retirees. These benefits can include health insurance, dental care, and vision care. The cost of these benefits can be significant and must be accounted for by the employer.

Example: A company offers retirees health insurance coverage with a $200 monthly premium. The company must account for this cost over the expected service life of the employees.

Accounting for Pensions

Accounting for pensions involves recognizing the pension obligation, pension assets, and the net pension liability or asset on the balance sheet. The employer must also recognize pension expense, which includes service cost, interest cost, expected return on plan assets, and amortization of prior service cost.

Example: A company has a pension obligation of $5 million, pension assets of $4 million, and a net pension liability of $1 million. The pension expense for the year includes $500,000 for service cost, $200,000 for interest cost, and $100,000 for the expected return on plan assets.

Accounting for Post-Retirement Benefits

Accounting for post-retirement benefits involves estimating the present value of the expected future benefit payments and recognizing this obligation on the balance sheet. The employer must also recognize the expense over the expected service life of the employees.

Example: A company estimates that it will need to pay $10 million in health benefits to retirees over the next 20 years. The present value of this obligation is $5 million, which is recognized on the balance sheet as a liability.

Examples and Analogies

Consider a defined benefit plan as a "guaranteed pension" that the employer promises to pay, similar to a fixed annuity. A defined contribution plan is like a "savings account" where the employer contributes but the final amount depends on market performance.

Post-retirement health benefits can be thought of as "health insurance for life after work," similar to a long-term insurance policy that covers medical expenses.

Accounting for pensions is like "balancing a retirement checkbook," where the employer tracks both the assets and liabilities related to the pension plan. Accounting for post-retirement benefits is like "planning for future medical expenses," where the employer estimates and prepares for the costs of health benefits for retirees.

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