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By John F. Burke, CPA, The CPA Journal

It all started with the Jenkins Committee report, Improving Business Reporting--A Customer Focus, in December 1994. One of its recommendations was that "Standard setters should search for and eliminate less relevant disclosures." FASB responded by issuing a prospectus, Disclosure Effectiveness, in July 1995. At the time, the stated objective of the exercise was to obtain comments and encourage research on disclosure related issues, such as cost effectiveness, information overload, and the role of the accounting profession in providing useful information to investors and other financial statement users. Respondents generally supported a project to improve disclosure effectiveness and some suggested that pensions, other postretirement benefits, income taxes, and leases were good candidates for special attention. In January 1996, the board's advisory council got into the act with several members suggesting that the board adopt an inductive approach to the project by evaluating the requirements for disclosure about pensions and other postretirement benefits. An ad-hoc committee agreed to look at pensions as an example, and at the some time the board approved a multitrack approach that included looking at materiality considerations in evaluating disclosures. In October 1996, the board decided to proceed with the inductive approach to determine whether disclosures in this specific area could be improved and, if so, whether any of the approaches undertaken
could be applied to other accounting topics.

The result of all this was the issuance in June 1997 of an exposure draft of a proposed statement on Employers' Disclosures About Pensions and Other Postretirement Benefits and amendment of FASB Statements No. 87, 88, and 106. Comments were due by September 30, 1997. The statement would be effective for fiscal years beginning after December 15, 1997, with earlier application encouraged. The statement is on a fast track.

The draft statement covers disclosures only and standardizes those for SFAS Nos. 87 and 106 to the extent possible. It suggests a parallel format for presenting information about pensions and other postretirement benefits and eliminates, adds, and changes various disclosures, including optional reduced disclosures for nonpublic entities that qualify.

Surprisingly, for this writer anyway, the first thing eliminated was the requirement to provide a description of the plan. The board's rationale for this was their belief that these disclosures provide only limited useful information and such information is generally available from other sources. To me, requiring a description of the plan just makes common sense, and I believe the board has been unduly influenced by analysts on this one.

Other eliminated disclosures relate to disaggregated disclosures for plans with accumulated pension benefit obligations that exceed plan assets, disaggregate contributions to multiemployer plans, and alternative measures of the benefit obligation.

The main addition is a requirement to disclose changes in the benefit obligation including amendments, acquisitions, divestitures, actuarial gains and losses, and benefits paid. Other additions include disclosure of contributions by employers and participants, amounts recognized as
intangible assets, other comprehensive income, and accumulated other comprehensive income.

The changed requirements involve disclosures about the health-care trend rate, including the effects of decreases as well as increases.

Nonpublic entities will have the option to publish reduced disclosures if unrecognized amounts are less than five percent of equity or unrestricted net assets. The board did consider whether a materiality threshold should apply to public companies. While agreeing that net income was the most relevant element for publicly traded companies, the board concluded a precise threshold in terms of net income was not practical because of the natural volatility of net income. Therefore, the proposed statement has no materiality threshold for public companies.

Where does the board go from here on disclosure effectiveness? Its hard to say. The board is still committed to consider the recommendations of the Jenkins committee, and with Ed Jenkins now the chairman of the FASB, it appears it will follow through to the end. However, on the limited scope project of disclosure effectiveness, it may have come to the end of the line. It considered materiality and got nowhere. The changes being made are more like technical corrections and appear to have limited application to other standards. Has thephant labored and brought forth a mouse?

Douglas R. Carmichael, PhD, CPA
Baruch College

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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