25. Amend paragraph 220-10-00-1, by adding the following items to the table, as follows:
220-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
220-10-45-17A |
Amended |
2017-07 |
03/10/2017 |
220-10-55-17B |
Amended |
2017-07 |
03/10/2017 |
220-10-55-17E |
Amended |
2017-07 |
03/10/2017 |
26. Amend paragraph 330-10-00-1, by adding the following items to the table, as follows:
330-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
330-10-55-5 through 55-7 |
Superseded |
2017-07 |
03/10/2017 |
330-10-55-6A |
Added |
2017-07 |
03/10/2017 |
27. Amend paragraph 715-10-00-1, by adding the following items to the table, as follows:
715-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
715-10-05-2 |
Amended |
2017-07 |
03/10/2017 |
715-10-05-4 |
Superseded |
2017-07 |
03/10/2017 |
715-10-05-8 |
Superseded |
2017-07 |
03/10/2017 |
715-10-05-10 |
Superseded |
2017-07 |
03/10/2017 |
28. Amend paragraph 715-20-00-1, by adding the following items to the table, as follows:
715-20-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
Net Periodic Pension Cost |
Amended |
2017-07 |
03/10/2017 |
Public Business Entity |
Added |
2017-07 |
03/10/2017 |
715-20-05-1 through 05-3 |
Amended |
2017-07 |
03/10/2017 |
715-20-45-3A |
Added |
2017-07 |
03/10/2017 |
715-20-50-1 |
Amended |
2017-07 |
03/10/2017 |
715-20-50-5 |
Amended |
2017-07 |
03/10/2017 |
715-20-50-6 |
Amended |
2017-07 |
03/10/2017 |
715-20-55-13 |
Amended |
2017-07 |
03/10/2017 |
715-20-55-17 |
Amended |
2017-07 |
03/10/2017 |
715-20-55-18 |
Amended |
2017-07 |
03/10/2017 |
715-20-65-3 |
Added |
2017-07 |
03/10/2017 |
29. Amend paragraph 715-30-00-1, by adding the following items to the table, as follows:
715-30-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
Actuarial Funding Method |
Superseded |
2017-07 |
03/10/2017 |
Actuarial Gain or Loss |
Superseded |
2017-07 |
03/10/2017 |
Allocated Contract |
Superseded |
2017-07 |
03/10/2017 |
Benefit Approach |
Superseded |
2017-07 |
03/10/2017 |
Contributory Plan |
Superseded |
2017-07 |
03/10/2017 |
Cost- Compensation Approach |
Superseded |
2017-07 |
03/10/2017 |
Funding Method |
Superseded |
2017-07 |
03/10/2017 |
Funding Policy |
Superseded |
2017-07 |
03/10/2017 |
Implicit Approachto Assumptions |
Superseded |
2017-07 |
03/10/2017 |
Net PeriodicPension Cost |
Amended |
2017-07 |
03/10/2017 |
Plan Assets Available for Benefits |
Superseded |
2017-07 |
03/10/2017 |
Sponsor (2nd def.) |
Superseded |
2017-07 |
03/10/2017 |
Unallocated Contract |
Superseded |
2017-07 |
03/10/2017 |
715-30-05-2 |
Amended |
2017-07 |
03/10/2017 |
715-30-05-4 |
Amended |
2017-07 |
03/10/2017 |
715-30-05-5 |
Superseded |
2017-07 |
03/10/2017 |
715-30-05-6 |
Amended |
2017-07 |
03/10/2017 |
715-30-05-7 |
Superseded |
2017-07 |
03/10/2017 |
715-30-05-8 |
Superseded |
2017-07 |
03/10/2017 |
715-30-05-9 |
Amended |
2017-07 |
03/10/2017 |
715-30-05-10 |
Superseded |
2017-07 |
03/10/2017 |
715-30-05-11 |
Superseded |
2017-07 |
03/10/2017 |
715-30-35-7A |
Added |
2017-07 |
03/10/2017 |
715-30-60-2 |
Amended |
2017-07 |
03/10/2017 |
30. Amend paragraph 715-60-00-1, by adding the following items to the table, as follows:
715-60-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
715-60-05-2 |
Amended |
2017-07 |
03/10/2017 |
715-60-05-3 through 05-5 |
Superseded |
2017-07 |
03/10/2017 |
715-60-05-7 |
Amended |
2017-07 |
03/10/2017 |
715-60-05-9 |
Superseded |
2017-07 |
03/10/2017 |
715-60-05-10 |
Superseded |
2017-07 |
03/10/2017 |
715-60-05-11 |
Amended |
2017-07 |
03/10/2017 |
715-60-35-10A |
Added |
2017-07 |
03/10/2017 |
715-60-55-86 |
Amended |
2017-07 |
03/10/2017 |
715-60-55-89 |
Amended |
2017-07 |
03/10/2017 |
715-60-55-92 |
Amended |
2017-07 |
03/10/2017 |
31. Amend paragraph 958-225-00-1, by adding the following item to the table, as follows:
958-225-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
958-225-45-11 |
Amended |
2017-07 |
03/10/2017 |
32. Amend paragraph 958-715-00-1, by adding the following items to the table, as follows:
958-715-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
958-715-45-1 |
Amended |
2017-07 |
03/10/2017 |
958-715-45-2 |
Amended |
2017-07 |
03/10/2017 |
958-715-45-3 |
Added |
2017-07 |
03/10/2017 |
958-715-55-4 |
Amended |
2017-07 |
03/10/2017 |
958-715-55-6 |
Amended |
2017-07 |
03/10/2017 |
