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Rules Rule When Principals Ignore Principles

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Try as it may to steer in the direction of principles-based accounting standards, FASB seems too frequently to feel that old drag of the current toward the Niagara of its rules-based mindset.

Watch, for instance, its deliberations toward supposedly improving pension asset allocation disclosures. (See the discussion beginning on page 7 of the February 13 Board Meeting Handout.)

Mind you, the current condition of employers’ pension disclosures leave much to be desired. You’ll not find more than a handful of people in the entire world who have a better collection of pension and OPEB disclosure data from 10-Ks than I have at my fingertips, so I speak from experience when I nod at the complaints that the existing pension asset allocation information by and large is of very limited value, if at all. But the direction in which the Board’s project is headed is badly misguided, piling on complicated rules and costs without any promise of improving the value of the disclosures.

The existing principles under SFAS 132R are more than sufficient until more fully vetted through phase two of the Board’s comprehensive pension accounting project, if only companies and their auditors would follow those principles. SFAS 132R does not require solely the disclosure of asset allocations in equities, fixed income instruments, real estate, and other investments, as FASB itself has finally noticed too many companies have been allowed by their auditors to get away with. The standard already states “shall include, but is not limited to….” Like the rhetorical question goes, which of those words is not being understood?

But before FASB itself can complain, it ought look in the mirror: if the Board says what it means and means what it says, then there ought be no need for even a staff bulletin to expand or clarify SFAS 132R. This current FASB action is reminiscent of those silly, wasteful highway signs that command drivers, “Obey all traffic signs.” Like the driver who simplifies everything by disobeying that sign, where is the requirement to make auditors follow any new FASB staff guidance or amendment of the standard, if SFAS 132R is not being implemented properly as it stands?

Just one practitioner’s opinion, but not only is this proposed action unnecessary, but it has no promise of being any more effective than the underlying standard unless and until disclosures actually apply the standard that in and of itself ought have already been sufficient as it stands, without amendment or clarification.

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Written by macheide

20 February 2008 at 4:02 pm

Posted in άctuary

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