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.

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.

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.

Nearly five months after revelations of questionable repurchase accounting at Lehman Brothers, the Financial Accounting Standards Board is taking up a new project to see if it can plug holes in accounting rules that allowed it to happen.

FASB Chairman Robert Herz told the board in a recent regular meeting he is opening a “very targeted scope project” to look at the accounting rules regarding repurchase agreements and any other contractual arrangements where two parties are both entitled to and obligated to an exchange of some kind. Herz said the project is in response to bankruptcy proceedings for Lehman Brothers.

The examiner in the Lehman Brothers bankruptcy proceedings concluded Lehman hid debt by accounting for repurchase agreements as true asset sales, shuffling as much as $50 billion in assets off the balance sheet at key financial reporting intervals. The Securities and Exchange Commission has queried a few dozen other financial institutions to ferret out any similar practices, although a recent study from Audit Analytics suggests the SEC has been at least taking note of the accounting for repurchase agreements for some time.

Herz told the House Financial Services Committee in April that he couldn’t pass judgment on whether the accounting was appropriate, and he didn’t offer any further view on Lehman’s application of the accounting rules when he spoke to the board last week. However, he’s apparently heard and read enough in the nearly five months since the Lehman report emerged to decide the rules need a once over.

“Once we’re made aware that people are trying to structure around specific provisions in the accounting literature, it makes you think about whether those provisions need to be looked at,” he told the board. “We’ve asked the staff to take a look at that and come back with some recommendations in the pretty near term,” he said.

The accounting for repurchase agreements has not changed since 1997, although FASB recently gave companies some significant new guidance on when and how to consolidate entities that otherwise have remained off corporate balance sheets. The board adopted Accounting Standards Updates No. 2009-16 and 2009-17 to eliminate certain off-balance-sheet treatments that enabled significant risks to remain hidden from investors.

With nearly a dozen major changes in accounting coming in the next year, folks in public accounting and finance may be wondering what the heck they’re thinking over at the Financial Accounting Standards Board. Chairman Robert Herz recently gave a window into the thought process in a speech at a recent accounting conference at the University of Southern California.

FASB has dramatically stepped up its joint sessions with the International Accounting Standards Board to hash out the details of nearly a dozen major standards that are due to be finalized in 2011. The original deadline was June 2011 for all the targeted standards, but the boards are updating their plans and deferring at least a few of those projects into the latter part of 2011 to give preparers and users of financial statements a little more time to digest it all.

In part the boards are working to meet a mid-2011 timeline set by the Group of Twenty Nations, who asked the boards to make it a little easier on companies in Brazil, Canada, India, and Korea, as those countries adopt International Financial Reporting Standards in 2011 or 2012. “If at all possible, it would make sense to have the new standards issued before their companies have to make the change to IFRS in order to avoid them having to switch twice,” Herz said, according to his prepared remarks.

But there’s also the pending retirement of IASB Chairman David Tweedie along with the planned departures by retirement or term expirations for five other IASB members. “These people have been at IASB throughout the development of these projects, and board member turnover can significantly delay or change a project,” he said.

Herz said FASB is not merely allowing itself to be dragged on a fast pace to accommodate international concerns. Many of the standards that are changing are long overdue for improvement, he said, and FASB is mindful of its duty to balance the convergence objective with the interests of U.S. investors and the U.S. public. “So our aim is to try to achieve both improvement and convergence together,” he said. “Not always easy.”

The FASB chairman acknowledged the work that is going into the breakneck pace and admitted it can’t continue indefinitely. FASB has never issued more than four major standards in one year and it’s never had more than two to three major exposure drafts out for comment at one time, he said.

“I am proud to say that so far my fellow board members and our staff, both FASB and IASB, have risen to the occasion,” he said. “But I do fear potential burnout, as it’s not so easy to be running a marathon at sprint speed.”

He reminded that the European Union and many other countries have made wholesale adoptions of IFRS and done so successfully. And he acknowledged change can be difficult, but said it will lead to progress if users and preparers work with the board to help get the rule changes right.

“If you care, and I think you should care, get engaged,” he said. “I know there are other priorities and issues beyond accounting and financial reporting that require your attention. But this is important. It matters.

The most important element of an effective compliance training program is constant communication, according to speakers at Compliance Week 2010 taking place this week in Washington.

“It’s never enough,” said Stacey Babson-Smith, vice president and chief ethics and compliance officer for Terex Corp., a U.S. industrial company. “You can never stop talking about it.”

Mary Beth Taylor, assistant general counsel for compliance with U.S. Steel Corp., said constant messaging to employees is critical, regardless of their function or level within the organization. “It’s about people keeping compliance top of mind, all the time,” she said.

At Bertelsmann, a European media company, one of the challenges in developing an effective training program was to reconcile the best ideas in how adults learn with the nature of compliance, said Carsten Tams, a senior vice president and ethics and compliance executive for the company.

