Authoritative Accounting and Reporting Standards For Employee Benefit Plans:

Authoritative Accounting and Reporting Standards For Employee Benefit Plans: FASB Accounting Standards Codification TM The EBPAQC has prepared this document to provide a general understanding of the source of authoritative accounting and reporting standards for employee benefit plans under the FASB Accounting Standards Codification (FASB ASC). The document explains how the FASB ASC is organized, how to reference and use the FASB ASC for employee benefit plan accounting and reporting, how the FASB ASC relates to previously issued standards, and how new authoritative accounting and reporting standards will be issued under the FASB ASC. This document also includes a cross reference listing of the more frequently referenced FASB and AICPA accounting pronouncements for employee benefit plans to the FASB ASC. About the FASB Accounting Standards Codification TM The FASB ASC is the sole source of authoritative generally accepted accounting principles (GAAP) in the United States for nongovernmental entities, including employee benefit plans (in addition to applicable guidance issued by the Securities and Exchange Commission (SEC) for employee benefit plans that file Form 11-K with the SEC). The FASB ASC is a major restructuring of accounting and reporting standards and provides the authoritative accounting and reporting standards in a topically organized structure. The FASB ASC became effective for financial statements issued for interim and annual periods ending after September 15, 2009. (Employee benefit plans with fiscal years ending September 30, 2009 and later will need to use and refer to the FASB ASC in their financial statements.) The FASB ASC is available, after registering online, at http://asc.fasb.org/home and includes a brief overview, tutorial, and cross reference tool. Additionally, the FASB ASC web site has a FASB Accounting Standards Codification Notice to Constituents that explains the scope, structure, and ongoing standards-setting process of the FASB ASC. Authoritative Accounting and Reporting Standards under U.S. Generally Accepted Accounting Principles (GAAP) The FASB ASC establishes a GAAP hierarchy in two levels: an authoritative GAAP level (accounting and reporting requirements included in the FASB ASC) and a non-authoritative level (accounting and reporting requirements not included in the FASB ASC). Previous accounting standards and guidance classified as levels A through C under the old U.S. GAAP hierarchy in Statement on Financial Accounting Standards (SFAS) No. 162, as well as the AICPA Technical Inquiry Section (TIS) section 5100 on software revenue recognition (formerly part of level D GAAP), are incorporated into the FASB ASC. FASB ASC supersedes existing FASB, AICPA, EITF, and related literature. Previous level D GAAP guidance, except for guidance noted above, and all previous level E GAAP are considered non-authoritative and are not included in the FASB ASC. Examples of sources of non-authoritative guidance and literature include 1

FASB Concepts Statements, pronouncements of professional organizations (i.e., AICPA Issues Papers and Technical Practice Aids) and regulatory agencies (i.e., U.S. Department of Labor (DOL) reporting regulations), and practices that are widely prevalent either generally or in the employee benefit plans industry. Proposed changes to the FASB ASC (via FASB ASC Updates) will not be considered authoritative until approved by the FASB and, therefore, are not included in the FASB ASC (see the How New Standards Will Be Issued Under the FASB ASC section below for further discussion of FASB ASC Updates). The FASB ASC also includes references to selected SEC guidance where applicable and is included for reference only. (SEC guidance is relevant to employee benefit plans that file a Form 11-K with the SEC.) Preparers and auditors of SEC Form 11-K filers should refer to the SEC rules and regulations for the most current guidance. The AICPA Audit and Accounting Guide, Employee Benefit Plans (the Guide) includes comprehensive descriptions of and references to authoritative FASB guidance applicable to employee benefit plans and also includes non-authoritative guidance presenting the AICPA Employee Benefit Plans Expert Panel s recommendations on and descriptions of financial accounting and reporting principles and practices for employee benefit plans. SFAS No. 168 states if the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity, then an entity shall first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity and then consider non-authoritative guidance from other sources (the Guide included). An entity shall not follow the accounting treatment specified in accounting guidance for similar transactions or events in cases in which those accounting principles either prohibit the application of the accounting treatment to the particular transaction or event or indicate that the accounting treatment shall not be applied by analogy. The Guide is available at the AICPA Store (cpa2biz.com). Organization of the FASB ASC The FASB ASC is organized by topic, subtopic, section, subsection and paragraph. FASB ASC topics are organized as follows: 100s General Principles 200s Presentation 300s Assets 400s Liabilities 500s Equity 600s Revenue 700s Expenses 800s Broad transactions (such as fair value measurements, related party transactions, subsequent events) 900s Industries (which includes Plan Accounting) The content under each general FASB ASC topic (100s through 800s) includes only information related to that FASB ASC topic. For example, content included in the financial statement presentation FASB ASC 2

