Senate Takes Steps to Rein In FASB
When the U.S. Senate held hearings on derivatives accounting last fall, Senator Phil Gramm (R-Texas) said the last thing he wanted was congressional involvement in setting accounting standards. But Senator Lauch Faircloth (R-N.C.) has introduced a bill that directly affects accounting standards. The Accurate Accounting Standards Certification Act of 1997 (S 1560) essentially absolves banks from any Financial Accounting Standards Board statements on derivatives unless the appropriate federal banking agency certifies that the FASB standards would (1) help the entity more accurately reflect assets, liabilities and earnings and (2) not diminish the use of risk management practices. In introducing the bill, Faircloth said, In my view, the new standards will throw a wrench into the present accounting rules that will only serve to confuse investors.
Were disappointed that the bill was introduced and were sorry to see this has happened, FASB Chairman Edmund Jenkins told the Journal . He expects he will have an opportunity to discuss the bill with Faircloth and his staff in the future. Congressman Richard H. Baker (R-La.) said he planned to introduce legislation to delay the statements implementation. The FASB had not yet seen Bakers proposed legislation at Journal press time and so could not comment on it specifically, but Jenkins expressed concern over both bills possible impact on the boards independence and objectivity.
In mid-December, the board was still considering comment letters and did not expect to issue a final statement by yearend. We want to make sure that we do a high-quality job, and to do that well have to spend some more time considering the issues, Jenkins said. The primary goal is not to get it out, but to create a quality document. The boards estimate for publication is now late March.
However, the board announced a change in the effective date of the proposal: For calendar-year companies, the standard would be effective January 1, 2000. The previous date was December 15, 1998. The later date will give entities more time to change their systems, according to a statement from the board.
The Senate bill, approximately two pages, can be downloaded from the federal governments THOMAS Web site ( http://thomas.loc.gov/home/thomas.html ).
Materiality Out in Postretirement Statement
The Financial Accounting Standards Board issued a new statement, Employers Disclosures about Pensions and Other Postretirement Benefits , which changes disclosure rules for public and private companies. (See Postretirement ED Reforms Disclosure Rules , JofA, Aug.97.) The key change from the exposure draft is the elimination of the materiality test, according to FASB Practice Fellow Mark Neagle. The ED said certain nonpublic companies might be allowed to use a reduced disclosure set. The final statement makes a simple publicnonpublic distinction, however. The board believes the more rigorous disclosure standards provide greater information but recognizes some information just isnt useful to everyone. Only public companies are required to make a full set of disclosures.
Another significant change from the ED, according to Neagle, deals with the drafts elimination of some requirements in Statements no. 87, Employers Accounting for Pensions , and no. 106, Employers Accounting for Postretirement Benefits Other Than Pensions , to present the components of benefit cost. Some comment letters suggested that in our effort to eliminate certain disclosures, we were going overboard, so those provisions have been reinstated in the final statement.
Sensitivity remains sensitive
When the board approved the ED, the staff suggested that sensitivity analysis would prove the most controversial aspect of the statement, and according to Neagle, that was the case. The ED proposed disclosure of the effects of an increase and decrease in the long-term health care trend rate. Some who commented wondered whether that was useful information, said Neagle. However, the board believes that this disclosure is important, and, accordingly, it remains in the final statement.
This statement is effective for fiscal years beginning after December 15, 1997, with earlier application encouraged. To order a copy, call the FASB order department at 203-847-0700, ext. 555.