Case 4-9
Case 4-9: Economic Consequences
Samuel Parsons
School of Business, Liberty University
Author Note
Samuel Parsons
I have no known conflict of interest to disclose.
Samuel Parsons
1
Case 4-92
Abstract
In this case, there will be a series of questions that will be answer to help us expand the
conundrum regarding accounting and the pronouncements created by the management of a company.
Firstly, there will be discussion on whether or not financial reporting should affect management
decision making and if post-retirement and post-employment benefits should be eliminated due to new
pronouncements. Secondly, the question of whether or not social costs are associated with
pronouncements. Thirdly, their will be a discussion about the impact of pronouncements due to
prospective proponents. Lastly, there will be a discussion on what the mainstream accounting
proponents say about the impact of the pronouncements.
Case 4-93
Should financial reporting requirement affect management's decision making process? Discuss.
Should management reduce or eliminate post-retirement or post-employment benefits simply
because of the new pronouncement? Discuss.
“The Financial Accounting Standards Board (FASB) is the independent, private- sector, not-for-
profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting
standards for public and private companies and not-for-profit organizations that follow Generally
Accepted Accounting Principles (GAAP).” (FASB, 2024) The FASB reporting requirements should not
hinder any company’s management decision-making. Instead, they should help bring insight into
making decisions that are useful for various parties, such as investors, to further bring value and profit
to the company. FASB No. 5 states that “financial statements are a central feature of financial reporting
—a principal means of communicating financial information to those outside an entity.” (FASB, 1984)
Without these financial statements, very poor economic decisions could be made that would ruin a
company’s ability to grow. However, with the aid of financial statements, business entities must not
abuse FASB pronouncements to eliminate any and all post benefits. Such elimination would be a
liability would generate a profit loss and the employees are suppose to report any liabilities that could
come from the FASB pronouncements while they are actively working.
Are there social costs associated with these pronouncements? Explain.
Social costs are indeed associated with the pronouncements. Employees would be required to
reduce how much they are putting towards the benefits or even not put any amount toward them at all.
This would create a terrible effect on the employees income and mental stability by means of profit
loss, whether or not the benefits are completely eliminated or not. The employees will look differently
at the company when they don’t have anything to retire on, which it is very important to report these
liabilities early so the social costs won’t have a heavy toll.
Case 4-94
What would critical perspective proponents say about the potential and/or actual impact of these
pronouncements?
“The need arises to critically evaluate accounting in the contexts in which they operate, and so
analyses and interpret complex and controversial situations.” (Gunatilake, Lord, and Dixon, 2023)
Now, while the accounting and financial conditions of a company may not change, but the critical
perspective proponents would change the balance sheets in a way that is accommodating for extreme
net loss due to lack of post-benefits. Plus, many citizens are directly affected by these new FASB
requirements as many of them look to prepare for retirement. That is why, these accounting must look
for ways to reduce the controversial situations that would arise from this. Otherwise, the increased
bitterness between the employees and the companies would increasingly grow.
What would mainstream accounting proponents say about the potential and/or actual impact of
these pronouncements?
The belief of what the mainstream accounting proponents would say is that by recognizing the
funded post-retirement benefits, whether they are over funded or under funded. It must be presented in
a clear, but well understood format on the balance sheets that would seemed to bring promising results
for many companies. The FASB would refer the post retirement benefits as lingering promises, while
the accounting proponents would deemed this action necessary for clear economic reporting. However,
the social cost of this action would be severely high and would create a negative social impact among
the various communities that they reside in.
Biblical Interpretation
The passage of Leviticus 19:13 states “‘Do not defraud or rob your neighbor.’ Do not hold back
the wages of a hired worker overnight.” (NIV) This passage would feel applicable to the suggestion
made by the accountant proponents. However, their proposal would indeed improve financial
statements for companies, but it comes at a cost. By not keeping the post-retirement benefits for a
Case 4-95
company’s employees to contribute towards. It would create a sense of meaningless for the employees
to have nothing to reflect on for all the hard work they have contributed. Granted, we are not meant to
store our treasures on Earth; but there will come a time where an employee will not be able to physical
work. Without a means to have something stored for the waning years of one’s life, it creates a sense of
robbery that was committed. That is why we must be careful with how we save our money, how to use
it, and how to contribute it.
Case 4-96
References
Gunatilake, G., Lord, B., & Dixon, K. (2023, March 23). Politics of accounting evidence in privatising
telecommunications in Sri Lanka. Accounting, Auditing & Accountability Journal.
https://www.emerald.com/insight/content/doi/10.1108/aaaj-09-2019-4160/full/html
Standards Board, F. A. (2024). About the FASB. Financial Accounting Standards Board.
https://www.fasb.org/facts
Standards Board, F. A. (1984). Con 5 (as issued). Financial Accounting Standards Board.
https://www.fasb.org/Page/document?pdf=con5.pdf&title=CON+5+(AS+ISSUED)
Leviticus 19:13. Leviticus 19:13 NIV - - Bible Gateway. (n.d.).
https://www.biblegateway.com/passage/?search=Leviticus%2B19%3A13&version=NIV
