FA Module 14: Employee pensions and share-based compensation (overview)

(The attached PDF file has better formatting.)

Reading: chapter 10
●    § 4 introduction to pensions and other post-employment benefits, excluding
    ○    Example 15 (Pension-related disclosures)
Reading: chapter 14
●    § 2 pensions and other post-employment benefits, excluding
    ○    sub-section 2.4 (Disclosure of pension and other post-employment benefits – all sub-sections of 2.4 are excluded)
●    § 3 share-based compensation, excluding
    ○    exhibit 6 (SABMiller plc)
    ○    exhibit 7 (American Eagle Outfitters)
    ○    exhibit 8 (GlaxoSmithKline, plc)
    ○    Example 7 (Coca cola)

This module deals with defined benefit pension costs; defined contribution pension costs are not materially different from other expenses. Other actuarial exams deal with measuring a defined benefit pension plan’s obligations; this course covers financial statement reporting of defined benefit pension plans.

Measuring the defined benefit pension plan liability is needed for reporting it; you must understand the basic measurement procedures. Final exam problems focus on GAAP and IFRS reporting. The practice problems on the discussion forum show the types of questions asked.

Sub-section 2.4 discusses several alternative disclosures and their use for readers of financial statements. This course focuses on the GAAP and IFRS requirements; sub-section 2.4 adds unneeded complexity.

Know how five factors affects defined benefit liabilities (periodic pension costs) for GAAP and IFRS:

●    service costs: current service vs past service costs; net income vs other comprehensive income
●    net interest expense / income: discount rate vs expected return on plan assets
●    remeasurement: actuarial gains or losses; actual vs expected return on plan assets
●    actuarial gains and losses: major types
●    changes in assumptions: discount rate, expected returns

Know the differences for funded vs unfunded liabilities of defined benefit plans.

Share-based compensation differs from ordinary wages and salaries. Focus on

●    Stock grants vs stock options
    ○    effects on retained earnings, paid-in capital, and shareholders’ equity
●    Executive stock options: historical cost vs fair values
    ○    influences on fair value of stock options