Accounting rulemakers have published another new accounting rule proposal, this one targeting the transparency of multi-employer pension and other post-retirement benefit plans.

The rule would require companies that participate in such plans, such as union pension plans and retirement benefit plans, to provide more information about the fiscal health of the plans they are obligated to support. The Financial Accounting Standards Board, which is proposing the update to the Accounting Standards Codification, says the top 100 multi-employer plans in the United States were underfunded to the tune of $160 billion in 2008, yet current accounting rules make no requirements for companies paying into the plans to explain their obligations related to that mounting deficit to their investors.

Instead companies currently are only required to disclose their historical contributions, FASB said in a summary of the proposal. Companies have told FASB it was difficult in the past to get information from the pension plan sponsors to pass along to investors, but the Pension Protection Act of 2006 increased employers’ access to information about such plans. FASB said companies now can use that data to provide more disclosure to their investors.

FASB’s proposal would require companies to describe the plans they’re obligated to fund on behalf of their employees, the company’s contractual commitment to such funds, and the expected impact on the company’s future cash flow. “We heard from a number of investors and other users of financial statements that existing disclosures do not provide enough information about an employer’s involvement in multi-employer plans, making it hard to evaluate the potential impact on the company,” said board member Larry Smith in a FASB podcast explaining the proposal. The proposal focuses only on disclosure, he said, making no changes to the accounting requirements.

Companies would be required to disclose, for example, the total assets and accumulated benefit obligation of the plan, data depicting the scope of the employer’s participation in the plan, discussion of the contractual arrangement, expected contributions for the next annual period, and any known trends in future contributions. Companies also would be required to give a number to the amount they would have to pay to withdraw from the plan.

FASB is accepting comments on the proposal through Nov. 1, with a target to put the disclosures in place for the 2010 financial statements for calendar-year public companies.

Companies filing financial statements using XBRL will want to take a look at the proposed 2011 taxonomy, which has been updated to reflect the latest changes in accounting standards.

The Financial Accounting Foundation has published the proposed 2011 U.S. GAAP Financial Reporting Taxonomy for a 60-day review and comment period before it is finalized and published in early 2011. The taxonomy contains updates for changes that have occurred since last year in accounting standards as well as continued refinements and improvements in the taxonomy overall.

The taxonomy is a list of computer-readable tags in eXtensible Business Reporting Language that enables companies to precisely tag data in their financial statements. The tagging makes it easy for users of financial information, including investors, analysts, and regulators, to search for, assemble, and process data appearing in financial statements.

The 60-day review provides an opportunity for companies that file their financial statements using XBRL to check the updated taxonomy for any corrections that should be made before it is finalized and put into use in 2011.

While the taxonomy currently used by public companies was developed by an independent research organization promoting the XBRL technology, the Financial Accounting Foundation assumed responsibility in 2010 to update the taxonomy as necessary to reflect changes in U.S. GAAP. FAF is the overseer of the Financial Accounting Standards Board, which determines GAAP for all public companies as well as private and not-for-profit entities in the United States.

The Securities and Exchange Commission began requiring the largest public companies to file their financial information in the XBRL format in 2009, with the requirement further phased in for medium and smaller public companies in 2010 and 2011. The SEC championed XBRL technology to make financial statement information more useful to investors.

When data is tagged through XBRL, it can be downloaded directly into spreadsheets, analyzed in a variety of ways using off-the-shelf software, and used in investment models in other software formats. Investors say the approach leads to greater comparability among public companies.

The Financial Accounting Standards Board has published an update to the Accounting Standards Codification to reflect some technical corrections to guidance from the Securities and Exchange Commission that is included in the Codification.

The update amends various SEC paragraphs based on comments the SEC has received and based on its issuance last summer of Staff Accounting Bulletin No. 112, which itself was something of a correction bulletin.

