Reference no: EM132688999

Economic Consequences

The FASB has issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" (see FASB ASC 715), and SFAS No. 112, "Employers' Accounting for Postemployment Benefits" (see FASB ASC 712). These pronouncements required companies to change from accounting for benefits, such as health care, that are paid to former employees during retirement on a pay-as-you-go basis to recognizing the expected cost of benefits during employment. As a result, companies must accrue and report expenses today, thereby reducing income and increasing liabilities. Some have argued that these pronouncements will cause employers to reduce or eliminate postretirement and postemployment benefits. It is not necessary for you to know the particulars of implementing either of these standards to address the issues described here.

Required:

Question 1: Should financial reporting requirements affect management's decision-making process? Discuss.

Question 2: Should management reduce or eliminate postretirement or postemployment benefits simply because of the new pronouncement? Discuss.

Question 3: Are there social costs associated with these pronouncements? Explain.

Question 4: What would critical perspective proponents say about the potential and/or actual impact of these pronouncements?

Question 5: What would mainstream accounting proponents say about the potential and/or actual impact of these pronouncements?