SFAS 132 Interim Financial Reports

[Guest BDZ]

For purposes of illustrating the components of the Net Periodic Benefit Cost for the Interim Financial Reports (9 and 10) of the Revised SFAS 132, is it normal practice to revise the calculation using updated asset and census data as well as changes in market rates or should we merely pro-rate projected values? We have projected the Net Periodic Benefit Cost through 12/31/2004 and intend to merely pro-rate our calculations as of 3/31/2004. However, I would like to get a 2nd (or 3rd) opinion. Thank you very much!

[MGB]

If there is an event (e.g., curtailment or amendment) that requires a remeasurement, you would have updated numbers. In the case of a remeasurement, the quarterly numbers for the remainder of the year are adjusted for the updated remeasurement.

Without that situation, everything is known at the beginning of the year and should be the same each quarter. However, for some the valuation may not be completed by the end of a quarter. The main value* that is not known until this valuation is complete is the service cost. An estimate is used for the quarters until this figure is known. Then, most auditors require the remaining quarters to reflect the updated numbers such that the total for the year is correct, rather than restating the earlier quarters to be the correct one-fourth amount.

* The other number is the PBO that will generate the gain/loss amortization for the year and the interest cost. There are two schools of thought on whether this should be updated with the valuation. The first school says that whatever was disclosed at the end of the prior year is used and not changed. The second school says that you should use updated PBO numbers from the current valuation even though they do not match what was previously disclosed. I am in the first school. That is because an accounting estimate (which is what a PBO is) should not be changed retroactively without reissuing prior financial statements. Without such a reissuance, the disclosed PBO should be used. Reissuing the prior number may be warranted if the newly calculated numbers are significantly different.

[Guest flogger]

I agree with MGB. Of course all gains/losses come out in the wash in the long run, even if they are significantly different.