Adult learning theory says training should be self-directed, experience-based, interactive, and participatory, said Tams. Compliance, on the other hand, involves mandatory content that is predetermined by regulatory requirements and bright lines that are non-negotiable.

Ultimately, Bertelsmann worked through those differences to come up with a program that is interactive and relies on multiple methods and multiple media. It involves printed, online, and live training, with both passive and active elements. And it provides some “drilldown functionalities,” said Tams, where some content is mandatory for all participants and then some features give trainees options about what to pursue further.

Online training is the most common method employed at Bertelsmann, said Tams. Some 60 percent of the company’s staff is trained via online programs, and it’s the method most preferred by employees as well, he said. “It’s particularly useful in an office environment,” he said. “In our experience it is the most expedient form for participation.”

Terex uses online training as well, but the company also sees a lot of success with its series of business practices summit meetings, said Babson-Smith. Top officers including the CEO, CFO, general counsel, and chief compliance staff meet with 40 to 50 employees at a time several times a year. “It makes a huge difference to people when they see their CEO standing before them and talking to them for eight hours,” she said.

The sessions typically end with a game of “Jeopardy” modeled after the popular television game show, quizzing employees on what they’d learned. Babson-Smith said Terex chose the format because the game show is known and liked in many countries, so it works well in many different cultures.

Taylor said U.S. Steel also relies a great deal on online training, with two online courses annually, but it also presents 50 to 100 live programs annually. “We look for opportunities to do things informally,” she said. The company finds employees are especially receptive to messages that are delivered through less formal channels or processes, she said.

U.S. Steel’s compliance managers routinely provide live training to employees throughout the company. And before the economy tanked, they routinely attended live sessions at the company’s home base in Pittsburgh as well. But with the downturn in the economy, those sessions for compliance managers have migrated to town hall meetings attended both in person and by video conference, Taylor said.

The company also provides weekly written materials through its “Ethics & Compliance Reporter” news bulletin, covering business news that ties in with compliance. “We haven’t had any lack of things to (write about) to send this out on a weekly basis,” she said. “It’s been a good communications tool, a training tool for our compliance managers to use in their discussions with their staff.”

Finance executives are beginning to balk at the enormity of change that is brewing in accounting rules, just as accounting rulemakers are delaying plans to seek input on a full-scale plan for adopting nearly a dozen major new standards.

Financial Executives International sent a letter to the Financial Accounting Standards Board and the International Accounting Standards Board suggesting the two boards slow things down in their breakneck effort to eliminate major differences between U.S. and international accounting rules. The two boards are moving swiftly to achieve a mid-2011 target date to adopt nearly a dozen new accounting standards that would lead to greater convergence of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.

Meanwhile, FASB and IASB have put off plans to seek broad input on when and how it should consider introducing the major changes that are in store. FASB and IASB were scheduled to hammer out a discussion paper that would ask for advice on how to roll out the major standards that are developing, but the dialogue has been tabled. An IASB spokesman said it should be back on the agenda in June or July while an FASB spokesman says it will be early fall 2010.

Arnold Hanish, chairman of FEI’s Committee on Corporate Reporting, said in his letter to the two boards the group is concerned about the “unprecedented volume as well as the complexity of proposed standards” that the two boards are developing. The committee fears the vast scope and aggressive timeline for the proposals will not allow adequate analysis of how the rules will work, which will lead to implementation problems and amendments further down the line.

Hanish calls on the boards to consider advancing no more than three to four proposals at a time to give more time for a thorough analysis. “We believe that showing reasonable, measured, and meaningful progress with clear regard for due process will demonstrate the commitment by the boards to convergence,” he wrote.

In his letter, Hanish says the member companies of the Committee on Corporate Reporting are “extremely concerned with the 10-plus exposure drafts” that are expected through the third quarter of 2010. “During any single period in time in its 38-year history, FASB has had no more than three or four significant EDs out for public comment,” he wrote.

The committee is further concerned that many of the proposals would call for changes that are interrelated, which would make the analysis even more important and at the same time more difficult. As an example, he says, the proposal to rewrite how financial statements are presented will dictate what information preparers must gather under other standards that are also changing. Similar overlap exists with proposals on revenue recognition and leases, and with liabilities and financial instruments.

Hanish says the committee doubts there are adequate technical resources available in industry to study and react to so many proposals at once, and they doubt FASB or IASB has the resources to fully study the feedback and possible consequences of all the proposals as well.

The Financial Accounting Standards Board, whose job is to solve accounting problems by writing new accounting rules, has been accused of stealing an innovative accounting idea.

