The American Institute of Certified Public Accounting (AICPA), state societies of Certified Public Accountants and accounting firms have expressed the views of many in the profession in comment letters published on the Financial Accounting Standards Board's (FASB) web site on the Exposure Draft of the Proposed Statement, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. Unlike businesses and the investing community who have concentrated on the impact of the new standard on the bottom line and shareholder value, accountants have questioned the hidden costs of moving the pension liability information to the balance sheet, the effective date and the measurement date for value of the portfolio. They are also concerned with the scope of the proposed standard and the Board's short deadline for adoption.
While the authors of the comment letters agree with speakers at FASB's June 27 roundtable that work of the pension audit will not increase, according to Reuters, James L. Fuehrmeyer, Jr., who signed the comment letter for the Accounting Principles Committee of the Illinois CPA Society, predicts that the measurement date will result in heavy workloads for actuarial firms. The Illinois Society recommends that the Board allow flexibility in the timing of actuarial valuations in the first year of adoption, with application retroactive to the first quarter of the year.
The Illinois Committee notes that some plans have assets, like real estate, that may not be easily valued at one date and asks that the Board provide examples of assets for which valuation could be done at an earlier date.
The AICPA's Accounting Standards Executive Committee (AcSEC) say in their comment letter on FASB's Web site that the change in the employer's measurement date is a âdiscrete itemâ that could be done in the second stage of the pension accounting revisions. âFrom a practical standpoint,â says Ben Neuhausen, writing for AcSEC, âmoving the elimination of provisions that permit measuring plan assets and benefit obligations at a date that is up to three months earlier than the date of the employer's statement of financial position to [phase two] would simplify the implementation of this proposed Statement. This practical consideration takes on added importance given the Board's aggressive timetable for completion and mandatory adoption of this proposed Statement.â
The Accounting and Auditing Committee of the Pennsylvania Institute of CPAs (PICPA) agrees with the Illinois CPA Society that the measurement date would not change the cost of auditing pension plans but could shift the timing of the costs. They also agree that a surge in demand for actuarial services at the end of the year could result in higher costs for these services. The Committee expressed concern that changing the measurement date could impact loan covenants for sponsor employers.
BDO Seidman LLP agrees with the FASB in their letter that it is time to âcomprehensively reconsider" employers' accounting for defined benefit retirement plans, but says âwe believe that the FASB has loaded the ED with too much baggage, such that it will be unnecessarily costly and disruptive to implement.â In particular, the letter objects to the timing of the statement and the implementation date. âIt is untypical of the Board, and inappropriate in our opinion, to give these employers so little time to remedy their contract compliance issues.â BDO Seidman recommends the Board delay the measurement date requirement for one year and allow the possibility of a date earlier in the year.
Employers who prepare budgets in the fall will be able to lock in pension costs at the same time, the BDO Seidman letter says. Other companies will be able to manage the timing of contracts with health care providers. The firm directs inquiries to Ben Neuhausen of the AICPA.
The Illinois CPA Society closes its letter challenging âthe wisdom of instituting changes over short periods of time during a period where there is increased scrutiny of the profession and concern over the quality of financial reporting. Actions taken over short time frames are inherently more likely to result in errors and subsequent restatements for their correction resulting in âcostsâ to the reputation of those involved.â
James A. Klein of the American Benefits Council criticized the FASB in testimony before the U.S. Senate, according to CCH.com saying âit seems ill-advised to make dramatic changes regarding balance sheet recognition of obligation measures during Phase 1 since those measures will need to be revisited during Phase 2.â Klein recommended that the two phases of the project be combined into one comprehensive review.