Academic journal article Journal of Accountancy

Responses to OPEB Proposal

Academic journal article Journal of Accountancy

Responses to OPEB Proposal

Article excerpt


The Financial Accounting Standards Board is receiving suggestions for changes in its exposure draft Employers' Accounting for Postretirement Benefits Other Than Pensions.

Public hearings on the proposed standard were held in October and more are scheduled this month. The American Institute of CPAs, many accounting firms and business advocates have put forward various suggestions for revising the proposal.

The AICPA accounting standards executive committee (AcSEC) unanimously agrees with the draft's position that employers who promise to provide postretirement benefits have created an obligation that meets the definition of liabilities contained in FASB Concept Statement no. 6, Elements of Financial Statements. According to AcSEC, these benefits should be reported in the statement of financial position if the costs can be measured with sufficient reliability. However, the committee also believes the proposal can be simplified and offered a number of recommendations (see AICPA RECOMMENDATIONS).

The Financial Executives Institute (FEI), which earlier this year published the results of a comprehensive field test of the FASB proposal, strongly opposes several of the standard's provisions.

In a letter to the FASB, FEI President P. Norman Roy stated his organization's agreement with the FASB proposal that postretirement benefit costs should be recognized using accrual accounting and that the promise of postretirement benefits results in an obligation for the company to sacrifice future assets to satisfy these costs.

He made clear, however, that the FEI does not agree with the FASB's liability approach since the right to receive postretirement benefits is normally contingent on actual retirement and employers often reserve the right to modify these benefits. And the FEI also claims that postretirement benefits do not meet the definition of a liability contained in FASB Concept Statement no. 6.

The FEI is calling for the following revisions in the FASB's proposal:

* The term "obligation" rather than "liability" should be used.

* Postretirement benefits should be attributed to the full service period, from date of hire to date of expected retirement, based on company experience with the work force as a whole.

* Companies should be allowed to recognize the transition obligation immediately or, alternatively, they should be allowed to elect an amortization period of at least 20 years. …

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