FASB Discussing Pension Disclosure, Equity Compensation

November 10, 2003 (PLANSPONSOR.com) - With comment letters pouring in, the Financial Accounting Standards Board (FASB) will hold an open board meeting Tuesday to discuss pension disclosure and equity-based compensation.

The Norwalk, Connecticut-based FASB will discuss comments letters received on the FASB Exposure Draft Employers’ Disclosures about Pensions and Other Postretirement Benefits, redeliberate certain issues, and finalize the disclosures to be included in the final statement at the November 11 meeting, according to a news release.

The proposal was developed in response to concerns expressed by users of financial statements about their need for more information about pension plan assets, obligations, cash flows, and net benefit cost. Users cited the significance of pensions for many entities and the need for more information about economic resources and obligations related to pension plans, according to FASB (See FASB Tightens Pension Reporting Noose ). Intended to address “perceived deficiencies” in disclosures about defined benefit and other postretirement plans, the FASB proposals would require the disclosure of information for each “major category” of plan assets, at the broadest level, equity securities, debt securities, real estate and all other assets for companies that sponsor a pension plan (See  FASB Throws Down Pension Reporting Gauntlet ).  Additionally, disclosure by narrower asset categories and additional information about specific assets within a category would be encouraged if that information is expected to be useful in understanding the investment risks or expected long-term rate of return on assets.


Also on FASB’s docket for tomorrow’s meeting are issues relating to the interaction of FASB Statements Number 123 – Accounting for Stock-Based Compensation – (See FASB Amends FAS 123 ) and Number 150 – Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity – (See  FASB: Certain Debt/Equity Instruments Reflect As Liability ) the measurement attribute for equity-based compensation awards classified as liabilities granted by nonpublic enterprises, and related party transactions.

This comes after the nation’s accounting rulemakers added the project in March 2003 to address issues related to equity-based compensation.   The objective of this project is to cooperate with the International Accounting Standards Board (IASB) to achieve convergence to one single, high-quality global accounting standard on these compensation vehicles. The Board added this project to its agenda because of user concerns, concerns about comparability and the Board’s goal of convergence (See  IASB Backs US Option Accounting Treatment ).

With Europe set to adopt a single set of accounting standards by 2005, the heads of the US and Canadian accounting bodies – Canadian Accounting Standards Board ( AcSB ) – have held meetings with the IASB, which is in charge of developing the global rules. However, the trio of accounting groups still has a long road ahead of them before universal standards are accepted.  Other sticking points include rules governing debt classification, fair value in asset exchanges, and inventory costing.

One point that was clarified in September by the IASB was broad-based employee share-ownership plan costs are to be recorded in the balance sheet at grant date (See  IASB: Share-Based Payment Rules To Stand ).   The decision was handed down by the international accounting rulemaking body as part of an update on the progress of a finalization of ED 2 Share-Based Payment, originally issued in November (See  IASB Releases Option Expensing Proposal ).  Ultimately, the IASB said it now anticipates the final regulations will be published in the first quarter of 2004, with an effective date of January 1, 2005.

Under ED 2 companies would be required to estimate the fair market value of employee share-ownership plans (including shares, options and cash payments) from the date of grant – defined by the IASB as the date the employee accepts the commitment for a share-based payment arrangement.  Companies would then have to disclose how they arrived at the fair value measurement.  The estimation would then be deducted from company profits.