Real World Case 17–7
Requirement 1
FedEx sponsors both defined benefit and defined contribution pension plans as
well as a postretirement healthcare plan. These are described in disclosure note
13
(in part) for the years ended May 31, 2015 and 2014:
PENSION PLANS. Our largest pension plan covers certain U.S. employees age 21 and over, with
at least one year of service. Pension benefits for most employees are accrued under a cash
balance formula we call the Portable Pension Account. Under the Portable Pension Account,
POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries offer medical,
dental and vision coverage to eligible U.S. retirees and their eligible dependents. U.S.
Case 17–7 (continued)
Requirement 2
A pension plan is underfunded when the obligation (PBO) exceeds the
resources available to satisfy that obligation (plan assets) and overfunded when
the opposite is the case. The PBO exceeds plan assets in both years reported.
Postretirement
Pension Plans Healthcare Plans
2015 2014 2015 2014
PBO/APBO at the end of year $27,512 $24,578 $929 $883
Case 17–7 (concluded)
Requirement 3
FedEx reports three actuarial assumptions used to determine projected benefit
obligations:
Pension Plans 2015 2014
Discount rate 4.42% 4.60%
Rate of increase in future
The reported decrease in the discount rate from 2014 to 2015 increased
FedEx reported an increase in the rate of increase in future compensation
The expected long-term rate of return on assets will not directly affect
Analysis Case 17–8
Requirement 1
The increase in a company’s PBO attributable to making a plan amendment
retroactive is referred to as the prior service cost. Prior service cost adds to the
cost of having a pension plan. Amending a pension plan typically is done with
Requirement 2
The amendment increased AM’s pension obligation. AM’s pension expense
Analysis Case 17–9
Requirement 1
Normally, a company’s net periodic pension cost represents an expense and
therefore decreases earnings. Often, though, circumstances cause this element
Consider the following disclosure adapted from a pension disclosure note in a
($ in millions)
Service cost $ 170
We see another example in Office Depot’s 2015 financial statements:
($ in millions)
Service cost $ 3
Case 17–9 (concluded)
Requirement 2
Companies must report the actuarial assumptions used to make estimates
concerning pension plans, namely the discount rate, the average rate of
compensation increase , and the expected long-term rate of return on plan assets.
The expected long-term rate of return on assets directly affects the net
The discount rate can affect profits, too. The higher the discount rate in a
The lower the rate of increase in future compensation levels, the lower will
Research Case 17–10
The specification of postretirement benefit coverage in the Content Specification
Outline will depend on the date the website is accessed.
The examination structure comprises four separately scored sections:
Auditing & Attestation
Postretirement benefits are not specifically mentioned by name. However, the
content specification outline indicates testing of standards for presentation and
The education requirements to sit for the CPA exam vary somewhat from state to
state. In Tennessee, examination candidates must have:
To obtain the CPA license, the candidate must have passed the exam and have:
Analysis Case 17–11
Requirement 1
($ in millions)
Net loss, January 31, 2015 $1,397
* rounded
Requirement 2
Gains or losses should not be part of pension expense unless and until total net
gains or losses exceed a defined threshold. Specifically, a portion of the excess is
($ in millions)
Net loss, January 31, 2015 $1,397
* 10% times either the beginning-of-the-period PBO ($3,966) or plan assets
($3,585), whichever is larger
Case 17–11 (concluded)
Requirement 3
($ in millions)
Net gain, January 31, 2015 $341
Loss (gain) on plan assets (actual: 0 – expected: 0) 0
Requirement 4
Note 10 states the effect on expense of a 1% decrease in the healthcare
Target Case
In Note 28 “Pension and Postretirement Health Care Plans”, Target reported the
following changes in its Projected Benefits Obligation, Plan Assets, and Pension
Expense:
Requirement 1
Change in Projected Benefit Obligation Qualified Plans
(millions) 2015 2014
Benefit obligation at beginning of period $3,844 $3,173
Note: Some projected benefit plans permit employees to contribute
to their own plans in addition to the employer responsibility.
Requirement 2
Change in Plan Assets
(millions) 2015 2014
Fair value of plan assets at beginning of period $3,784 $3,267
Target Case (concluded)
Requirement 3
Target’s PBO is underfunded in fiscal 2014 and overfunded in fiscal 2015:
(millions) 2015 2014
Requirement 4
Net Pension Benefits Expense
(millions) 2015 2014 2013
Service cost benefits earned during the period $109 $112 $118
Interest cost on projected benefit obligation 154 149 137
Prior service cost amortization is determined using the straight-line method over
the average remaining service period of team members expected to receive benefits
under the plan.
Air France–KLM Case
Requirement 1
Under IAS No. 19, prior service cost (called past service cost under IFRS) is
Under U.S. GAAP, prior service cost is not expensed immediately, but is
Requirement 2
Under IFRS the various components of pension expense are not reported as a
single net amount. AF separately reports service cost (including past service cost)
Requirement 3
AF used IFRS, and thus reports gains and losses among OCI items “Remea-
surements of defined benefit pension plans” in the statement of comprehensive in-
come (which AF labels “Consolidated Statement of Recognized Income and Ex-
AF Case (concluded)
Requirement 4
As shown in Note 23. Pension Assets, AF reported a Net pension asset (rather
than net pension liability) for 2015 of €1,773 million, indicating that its DBO ex-