) The key differences arise from the use of shorter amortization periods for (1) unrecognized prior service costs, and (2) unrecognized actuarial differences. These latter items likely reflect unrecognized gains and losses, and would include asset gains and losses. Under U.S. GAAP, amortization periods are based on remaining service lives of employees, which is probably longer than five or ten years.
One other difference that students might note are the relatively low discount rate and expected return assumptions used by this Japanese company. For example, Procter and Gamble (and many U.S. companies) use rates up to three times as high as the rates used by this Japanese company. It should be noted that there are several similarities. Under Japanese
GAAP, the pension obligation is measured based on the projected benefit obligation and amount recognized is based on an amount net of the liability and plan assets. There is smoothing of gains and losses.
Also, the components of pension expense are similar.
(b) Shorter amortization periods will result in higher pension expense with respect to prior service costs. Depending on whether the company has unrealized gains or losses, the shorter amortization period for the actu- arial differences may result in either higher or lower reported income. On the balance sheet, there will be less non-recognition of the prior service costs and gains and losses. So the net pension asset or liability will be measured closer to the net of the liability and fund assets. The reported amounts on Japanese balance sheets will be more volatile, since the smoothing period is shorter.
(c) As indicated above, income and equity likely will be lower due to higher pension expense and lower net income. If there are significant asset gains (which is possible given the