The nip-and-tuck guidance touches on topics such as the required content for a Form 10-Q, business combinations prior to an initial public offer, costs related to issuing debt in conjunction with a business combination, new basis of accounting, accounting for divestiture of a subsidiary or other business operation, financial statements of oil and gas exchange offers, and amendments to the XBRL financial reporting taxonomy.

The update also strikes out guidance that is no longer consistent with accounting rules that have been adopted in the past several months. SEC guidance that is now obsolete touches on liabilities and loss contingencies assumed in a business combination, a gain recognition on the sale of a business or operating assets to a highly leveraged entity, and adjustments to allowance for loan losses in connection with business combinations.

Despite some heavy duty accounting changes on its agenda, the Financial Accounting Standards Board is still making room for more narrow or industry-specific issues, with several proposals published in just the last week handed up by the board’s Emerging Issues Task Force.

The EITF has been wrestling with how insurance companies should account for deferred acquisition costs, or the costs associated with writing new insurance contracts. Insurers typically recognize many such costs as assets, rolling them into the long-term life of the contract and writing them down over time.

FASB is proposing a change in Topic 944 of the Accounting Standards Codification that would require insurers to expense more of their acquisitions costs directly through the income statement. FASB staff published a draft of the proposed change that it has in mind, but the proposal is not yet in final form.

Mark LaMonte, a managing director at Moody’s Investors Service and a member of the EITF, said the insurance proposal is the most significant of the EITF’s recent proposals. Companies have typically taken a “pretty liberal” approach in deciding which costs should be run through the balance sheet, he said.

The new guidance would allow insurers to capitalize only costs that are “directly related to the origination of successful insurance policies,” he said. The EITF still has more work to do on the proposal before it is ready to invite public comment, but FASB published the staff draft to signal insurers about the direction the rules are headed, he said.

In addition to the changes for insurers, FASB published a proposal for an accounting standards update that addresses how health care entities should account for legal costs associated with medical malpractice and similar types of claims. The board also published a proposal to address how pharmaceutical companies should account for fees paid to the federal government.

Finally, FASB is proposing an accounting standards update related to defined contribution pension plans to change the way companies would account for loans against 401(k) plans. LaMonte said that particular proposal would only affect regulatory filings related to pension plans and would have no effect on financial reporting seen by investors.

Robert Herz says he is retiring early as chairman of the Financial Accounting Standards Board, and at the same time FASB’s overseer is planning to restore two board seats it eliminated only two years ago, altering the composition of the board midway through a critical shakeup in U.S. accounting rules.

Herz offered no reason for leaving his post after eight years, just as FASB is proposing significant changes that would close the biggest gaps between U.S. and international accounting standards. Herz was appointed to a five year-term July 1, 2002, and reappointed for a second term that would have expired June 30, 2012. FASB member Leslie Seidman will take over as acting chairman effective Oct. 1.

The Financial Accounting Foundation also decided it will expand the five-member FASB by appointing two new members by early 2011. FASB operated with seven board members from its inception in 1973 until FAF eliminated two seats in 2008, expecting the smaller size to make the board more nimble.

FAF Chairman Jack Brennan said in a statement the return to a seven-member structure will “enhance the FASB’s investment” in its agenda with the International Accounting Standards Board to converge U.S. and international accounting standards. The expansion will also address “the unprecedented challenges facing the American capital markets in the months and years ahead,” said Brennan.

FASB has issued a number of major – and in many ways controversial – proposals in recent weeks to dramatically alter some fundamental principles in U.S. GAAP. Most of them are driven by the goal to converge U.S. and international accounting rules, to help create a more common financial reporting platform across major capital markets of the world.

Perhaps most contentious is a plan to require banks to report more of their financial instruments at fair value. However, even FASB and IASB couldn’t entirely agree on a new accounting standard, so each board is pursuing separate approaches. FASB’s proposal, published in late May with comments continuing through Sept. 30, was approved by only three of FASB’s current five members.

