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Take Me to the Riverwalk:
How Consulting Actuaries Can Work
with the Accounting Rules and Audit Firms
Session 38

Presenters: Stephen N. Eisenstein, Ernst & Young LLP; James R. Kreamer, KPMG LLP; John T. Stokesbury; Deloitte Consulting LLP
Recorder: Gary Koscielny, Cynomys, Inc.

The session began with an update on the FASB/IASB convergence project which is intended to improve and standardize (converge) employers’ accounting for pensions and OPEBS. Phase 1 of this project for the FASB culminated with the issuance of FAS 158 in September 2006. FAS 158 did not change the calculation of expense but did bring the reporting of the funded status of the plans to the balance sheet. IASB is still working on Phase I with a discussion paper expected by the end of 2007 and a goal of issuing an interim standard by 2010. Issues the IASB are considering include the presentation of expense, smoothing mechanisms (if any), and treatment of settlements and curtailments.

In order to move the project along more quickly, the two organizations have agreed to split responsibilities for certain areas. The IASB will focus on the measurement and recognition of defined benefit promises. The FASB will focus on a) presentation of the components of periodic benefit costs in conjunction with the financial statement reporting framework being developed by the joint financial statement presentation project, b) reporting an employer’s obligations associated with multiemployer plans and c) disclosures about risks in plan assets.

Some tentative decisions have been reached by the IASB. The preferred approach is that all changes in the cost of the plan be presented in the P & L including curtailments and settlements. However, consideration is still being given to leaving some components out, such as the impact of changes in the discount rate or in plan assets.

A number of miscellaneous topics were discussed:

• IAS 19 and asset ceilings – IFRIC Interpretation 14
• Implications of FAS 158 – Two options for dealing with measurement dates that do not align with the fiscal year end.
• Implications of PPA – The PPA yield curve (allows A rated securities) will not work for US GAAP (requires minimum of AA rating).
• SEC guidance on the discount rate – virtually precludes the use of benchmarks in favor of a yield curve approach.
• Differences in selecting the interest rate for GASB 43/45 compared to FAS 158
• Issues in recognition of a curtailment of a SERP
• How to treat the Medicare Part D subsidy (who gets the money – the plan or the plan sponsor?)

Several FAS 106 examples were provided – The first gave an instance when a company eliminated a location resulting in a reduction in the APBO. In the case where the amount of future service was not significant, and the reduction in the APBO was less than the Unrecognized prior service cost, there was no change in the balance sheet liability (Accrued Obligation - this would change under FAS 158) or the P&L. If the change in future service was significant, there was an increase in the P&L charge and the balance sheet liability despite the reduction in APBO.

The Public Company Accounting Oversight Board was created by the Sarbanes –Oxley Act of 2002 to oversee the auditors of public companies in order to protect the interest of investors. A review of the PCAOB findings from inspections of audit papers revealed many comments on the lack of a paper trail or other documentation especially pertaining to assumptions. This was not with the intent of challenging assumptions – rather with documenting how they were arrived at.

Return to the 2007 CCA Annual Meeting Session Summaries