The American Institute of CPAs endorsed the vote by the Governmental Accounting Standards Board on June 25, 2012 to improve existing standards for pension accounting and financial reporting for state and local employers, as well as for governmental pension plans. The GASB released the new standards on Aug. 2.
“The AICPA strongly supports GASB’s efforts to improve transparency related to public pension benefits and their effect on the finances of state and local governments,” AICPA President and CEO Barry C. Melancon, CPA, CGMA, said. “The new GASB standards will benefit users of these financial statements, as well as taxpayers, since state and local governments for the first time will have to report unfunded pension liabilities on their balance sheets providing a clearer view of pension obligations.”
Specifically, the new standards will require governments to report in their financial statements a net pension liability that is equal to the difference between the total pension liability and the value of assets set aside in a pension plan to pay benefits to current employees, retirees and their beneficiaries. Currently, governments must only report as a liability the difference between the contributions they are required to make to a pension plan in a given year versus what they actually funded.
The two standards approved by GASB – Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions – have different implementation dates. The provisions in Statement 67 are effective for periods beginning after June 15, 2013. The provisions in Statement 68 are effective for fiscal years beginning after June 15, 2014.
The AICPA strongly supported the GASB’s efforts to improve the accounting and financial reporting for pensions throughout the standards development process. However, the AICPA did express concerns with several points in the most recent drafts of the standards. One concern was with the GASB’s discount rate proposals because they were overly complex and allowed employers to take credit for future contributions which may not be determined based on objective criteria. Multiple concerns were raised about aspects of the proposals relating to cost-sharing and agent multiple-employer plans. The AICPA also expressed concerns on how cost-sharing and agent employers will obtain sufficient, reliable, and verifiable information on which to base their reporting. While not all of these issues were overcome in the final standards, the issuance of the standards represents a significant improvement overall. Comment letters were developed by the AICPA State and Local Government Expert Panel and cleared by the AICPA Financial Reporting Executive Committee’s Planning Subcommittee. Members of the Expert Panel also testified at three GASB public hearings on this topic and had follow-up discussions with GASB staff.
Now that the GASB has issued the standards, the AICPA’s State and Local Government Expert Panel will carefully analyze the standards to determine appropriate actions and auditor guidance that will be needed. Due to the comprehensive nature of these standards, this effort will likely be ongoing for at least the next year. The AICPA will be communicating the significant implications for preparers and auditors throughout the process including web events; e-mail communications, risk alerts, and articles. Additionally, after completion of the standards analysis and issue evaluation, a significant update will be made to the main source of AICPA guidance in this area—the AICPA Audit and Accounting Guide, State and Local Governments.
More details are available in a June 25 Journal of Accountancy article.