An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Erin A. Moore
Lehigh University

Abstract: Pension accounting has received considerable attention recently from the popular press and accounting regulators, and much of this attention has focused on whether managers use discretion in pension accounting and funding to manage reported earnings. This study investigates whether managers use the discretion afforded them under SFAS 87 to meet earnings targets. I develop empirical proxies for the managed components of pension cost and test whether these proxies are associated with firms’ abilities to meet earnings targets. I find that managers make discount rate assumptions that reduce service cost and increase the likelihood of meeting analysts’ forecasts. The reduction in pension expense that results when managers make larger than expected contributions to their pension funds also increases the likelihood of meeting analysts’ forecasts. I conclude that managers do use the discretion afforded them under pension accounting to meet at least one earnings target, the analyst forecast.

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