Financial Shenanigans, Third Edition by Howard M. Schilit & Jeremy Perler

Author:Howard M. Schilit & Jeremy Perler [Schilit, Howard M.]
Language: eng
Format: mobi, epub
Publisher: McGraw-Hill Education
Published: 2010-04-14T04:00:00+00:00

Watch for Changes in Other Estimates and Assumptions.

Many actuarial assumptions must be used to calculate pension expense, including discount rates, mortality rates, and compensation growth rates, among others. Companies usually disclose changes to these assumptions in their footnotes. Simply read the pension footnote to find the changes. For example, Navistar International Corp. disclosed a restructuring of its pension plan in 2003, in which the company changed its assumption for the life expectancy of plan participants from 12 years to 18 years. By increasing the life expectancy assumption, Navistar spread “unrecognized losses” over a longer period, and in doing so, reduced its pension expense (and inflated its income) by $26 million.

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