FASB extends the Jenkins committee recommendations to the Internet and invites comment.


Model Company Goes Online

FauxCom, Inc., established in 1994, has proved itself a remarkably long-lived company considering it never existed. The AICPA special committee on financial reporting (the Jenkins committee) founded it to illustrate some of the issues in its comprehensive report, Improving Business ReportingA Customer Focus . The committee created FauxComs annual report and an auditors report to cover all of it.

Since the publication of the Jenkins committees report, Internet use has exploded. Many public companies have posted financial data on Web sites and have added special featuressuch as financials that can be downloaded into spreadsheetsthat go beyond what mere paper statements can offer. This prompted the FASBnow under Jenkins leadershipto post the FauxCom information online, and visitors to the site now have access to all the information that was in the comprehensive report, with the addition of hypertext and download features.

The FASBs goal in creating a Web site for FauxCom, as if it were a real company, is to invite comments on the Internets role in business information reporting. The FASB is especially interested in hearing from financial report users, according to Wayne S. Upton, Jr., a FASB senior project manager. It struck us that we might get a lot more feedback if we said, What about this? rather than Heres what everyone else is doingwhat do you think about it? Upton told the Journal . Upton said that a user interested in inventory, for example, can start at the balance sheet and link to note disclosures on accounting policies, inventories and valuation allowances.

Upton has provided an explanatory article to accompany the FauxCom Web site, in which he says the FASB staff encourages companies to experiment with the techniques the FauxCom site illustrates. We really want to get a conversation started, he said. The site includes a reply form.

Financial report users and others can view FauxCom on the FASB site at www.fasb.org . Uptons explanatory article also appears in the FASB Status Report , no. 299. Upton said the FauxCom site had an open comment period and that the FASB may update it from time to time.

Piecemeal Approach to Pensions

For two years, AcSEC and the FASB have been discussing changes in benefit plans accounting without getting to the point of issuing an exposure draft. But AcSEC was determined to release a proposed SOP even if it constituted only one small part of the whole.

Originally, AcSEC had two proposed SOPsone covering 401(h) plans and one on investments, covering such issues as what should be disclosed for master trusts, said Marilee P. Lau, who was chairwoman of the AICPA task force on 401(h) plans. AcSEC combined the SOPs and subsequently added material modifying SOP 92-6, Accounting and Reporting by Health and Welfare Plans . In March, she continued, the FASB raised some objections to portions of the combined SOP. But since the board had cleared the 401(h) material, AcSEC decided to separate it from the combined material and expose only the 401(h) portion for comment.

Small issues for large entities
According to Lau, 401(h) issues generally are found only in very large plans, often in regulated utility-type companies such as oil, water and electric. Basically, 401(h) is a section in the IRC that allows a defined benefit plan to establish a separate account and use that money to pay health and welfare costs. Companies can make a direct contribution into a retirement plan or use excess assets to fund the health care costs. Lau said no guidance for 401(h) accounting exists. The proposed SOP, titled Accounting for and Reporting of 401(h) Features of Defined Benefit Pension Plans , says 401(h) funds are assets of the defined benefit plan but also are a liability owed to the health and welfare plan. The FASB wanted us to make it clear that net assets were available to pay only pension benefits. Lau does not expect much controversy during the exposure period.

A Silver Anniversary

In 1973, Reginald H. Jones, chairman of the board of General Electric, said the U.S. business community needed to build a bridge between the publics high expectations of business and low opinion of its accomplishments. He was speaking at the FASBs inaugural dinner. The board took up the challenge, and today the FASB still is serving as that bridge. Said FASB Chairman Edmund L. Jenkins, I believe, in the last 25 years, the FASB has brought credibility to financial reporting. He pointed out the popularity of U.S. markets: Foreign companies are clamoring to raise money in our markets because of our lower costs of capital. This is in no small part due to our credible financial reporting system.

A system that works
Dennis R. Beresford, Jenkins immediate predecessor, shared with the Journal some of his thoughts about the FASB. Ive often said facetiously that everyone supports the FASB as the least bad alternative. But hardly anyone really wants the government to take over FASBs job. The business community realizes that everyone gets to participate in the process, and thats been the FASBs great strength. All parties get their day in court.

Even as the world moves slowly toward unified international accounting standards, Beresford believes the FASB will continue to be the leading player in setting those standards.

The entire accounting profession should be proud of the FASB, he said. Through task forces and comment letters, so many people involve themselves in the process. Many tend to think of the FASB as just seven individuals, but you can credit the boards success to everyone who participates.

Those interested in more reflections on the boards history and role should turn to Jenkins article about the founding of the board in the FASBs Status Report , issue no. 299. Jenkins will be writing more on the FASBs history in the Status Report throughout the year.


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