Liquidation Presentation
Liquidation Basis of
Accounting
Health and Welfare Benefit Plans
Background: ASU
July 2, 2012 ASU on Presentation of Financial
Statements (Topic 205) - Liquidation Basis of
Accounting
Currently limited guidance regarding liquidation basis of accounting
Affects all entities following GAAP
Proposed ASU help entities determine how to use liquidation basis of accounting and associated disclosures Background:
Health and Welfare Benefit Plans
Health and welfare benefit plans part of this proposed amendment, as well as defined benefit and contribution pension plans
New accounting treatments applied to determine measurement
Assess how changes will effect affect recognition and disclosures of financial reporting
Recognition: New Provision
Current GAAP
New ASU Proposal
FASB ASC 965-40:
Liquidation basis in year termination decision is made
Paragraph 205-30-25-1:
Liquidation basis accounting when imminent
Does not offer Health and
Welfare Benefit plans any guidance on:
①
②
Determining when liquidation is imminent
When decision to terminate a plan is made
Recognition: Current
Debate
AICPA claims use of “imminent” unnecessary and confusing because “imminent” can refer to:
Process to begin liquidation (could take long time)
To the final liquidation
Suggests FASB to clarify this issue
Example: If regulatory approval, that takes a very long time to complete, is required before fund liquidated, is liquidation considered to be imminent?
Most agree with ASU provision on recognition
Debate over whether “imminent” based on timing or certainty Recognition: “Imminent”
Accounting Standards Update defines liquidation to be imminent if:
A plan of liquidation has been approved by management to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties OR
A plan of liquidation is imposed by outside forces such as involuntary bankruptcy, and the likelihood that the fund
Accounting
Health and Welfare Benefit Plans
Background: ASU
July 2, 2012 ASU on Presentation of Financial
Statements (Topic 205) - Liquidation Basis of
Accounting
Currently limited guidance regarding liquidation basis of accounting
Affects all entities following GAAP
Proposed ASU help entities determine how to use liquidation basis of accounting and associated disclosures Background:
Health and Welfare Benefit Plans
Health and welfare benefit plans part of this proposed amendment, as well as defined benefit and contribution pension plans
New accounting treatments applied to determine measurement
Assess how changes will effect affect recognition and disclosures of financial reporting
Recognition: New Provision
Current GAAP
New ASU Proposal
FASB ASC 965-40:
Liquidation basis in year termination decision is made
Paragraph 205-30-25-1:
Liquidation basis accounting when imminent
Does not offer Health and
Welfare Benefit plans any guidance on:
①
②
Determining when liquidation is imminent
When decision to terminate a plan is made
Recognition: Current
Debate
AICPA claims use of “imminent” unnecessary and confusing because “imminent” can refer to:
Process to begin liquidation (could take long time)
To the final liquidation
Suggests FASB to clarify this issue
Example: If regulatory approval, that takes a very long time to complete, is required before fund liquidated, is liquidation considered to be imminent?
Most agree with ASU provision on recognition
Debate over whether “imminent” based on timing or certainty Recognition: “Imminent”
Accounting Standards Update defines liquidation to be imminent if:
A plan of liquidation has been approved by management to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties OR
A plan of liquidation is imposed by outside forces such as involuntary bankruptcy, and the likelihood that the fund