The Financial Accounting Standards Board has proposed three accounting standards updates related to employee benefit plans and another update for electricity contracts.
One exposure draft was released last Thursday outlining three proposed standards updates for benefit plan accounting. FASB’s Emerging Issues Task Force issued the proposed update to reduce complexity in employee benefit plan accounting as part of FASB’s Simplification Initiative to reduce cost and complexity in accounting. The proposed update relates to Topic 962 , Plan Accounting—Defined Contribution Pension Plans, and Topic 965 , Plan Accounting—Health and Welfare Benefit Plans, which require fully benefit-responsive investment contracts to be measured at contract value.
The current standards also require an adjustment to reconcile contract value to fair value, when those measures differ, on the face of the plan financial statements. FASB said that some stakeholders have suggested that requiring, for the purposes of presentation and disclosure, fully benefit-responsive investment contracts to be measured at fair value does not provide useful information for decisions when fair value differs from contract value. The American Institute of CPAs, for example, has suggested to FASB that contract value is the relevant measurement attribute for those contracts because that is the amount that participants would normally receive if they were to initiate permitted transactions (such as withdrawals) under the terms of the underlying plan. Those contracts also are reported at contract value for regulatory reporting.
FASB’s proposed accounting standards update would designate contract value as the only required measure for fully benefit-responsive investments contracts, which maintains the relevant information while reducing the cost and complexity of reporting for fully benefit - responsive investment contracts.
FASB also issued a separate exposure draft last Thursday on electricity contracts. The amendments in the proposed update would specify that the use of locational marginal pricing by an independent system operator does not constitute net settlement of a contract for the purchase or sale of electricity on a forward basis for delivery to a location within a nodal energy market, even in scenarios in which legal title to the associated electricity is conveyed to the independent system operator during transmission. The use of locational marginal pricing by the independent system operator would not cause that contract to fail to meet the physical delivery criterion of the normal purchases and normal sales scope exception. If the physical delivery criterion is met, along with all of the other criteria of the normal purchases and normal sales scope exception, an entity could elect to designate that contract as a normal purchase or normal sale.
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