An Evaluation Of Agency Theory Influence In Pension Accounting

Abstract

The Financial Accounting Standard Board Standard No. 87 supersedes all other methods of accounting for pensions. However, many accountants think that this statement will also be superseded eventually since it contains several theoretical inconsistencies. The purpose of this article is first to apply agency theory to the determination of pension benefits, in order to show that pension costs represent a sharing of future cost savings in the employee-employer relationship. Some implications of the derived model are then applied to the provisions of SFAS No. 87. This model can thus be used to develop a consistent economic theory for pension accounting.