New FAS for not a new plan

[Blinky the 3-eyed Fish]

A DB plan for a small non-profit has been around for nearly 30 years. Their financial statements have been issued with the caveat they are not intented to comply with FAS 87. They simply put the information in accordance with FAS 35 and the aforementioned caveat.

They want to entertain complying with FAS 87 going forward. Any thoughts as to how to accomplish this? Obviously, they are not interested in going back and recreating 20 years of work to get to a starting point.

[AndyH]

I think you just have an adoption date that is current, and create the transition amount as if it were circa 1987. Mutual insurance companies had a mandatory adoption date of only a few years ago, and although there rules had different terminology and some slightly different twists the unfunded PBO versus the accrual was the transition amount. I think this happens all the time.

[david rigby]

Not sure about Andy's suggestion. Creating a transistion "as if it were circa 1987" seems like recreating a pension account for nearly 20 years. I doubt anyone wants to restate financial results for that. This sounds like a change of accounting policy, which is what the transistion is all about, so why not start the transistion now?

Would the organization's auditor have the bigger vote here?

[Guest Texas_Acty]

Not sure about Andy's suggestion. Creating a transistion "as if it were circa 1987" seems like recreating a pension account for nearly 20 years. I doubt anyone wants to restate financial results for that. This sounds like a change of accounting policy, which is what the transistion is all about, so why not start the transistion now?

Would the organization's auditor have the bigger vote here?

The auditors and internal financial people are often agreeable to fresh-starting the accounting presentation, and ignore any transition amount or prior service cost.

[JAY21]

Wouldn't you still potentially have a transition obligation even with a current transition date (assuming plan isn't over funded) adjusted for any accrued liability they might have on the books from the non-FAS 87 approach ?

[Guest Texas_Acty]

Wouldn't you still potentially have a transition obligation even with a current transition date (assuming plan isn't over funded) adjusted for any accrued liability they might have on the books from the non-FAS 87 approach ?

Could be, given the circumstances. In my situations, no liability had ever been carried. Re a transition obligation, since the effective date of FAS 87 compliance should have been in 1985-88, no TO was established, since it would almost certainly have been written down by now.

If a situation existed with the particulars as you described, and the client/auditors were adamant about establishing a TO as of 2005, then your suggested approach would also be valid and reasonable.

[AndyH]

If an accrual exists, how else would the transition be handled? By one year amortization?

I've had many clients that have auditors that take the position that the pension FAS#87 calcs are not material to the financial statements or who do not have audited financials. What is unusual about that? Then one day magically they feel the need to comply with GAAP.

I agree it is the auditor's call but I don't see any options other than whether the transition is $0 or not and what the amortization period is. I don't see any restatement issues unless there were audited financials before and the FAS numbers were not immaterial then perhaps there was a misrepresentation which is a different situation.