In response to complaints received by various industry and Congressional leaders, the FASB directed its staff to begin an investigation into current pension accounting rules to determine if they are too vague and possibly being abused by corporate America.
Findings by the FASB staff will then be reviewed by a newly created FASB advisory group composed of stock and bond analysts at Wall Street firms, hedge funds, rating agencies, lenders, pension funds and others in February, to determine if a change is needed in the current regulations.
Previously the FASB advisory committee came up divided on whether pension rules need to be changed. Board members disagreed on whether or to what degree the rules should be changed.
While some board members believed the accounting standard is fine the way it is, others urged an overhaul, proposing a joint effort with the International Accounting Standards Board (IASB) to take on pension funding issues.
The IASB and FASB are currently working on a joint project to standardize up to 17 accounting standards.
The current rule governing pension accounting standards, FAS No 87, has come under fire for some its language regarding “smoothing.” Smoothing allows companies to take certain assets and obligations off balance sheets and amortize them as income or expenses over time. Additionally, companies may be allowed to report the expected return on assets, instead of actual losses and gains.
“What’s of concern is delayed recognition of various problems a company might have experienced,” said S&P credit analyst Scott Sprinzen. “There might have been a big disappointment in some way, but instead of taking a hit, the impact is stretched out over many years.”
Companies may like to hide the various problems, Sprinzen added, but analysts take a different view.
Sprizen said while the S&P does not have a better model to put forward, he thinks questions raised about pension accounting are worth investigating (see also Here Today, Gone Tomorrow? ).