Herz was one of three board members who supported the proposal, but Seidman and fellow board member Lawrence Smith offered an alternative view that called into question the extent to which the standard would require fair value. The two board members thought in some cases, banks should be allowed to report more of their long-term instruments based on the cash flow they would produce rather than a hypothetical current market value.

Herz took a bruising from Congress at the peak of the financial crisis when members of Congress threatened legislative measures to make some bank-friendly modifications to fair-value requirements. In response, FASB rushed through guidance to allow banks to record some of their most troubled instruments through other comprehensive income rather than reporting losses directly through the income statement.

David Larsen, managing director for financial advisory firm Duff & Phelps and a member of FASB’s Valuation Resource Group, said he had no inside information on Herz’s unsignaled early retirement plans, but the timing raises interesting questions about the future of financial instrument accounting. “Will the financial instruments project be delayed until the new board members come on?” he wondered aloud. “What does this mean?”

He’s also curious about the impact on the convergence movement more broadly. FASB set an aggressive timeline along with the IASB to finalize a host of major new standards by mid-2011, in part to facilitate a decision by the Securities and Exchange Commission on whether and how the United States would eventually switch over to international standards.

SEC Chairman Mary Schapiro published a statement thanking Herz for his service and commending the FAF for increasing FASB’s size from five to seven board members. Brennan also commended Herz for “his strong leadership of FASB in, arguably, the most challenging period in its history.”

Mary Schapiro, chairman of the Securities and Exchange Commission, is drafting a letter to respond to a half dozen U.S. senators who are urging the SEC to do something more about off-balance-sheet accounting maneuvers.

Led by Robert Menendez, a Democrat from New Jersey who serves on the Senate Committee on Finance, the half dozen senators sent Schapiro a letter imploring the SEC to leverage more authority given under Sarbanes-Oxley to require more reporting of off-balance-sheet activities. “While the SEC did issue rules on off-balance-sheet activity pursuant to Sarbanes-Oxley, we are troubled that despite these rules, widespread off-balance-sheet accounting arrangements allowed large financial firms to hide trillions of dollars in obligations from investors, creditors, and regulators,” the senators wrote.

The senators point out some disturbing revelations that they say accounting and disclosure rules permitted to occur off balance sheet—some $1.1 trillion in assets reportedly kept off the books at Citigroup, an investment value plunge of 60 percent in one day for State Street shareholders amid market turmoil in early 2009, and the infamous “Repo 105” transactions at Lehman Brothers that allowed some $50 billion in debt to remain hidden from investors.

The senators call on Schapiro to require companies to disclose period-ending and daily average leverage ratios in quarterly and annual reports, rather than allowing companies to stage attractive period-end snapshots of the company’s financial condition. In addition to enforcement for those who have bent and broken rules, the senators call on the SEC to “put in place these rules that will make it harder for companies to mislead investors and creditors in the future.”

SEC spokesman John Nester said the SEC couldn’t comment on the senators’ letter in advance of a formal response from the chairman. He added, however, “We share the senators’ interest in high-quality disclosure and accounting.”

In 2009, the Financial Accounting Standards Board finalized new standards—Accounting Standards Update No. 2009-17 and No. 2009-16—that took effect with the 2010 reporting year intended to require companies to bring more of their assets parked in certain special purpose entities onto corporate balance sheets.

FASB also opened a project recently to look at the accounting for repurchase agreements, the area that Lehman Brothers bent to the point of breaking to achieve its off-balance-sheet treatment of certain transactions as it spun closer to bankruptcy.

There’s a showdown taking shape between the Financial Accounting Standards Board and corporate legal professionals who still have big problems with FASB’s plan to require more disclosure about certain loss contingencies.

FASB decided to extend the comment period for its latest proposal to require companies to say more in their financial statements about unresolved legal problems that may have an impact on the company’s financial condition. The board voted to extend the Aug. 20 comment deadline to Sept. 20 to give companies more time to study it and voice any concerns they may have.