Silicon Economics filed suit in federal district court in San Jose, Calif., alleging FASB violated antitrust rules and tried to “misappropriate patented technology,” the company said in a statement regarding the suit. According to the company, FASB hijacked Silicon Economics’ patented “EarningsPower Accounting,” billed as a method of accounting that improves the accuracy, validity, and usefulness of financial statements by addressing some of the shortcomings of fair-value accounting.

The company describes itself as a firm that conducts fundamental research and development in finance and accounting and develops and markets technologies that improve economic decision making. It sent a letter to FASB in 2006 touting the merits of the method in response to a request for comments related to FASB’s conceptual framework, which it is writing in collaboration with the International Accounting Standards Board.

SEI says FASB claims the terms and conditions of its Website and e-mail give FASB ownership over ideas that are submitted to the board through its comment process. FASB declined to comment on the suit because it is a pending legal matter.

Bruce Pounder, chairman of the Small Business Financial and Regulatory Affairs Committee for the Institute of Management Accountants, says it’s possible for accounting pioneers to patent management accounting methods, especially in the past decade. The American Institute of Certified Public Accountants has been an ardent opponent of patenting tax strategies.

Audit firms will be getting a bill from audit regulators for a new annual fee, with Big 4 firms paying $100,000 a piece to support the regulatory regime.

The Public Company Accounting Oversight Board has put audit firms on notice that they can expect an invoice in May based on the number of public company audit clients and personnel they have. Payment will be due July 31.

But companies shouldn’t necessarily expect an increase in their audit fees as a direct result of the new fee paid by audit firms. “The fee represents a very small portion of our revenues and operating expenses,” said Ernst & Young spokesman Charlie Perkins.

Firms with more than 500 clients that issue stock in the capital markets and with more than 10,000 personnel will pay $100,000 annually. Mid-tier firms, those with 200 to 500 public company audit clients and more than 1,000 personnel, will pay $25,000, and the remainder of firms will pay $500 annually.

In its release describing the new fee structure, the PCAOB said it is following the directives of Sarbanes-Oxley Section 102, which tells the board to collect a registration fee and an annual fee from each registered firm sufficient to cover the costs of reviewing applications and annual reports.

Firms already pay an application fee when they apply to become registered with the PCAOB and approved to audit public company financial statements. Those fees will remain unchanged, except for an increase from $250 to $500 for firms that apply to become registered but have no public company clients.

New in 2010, however, audit firms will be required to provide annual reports to the PCAOB. The new annual fee is introduced in tandem with the new reporting requirement. Registered firms are required to file an annual report by June 30 providing details on the firm’s issuer audit clients, audit reports, fees, resources, relationships, and acquisitions, among other matters. They also face other special reporting requirements that can be triggered by specific events, like a change in ownership or a regulatory enforcement matter from someone other than the PCAOB.

The new annual fee is intended to cover the PCAOB’s costs in administering all the new reporting, the board said. That includes costs to develop the new online system for registration and reporting, estimated future costs of processing and reviewing applications and reports, and maintaining the online system after application fees are exhausted.

The PCAOB said the fee may be revised in the future depending on how its actual costs vary from its estimates and whether there are changes in the number of registered firms that would pay the fee.

Through the economic crisis, analysts got a stark reminder of how the effect of pension plans and other post-retirement benefit obligations on equity and net income isn’t entirely clear under existing financial reporting requirements, especially in the banking sector.

Moody’s recently published a detailed report on how it planned to adjust financial institution reports for the under-reported effects of pensions and other post-retirement benefit plans to get a better sense of their true economic impact. The agency says the adjustment wouldn’t have an immediate impact on ratings, but it would make the impact on capital and financial results more transparent, the firm said.

Donald Robertson, vice president and senior accounting analyst for Moody’s, said the accounting problems for pension and other post-retirement benefit obligations have been around for a long time. The Financial Accounting Standards Board and the International Accounting Standards Board have been on a long-term journey to revise the accounting to eliminate many of the smoothing mechanisms that have been in place to allow companies to protect their periodic reports from volatility.

International standards generally still allow for more smoothing than U.S. Generally Accepted Accounting Principles, said Robertson. Income statement smoothing mechanisms exist under both IFRS and GAAP, but GAAP requires companies to reflect the funded status of their plans on the balance sheet while that’s optional under IFRS. As a result, Moody’s wanted to develop a methodology for making financial statements more comparable across international borders. The firm has been adjusting corporate financial statements in a standardized way for differences in pension accounting for some time, he said.

Moody’s took a deep dive into the financial statements of 14 major global banks to determine how it would adjust for their differences in reporting. It found significant differences between what banks reported under their relevant accounting rules and what effect the plans were actually having on equity and income.

“The financial crisis has really highlighted the impact that these plans can have on a bank’s equity and net income, after we peel back some of the accounting distortions,” said Robertson. The report, titled “Peering Behind the Curtain of Banks’ Employee Benefit Plan Obligations” is for sale by Moody’s.