Description
Prior to beginning work on this assignment, read the S&P 500’s Biggest Pension Plans Face $382 Billion Funding Gap article. For this assignment, you will analyze and interpret the impact of a firm’s defined benefit plan on its financial reports. The company that needs to be evaluated will be Procter & Gamble. Obtain the 10-K reports for this company for the last three years.
In your paper,
- Determine whether your company complies with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) in its financial reporting.
- Determine if the pension plan(s) is (are) part of a multi-employer plan or if the pension plans are single employer plans.
- Describe the components of the company’s defined benefit costs.
- Illustrate the trend in these costs over the latest 3 years.
- Critique the cash flow impact of the pension plan in each of the last 3 years.
- Identify the assumptions used each year for the calculations of pension plan obligations and expense amounts.
- Note any changes in assumptions over the 3-year period.
- Analyze the impact these changes have had on the reporting of the pension plan obligations (e.g, periodic cost, net pension liability, etc.)
- Determine if the assumptions used each year are internally consistent.
- Determine if the expected rate of return on plan assets is reasonable, given the stated targeted asset allocation of the plan.
- Compare the most recent net underfunded pension liability to your company’s current market equity and total debt.
- Justify whether the amount of the net underfunded pension liability is reasonable based on this comparison.
- Estimate the amount of annual cash flow the company would have to contribute to the plan if the company wanted to fully fund the plan by the end of 15 years.
- Compare this amount to the company’s operating cash flow and capital expenditures from each of the past 3 years.
- Explain the role of the Pension Benefit Guaranty Corporation (PBGC).
- Predict the impact the failure of this pension plan would have on the PBGC as well as the participants in the plan.
The Defined Benefit Plans paper
- Must be three to four double-spaced pages in length (not including title and references pages) and formatted according to APA style. Within these three to four pages, provide data tables and calculations. These tables and calculations should be approximately 10% to 20% of the total work product.
- Must utilize academic voice.
- Must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper.
- Must use at least two scholarly, peer-reviewed, or credible sources in addition to the course text.
Explanation & Answer
Attached. Please let me know if you have any questions or need revisions.
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Advanced Financial Management and Analysis
Student Name
Course Name: Course Code
Professor's Name
Date
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Advanced Financial Management and Analysis
Introduction
A defined benefits plan is an integral part of effective employee management since it
improves employees’ morale and takes care of their general welfare. Most importantly, it relates
to the retirement plan sponsored by an employer with the employee as the beneficiary using a
formula that considers factors such as salary history. It is an important investment plan, which
allows an employee to take it as a lump-sum or lifetime annuity. However, the decline in the
companies’ capability to fund their pension plans has become more evident and has adversely
affected the labor force's retirement expectation (Kochkodin & Meisler, 2017). Therefore, this
essay aims at providing in-depth analysis and interpretation of the impact of Procter & Gamble
Company's defined benefit plan on its financial reports.
Determine Whether your Company Complies with Generally Accepted Accounting
Principles (GAAP)
Procter & Gamble is a multinational company headquartered in Ohio in the United States.
The company specializes in the production and marketing of consumer goods, ensuring
compliance with GAAP. More specifically, throughout its financial reports, the established rules
and regulations and consistent standards are observed. Additionally, the reports are committed to
impartiality, accuracy, regular procedures, honesty, periodicity, prudence, and continuity of
operations (Procter & Gamble, 2018; Procter & Gamble, 2019; Procter & Gamble, 2020).
Determine if the Pension Plan(s) is (are) Part of a Multi-Employer Plan or if the Pension
Plans are Single-Employer Plans
The pension plan is part of the single-employer plan. The reason for this is that Procter &
Gamble is responsible for governing and administering the plan and is also the main contributor
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to the plan. The pension plans involve both the defined benefit plans and defined contribution
plans guided by various assumptions to estimate them, specifically the former. This implies that
the amount determined is fixed and cannot be reduced (Procter & Gamble, 2018; Procter &
Gamble, 2019; Procter & Gamble, 2020).
Describe the Components of the Company’s ...
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