And they still have plenty, according to the Association of Corporate Counsel, a professional group of corporate attorneys that has repeatedly told FASB greater disclosure of unresolved legal problems is tantamount to laying out the legal strategy for the opponent in a lawsuit. “Another 18 days won’t change our minds,” said Susan Hackett, ACC senior vice president and general counsel in a statement. “ACC and our co-signatories would prefer that FASB spend that time reviewing our comments and reconsidering their proposed changes.”

Chairman Bob Herz said the board decided to extend the comment period because companies have told the board the original 30-day comment period was too short. Companies faced conflicts with quarterly reporting deadlines, other major accounting proposals that require study, and summer vacation plans for key people, said Herz. “The board members heard these concerns and agreed that an extension of the comment period would be helpful to the board’s due process,” he said.

The proposal is FASB’s second attempt to implement new disclosure requirements that would end the last-minute surprises investors sometimes face when companies settle huge legal actions with little or no forewarning. The first proposal in 2008 required companies to provide some estimates of possible outcomes, but FASB’s subsequent proposal stuck closer to requiring companies to provide information that’s otherwise available from public sources, such as court dockets.

Hackett says the proposed new disclosure requirements still would expose companies to greater liability and litigation, and the planned effective date of Dec. 15, 2010, isn’t workable. “These proposals, if codified, will impede rather than encourage responsible and timely reporting,” she said.

Audit regulators have published the latest report cards for three more major audit firms—PricewaterhouseCoopers, Grant Thornton, and BDO Seidman—calling out continued problems with valuations, loan loss allowances, revenue recognition, and impairments.

For PwC, the PCAOB studied parts of 76 different audits and found fault with nine, or 11 percent of the audits it examined. In one instance, the PCAOB said the inspection process led one of the firm’s clients to change its accounting and disclosure practices, though PwC said in its response attached to the report that none of the post-inspection follow-up work led to changes in audit conclusions or restatements of the financial statements.

The PCAOB said PwC failed to properly test the fair value of investment securities or derivatives in four separate audits, leading to insufficient audit evidence to support the audit opinion. Testing problems centered largely around failures to test assumptions and pricing information that was used to value various securities and derivatives, according to the PCAOB’s report.

Inspectors also flogged PwC for failing to check up on audit work performed overseas, an issue the PCAOB raised more recently in a broader practice alert to the entire audit profession. “Issuer G” in PwC’s inspection report had numerous foreign locations accounting for more than 20 percent of the company’s revenue, yet PwC didn’t visit any of those foreign locations or send any if its affiliates in those locations to check up on the reported revenue. Inspectors said the firm put too much faith into the entity-level controls, analytical procedures for a few of the locations, and questions posed to management.

Grant Thornton faced PCAOB scrutiny on 39 audits, with five of those, or 12.8 percent, getting criticism. BDO Seidman’s inspection report noted the PCAOB had issues with eight of the 33 audits studied, for a failure rate of 24 percent.

Inspectors noted that one of BDO’s errors, and more than one of Grant Thornton’s, looked like they could have been material to the client’s financial statements. Both firms said in their response letters that their audit conclusions did not change as a result of the scrutiny and any follow-up audit corrections.

For all three firms, the PCAOB pointed out that auditors had difficulty in meeting the documentation standards of Auditing Standard No. 3, Audit Documentation. The PCAOB often notes in inspection reports that auditors may claim to have performed certain audit procedures, but they’re not in compliance if the work papers do not show adequate documentation of those procedures or other audit evidence to support the audit conclusion.

Accounting standard setters have unveiled their long-promised proposal to require companies to put the assets and liabilities assumed under lease contracts—regardless of how they are structured—on the balance sheet.

The Financial Accounting Standards Board and the International Accounting Standards Board have published a joint proposal to modify both U.S. and international accounting rules so that all lease contracts would be evaluated in the same way, ending the structuring that routinely occurs under existing rules to keep most lease obligations off the balance sheet.