958-715-55-7 |
Amended |
2017-07 |
03/10/2017 |
958-715-55-8 |
Superseded |
2017-07 |
03/10/2017 |
33. Amend paragraph 980-715-00-1, by adding the following items to the table, as follows:
980-715-00-1 The following table identifies the changes made to this Subtopic.
Paragraph |
Action |
Accounting Standards Update |
Date |
980-715-15-1 |
Amended |
2017-07 |
03/10/2017 |
980-715-45-1 |
Added |
2017-07 |
03/10/2017 |
980-715-55-10 |
Amended |
2017-07 |
03/10/2017 |
980-715-55-25 |
Amended |
2017-07 |
03/10/2017 |
The amendments in this Update were adopted by the affirmative vote of five members of the Financial Accounting Standards Board. Messrs. Kroeker and Smith dissented.
Mr. Kroeker dissents from the issuance of this Accounting Standards Update because the amendments, in his view, are focused on establishing mandatory distinctions related to financial performance reporting, albeit for a limited population of transactions, rather than providing any meaningful increase in transparency related to postemployment benefit cost.
In Mr. Kroeker's view, the Board should defer finalizing the decisions in this project that mandate fundamental changes in performance reporting until the Board completes work on its broader research project on financial performance reporting–a part of the Board's current, active research agenda. In mandating fundamental performance reporting changes in this piecemeal approach to establishing performance reporting requirements, the Board is creating inconsistencies with other accounting standards and appears to be taking an approach at the standards level that conflicts with certain of the alternatives that the Board is exploring in its Invitation to Comment, Agenda Consultation, which was issued in August 2016.
Reporting Financial Performance (Operating versus Nonoperating Performance)
The shortcomings and inconsistencies created by the approach in this Update are numerous and, in Mr. Kroeker's view, should be considered in a more holistic manner. Furthermore, Mr. Kroeker does not see a compelling reason to immediately mandate the fundamental performance reporting aspects of the amendments in this Update given that current reporting requirements already provide for a disaggregation of the various components of net benefit cost. In doing so, Mr. Kroeker believes that the Board may be creating impediments to addressing more fundamental issues in any future performance reporting project. This is particularly the case when the Board finalizes conclusions in this project that may be inconsistent with conclusions that might be reached in the event a broader project is undertaken; thus, resulting in the need for a reconsideration of the conclusions in this Update.
Comment letter respondents to the proposed Update noted a number of apparent contradictions, inconsistencies, and questions–most focused on the distinction that the Board is creating between operating performance and nonoperating performance. Some of the inconsistencies seem difficult to address or reconcile more broadly and, thus, in Mr. Kroeker's view, call into question the conclusions in this Update.
For example, many comment letter respondents questioned why amortization of prior service cost or credits should be reported outside of operating performance in a manner that is inconsistent with current service cost. Amortization of prior service cost or credit arises from plan amendments, and these increases or decreases in benefits are granted as part of an exchange with employees for their services. Therefore, the Board is creating an inconsistency in mandating reporting economic consequences of granting benefits in one case as operating and in the other as nonoperating. Likewise, many components of pension and other postemployment benefit gains and losses are related to actual or expected changes in the cost of the benefits that have been or will be provided to employees, such as gains or losses that result from changes to salary assumptions, mortality rates, and health care cost trends. Although those amounts reflect changes from estimates made in prior periods, mandating (as required by this Update) that such changes be accounted for outside of operating income seems inconsistent with virtually every other area of existing financial reporting.
