Saturday, October 1, 2011

Waring comments on GASB's accounting exposure draft

The Governmental Accounting Standards Board is considering new public body accounting rules that
would continue the use of the expected return on assets as the primary discount rate method for computing the pension liability on the balance sheet and for computing service cost, in place of the correct rate, the risk-free rate. It would also continue the practice of using the expected return instead of the actual return to compute pension expense and income.

Barton makes his best efforts here to persuade the Board to move from these outdated practices to those that better represent how finance really works today, and he spells out how the use of the expected return assumption makes it nearly inevitable that sooner or later pension plans will fail. And of course they are in danger of doing that right now, after 11 years of flat markets.

To see the comment document, go to: Waring's GASB Comments