Emergent frameworks in global finance: Accounting standards and German supplementary pensions

Adoption of international and U.S. financial accounting standards by leadin g German corporations presages a new era in European capital markets, with important implications for the design and management of German supplementar y pensions. In this paper, we first introduce financial accounting standard s boards, the evolution of U.S. pension accounting standards since ERISA (1 974), and the introduction of FASB 87, We emphasize the quiet campaign by n ational and international accounting professionals to harmonize corporate a ccounting and the measurement of pension liabilities to accepted internatio nal standards. Using data collected from 1998 annual reports for German fir ms in the DAX 30 index, we report on and explain the adoption of internatio nal accounting standards by large German firms. This takes us to an analysi s of the scope and significance of corporate pension liabilities. Noting th e connection between accounting standards and global capital markets, we id entify the implications of harmonization of German supplementary pension an d retirement benefit systems for the mechanisms of financing benefits, the valuation of assets and liabilities, and the advantages and disadvantages o f defined benefit as opposed to defined contribution plans. In combination, we show that historical differences between the Anglo-American system of c orporate governance and the German system of entrenched management within i nterlocking boards of supervision and the representation of stakeholders' i nterests are now less compelling than assumed.