In addition, the Board is creating inconsistencies between this standard and other existing standards. For example, costs associated with exit or disposal activities that do not involve a discontinued operation are required, pursuant to existing standards, to be included within income for operations. Likewise, gains and losses on sales of long-lived assets and accretion expense on asset retirement obligations also are required to be included within operating income. The amendments in this Update mandate that the accretion component of net benefit cost and the effects of certain settlements or curtailments other than those accounted for as one-time involuntary termination benefits be reported outside of income from operations. This inconsistency seems further amplified because settlements and curtailments of defined benefit obligations are often incurred in connection with impairments and other exit and disposal activities.
Furthermore, the amendments in this Update create an inconsistency in the way that pension cost is classified in the statement of financial performance when compared with the way pension funding is classified in the statement of cash flows. While Mr. Kroeker is not convinced that the classification between the two statements should in all cases be cohesive, he notes that this notion is being explored in the Board's research on financial performance reporting and, thus, questions whether mandating such classification differences is warranted at this time.
More fundamentally, Mr. Kroeker believes that most of these issues arise because of the absence of a definition or clear concept articulating the basis for mandating distinctions between operating performance and nonoperating performance. Thus, he believes the Board should have deferred the project or limited the scope to only addressing the capitalization of benefit cost. Given these shortcomings, both conceptual and when compared with other existing requirements, Mr. Kroeker believes that the amendments in this Update have the potential to result in more confusing income statement presentation requirements by isolating certain components of net benefit cost and introducing one or more additional line items for other components of net benefit cost. In this respect, the amendments establish a distinction between operating expenses and nonoperating expenses that both differs from and exceeds the guidance required by other accounting standards.
Capitalization of Service Cost
Mr. Kroeker generally agrees with the requirement in this Update that allowing only the service cost component of net periodic benefit cost to be eligible for capitalization could result in an improvement to financial reporting. However, he also is supportive of providing entities with an accounting policy election to capitalize only the service cost component of net benefit cost that would not preclude capitalization of the other components of net benefit cost. This would allow entities flexibility to adapt the capitalization of such postretirement costs to the manner of conducting business with their customers. For example, when the entire amount of net benefit cost is passed on directly to customers (as may be the case because of rate regulation or contract pricing provisions), Mr. Kroeker believes that classifying the components of net benefit cost consistently with the recovery directly from customers results in more decision-useful financial reporting. Another alternative would have been for the Board to provide an exception (rather than a broad accounting policy election) allowing entities in certain industries to continue to capitalize the components of net benefit cost consistently with their recovery of those costs directly from customers.
Mr. Smith dissents from the issuance of this Update because the benefits of the amendments fail to justify the costs for rate-regulated entities. Mr. Smith acknowledges the objections of Mr. Kroeker and agrees with many of his points; however, Mr. Smith also notes that the benefits of the amendments to financial statement users of most companies justify the costs because he does not believe that the costs for most companies will be significant.
Mr. Smith also understands that the costs to implement systems changes for most rate-regulated entities will be significant. The amendments in this Update allow entities to capitalize only the service component of net benefit cost, and, therefore, for most entities that capitalize employee costs, net income will change when the amendments are implemented. However, while the other components of net benefit cost are precluded from being capitalized in property, plant, and equipment for rate-regulated entities, they will be capitalized in regulatory assets because they are an allowable cost. Consequently, net income will change only for the difference (if any) between the amortization period of regulatory assets and the amortization period of property, plant, and equipment and any consequential changes in the allowance for funds used during construction.
Mr. Smith believes that the costs to entities to create this reclassification of the balance sheet (and components of the income statement) do not justify the benefits of the changes of financial information to users. The information about the components of net benefit cost are provided in the notes to the financial statements, which financial statement users can evaluate. For this reason, Mr. Smith would exclude operations subject to Topic 980, Regulated Operations, from the application of the amendments in this Update.
Members of the Financial Accounting Standards Board:
Russell G. Golden, Chairman
James L. Kroeker, Vice Chairman
Christine A. Botosan
Daryl E. Buck
R. Harold Schroeder
Marc A. Siegel
Lawrence W. Smith