Financial Reporting Requirements

Financial Reporting Requirements

Accounting Theory and Research/ACC541

March 22, 2010

Financial Reporting Requirements

MEMORANDUM

DATE: March 22, 2010

TO: Frank Murphy, Chief Executive Officer

FROM: Comptroller

SUBJECT: Financial Reporting Requirements

Congratulations on the new acquisition of another company. The acquisition of the new company brings new financial reporting responsibilities. When we acquired 100% of the other company, we inherited the two segments and two different pension plans that was part of that company. As the comptroller of this company, I want to explain the requirements for reporting defined contribution, defined benefit, and other postretirement plans. Further, since these reporting issues are new to you and you want to eliminate the two segments, I will also explain what must happen in order for the two segments to be eliminated.

Reporting for Defined Contribution Plans

According to Schroeder et al., in a defined contribution plan, the employer’s only expense is the annual promised contribution to the pension plan. They further mentioned that "when a company adopts a defined contribution pension plan, the employer’s financial statements should disclose the existence of the plan, the employee groups covered, the basis for determining contributions, and any significant matters affecting comparability from period to period (such as amendments increasing the annual contribution percentage)" (Schroeder et al., 2005, p.445-446).

Reporting for Defined Benefit Plans

Accounting for defined benefit plans may be more involved than accounting for defined contribution plans. Schroeder et al. states that, future pension benefits to be received by employees are "affected by uncertain variables such as turnover, mortality, length of employee service, compensation levels, and the earnings of the pension fund assets" (Schroeder et al., 2005, 446). Employers must contribute enough funds to meet the pension benefits promised...