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question tabby pet foods recently acquired smartee pet toys in auditingsmartee 39 s 4276599


Tabby Pet Foods recently acquired Smartee Pet Toys. In auditingSmartee's accounting records, Richard Conti, internal audit managerfor Tabby, discovered that the new subsidiary had not beenaccounting for the pension assets and liabilities as required underFASB ASC 715-30-35-22. The net present value of Smartee's pensionassets is $15.5 million, the vested benefit obligation is $12.9million and the projected benefit obligation is $17.4 million.Richard reported this finding to Bob Winkler, CEO of Tabby PetFoods. A few days later, Bob called Richard and asked him for someadvice on the pension fund of Smartee. Bob asked Richard if thenegative income effect of the pension dilemma could be eliminatedby terminating all the nonvested employees before the end of thefiscal year. From this information, answer the following:

What should Richard's answer be to the accounting question ofterminating the nonvested employees before the end of the year?

What, if any, ethical issues do you see with the approach ofterminating nonvested employees prior to the end of the year?


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