The proposal, described in an IASB summary, says any lease contract would be evaluated under a “right of use” approach, which requires both parties to the lease contract to consider whether someone has gained a “right to use” a particular asset. If so, it appears as an asset on the balance sheet to be amortized, or depreciated, over the life of the obligation. The payment obligation appears on the balance sheet as a liability.

Currently, accounting rules allow leases to be structured as either operating leases or capital leases. A capital lease is treated much like the purchase of an asset, leading to an asset and a liability on the balance sheet, but an operating lease leads only to an expense flowing through the income statement.

FASB and IASB said the new approach would give investors a better picture of an entity’s assets and liabilities, eliminating the current adjustments that investors typically make using disclosures and other information they may find available to them. The boards previously published their plans for revising the lease accounting rules in a discussion paper published in March 2009.

In addition to advancing the boards’ agenda to converge U.S. and international accounting standards, the proposal leads to better accounting, said FASB Chairman Robert Herz. “The proposal is intended to improve the transparency of lease accounting and also decrease its current complexity,” he said in a joint statement.

The two boards are planning outreach activities during the comment period to explain the proposal and get feedback on its workability. Standard setters are looking for companies that are willing to confidentially field test the new rules to better assess costs and benefits and help identify any operational issues.

Ross Prindle, managing director for advisory firm Duff & Phelps and leader of the firm’s real estate and fixed asset services practice, said there are some gray areas in the proposal that will need to be worked out, such as defining a lease and distinguishing it from a services contract, among others.

Prindle said bankers who look at leverage and debt covenants will acclimate to the inevitable flood of assets and liabilities that will appear on the corporate balance sheet. But it remains to be seen how the leasing industry will be affected by the new accounting approach, since off-balance-sheet treatment is one of the key benefits of leasing rather than owning real estate.

“It’s pretty clear that this is going to happen,” Prindle said.

The proposal is open for comment through Dec. 15.

If you’re still straining to keep up with the big changes that are coming in accounting standards, now is a good time to get up to speed before the Financial Accounting Standards Board returns from its summer recess next week to resume its regular meeting agenda.

The FASB took a two-week break from its usual meeting schedule, which lately has consisted of numerous sessions in any given week with its own staff in Norwalk, Conn., and with the International Accounting Standards Board. But the summer holiday comes to an end next week when the board convenes to discuss loss contingencies, a proposed new disclosure framework, and some proposals from the board’s Emerging Issues Task Force.

Although the FASB is a on a fast track to issue a host of major new accounting standards as part of its effort with the IASB to converge U.S. and international rules, the board has coupled that with an effort to get resources out that can help key stakeholders grasp the new era of accounting that is just dawning. In addition to the usual discussion papers and exposure documents laying out the full technical detail of its plans, the board also is publishing user-friendly summaries and producing podcasts and webinars that explain the major new initiatives as they are proposed.

For its planned overhaul of financial statement presentation, for example, the board has produced a webinar that provide s technical overview of a staff draft proposal and a podcast that provides a high-level description of the proposal and describes outreach activities the board is planning to further explain the plan.

To get in touch with changes that are in store for accounting for loss contingencies, the board has produced a two-page, quick-read summary of the proposed new standard and a podcast in which FASB member Tom Linsmeier explains how and why the disclosures around loss contingencies would change.

Working with the IASB, the FASB also has produced a number of materials to help explain the changes coming in fair value measurement and disclosures. The IASB hosted a mini-slideshow and a podcast on measurement and uncertainty, focused primarily on investors’ interests but informative to anyone. The two boards also produced a webinar on the fair value exposure draft giving a high-level overview of the exposure drafts and who they are intended to both improve and eliminate differences in U.S. and international financial reporting.

The FASB also has archived a number of other webcast and webinar events as well as podcasts that explain the changes coming in revenue recognition, financial instruments, and the convergence effort, among others.