New FASB Rules Could Cut Shareholder Equity by 10%

While Fortune 1000 firms as a group would lose 10% in shareholders’ equity, the median decrease for individual firms in the Fortune 1000 would be 4.8%, according to a news release on the analysis.

The analysis, which projects decreases from 2004 shareholders’ equity, found different effects on different industries.   Watson Wyatt found that manufacturers of durable goods would see a decrease of 25%, while those in the transportation, communication and utility sectors would see a cut of 13%.   Durable manufacturers would be particularly hard hit because many offer both pension and retiree health insurance plans, which both would have to be accounted for on the balance sheet under the proposed rules, the release said. Among the sectors likely to be most affected are car manufacturers, steel makers and airlines.

By contrast, financial services firms would see cuts of only 2%, and mining companies would experience declines of only 3%.

“These rules could have a deeper impact than just changing accounting practices,” said Alan Glickstein, national practice leader for policies and processes in Watson Wyatt’s retirement practice, in the release. “In the long run, they could cause many companies to rethink plan investment policies and other pension details.”

The FASB issued its proposed rules on March 31 (See FASB Issues Proposed Accounting Changes for Pensions and OPEB ) and is receiving public comment until May 31.   Comments on the proposed rules can be submitted by email to director@fasb.org , File Reference No. 1025-300, or by regular mail to the “Technical Director—File Reference No. 1025-300,” Financial Accounting Standards Board 401 Merritt 7, PO Box 5116,Norwalk,Connecticut06856-5116.