Question

GASB standards require governments to disclose the net pension liability using a discount rate that is 1% point lower and 1% point higher than the rate used to calculate the net pension liability appearing in the statements. T/F

Answer 1

The GASB standards indeed require governments to show the effect of a 1% point change in the discount rate on the net pension liability to improve transparency and accountability in financial reporting.

Step-by-step explanation:

The statement that GASB standards require governments to disclose the net pension liability using a discount rate that is 1% point lower and 1% point higher than the rate used to calculate the net pension liability appearing in the statements is true. This approach provides a sensitivity analysis that shows the impact of changes in the discount rate on the net pension liability. It is important to understand this requirement as it impacts the transparency and accuracy of governmental financial reporting. Such disclosures are intended to penalize firms for underfunding their pension plans, giving employees and stakeholders more accurate information about the financial health of the pension accounts.