topic will include only information related to presentation matters and would not address recognition, measurement and de-recognition matters. The Industries FASB ASC topic (900s) includes industry specific guidance Including related financial statement presentation and disclosure requirements for situations where specialized accounting and reporting applies. Any authoritative guidance that specifically relates to an industry will be included in that industry FASB ASC topic. Specialized Employee Benefit Plan Accounting and Reporting Standards Specialized accounting and reporting guidance for employee benefit plans is included in the FASB ASC 900s topic. FASB ASC 960 addresses defined benefit pension plan accounting and reporting; FASB ASC 962 addresses defined contribution pension plan accounting and reporting, and FASB ASC 965 addresses health and welfare benefit plan accounting and reporting. Employee benefit plan FASB ASC topics are further broken down into the following subtopics: FASB ASC 960 Defined Benefit Pension Plans o 10 Overall o 20 Accumulated Plan Benefits o 30 Net Assets Available for Plan Benefits o 40 Terminating Plans o 205 Presentation of Financial Statements o 310 Receivables o 325 Investments Other o 360 Property, Plant, and Equipment FASB ASC 962 Defined Contribution Pension Plans o 10 Overall o 40 Terminating Plans o 205 Presentation of Financial Statements o 235 Notes to Financial Statements o 310 Receivables o 325 Investments Other FASB ASC 965 Health and Welfare Benefit Plans o 10 Overall o 20 Net Assets Available for Plan Benefits o 30 Plan Benefit Obligations o 40 Terminating Plans o 205 Presentation of Financial Statements o 310 Receivables o 320 Investments Debt and Equity Securities o 325 Investments Other o 360 Property, Plant, and Equipment 3

While the FASB ASC includes specialized industry accounting and reporting standards in the industry topic area, preparers and auditors also need to refer to applicable general accounting and reporting standards in the general FASB ASC topics. For example, specialized guidance on reporting stable value funds for a defined contribution pension plan is found under FASB ASC 962 (Defined Contribution Pension Plans) subtopic 325 (Investments Other). Additional general guidance on fair value measurements related to stable value funds is found under the broad transaction topic FASB ASC 820 (Fair Value Measurements and Disclosures) as employee benefit plans follow the same general reporting and disclosure guidance for fair value measurement of investments as other entities. FASB ASC Codifies Previously Issued Authoritative FASB and AICPA Standards The FASB ASC incorporates previously issued FASB and AICPA accounting standards as applicable. FASB Statements of Accounting Standards, AICPA Statements of Position and other previously issued authoritative accounting standards and guidance are no longer stand-alone documents; rather their contents are codified throughout applicable topics in the FASB ASC. As such, guidance from one previous FASB or AICPA standard may appear in multiple sections of the FASB ASC. For example, the guidance originally issued as SOP 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans, is now located in FASB ASC topics 962 (Defined Contribution Pension Plans) and 965 (Health and Welfare Benefit Plans). The guidance is not only located under multiple FASB ASC topics, but it appears in several places within each topic (for example, the information within topic 962 that came from SOP 94-4 is located under various subtopics, sections, and paragraphs within topic 962.) (See the Cross Referencing to Previously Issued Standards section below for an illustration of where guidance originally issued as SOP 94-4 is located in the FASB ASC.) This classification makes it easier for the user to find the relevant detail information. For instance, if the user is interested only in the required disclosures for fully benefit-responsive investment contracts in a defined contribution pension plan, he or she can go directly to the appropriate section (FASB ASC 962-325-50), where in the past the user would need to review the entire standard (SOP 94-4) to find the relevant information. Cross Referencing to Previously Issued Standards A cross reference tool to assist you in finding where previously issued guidance is located in the FASB ASC is available on the FASB ASC website. The tool allows you to enter the former standard type and number (for example, SOP 94-4), then creates a matrix that shows where that information is located under the FASB ASC. Users should note the cross reference tool uses an as-of approach and does not show standards that solely amended other standards. For example, SFAS No. 139 was a rescission of SFAS No. 53 and amendments to SFAS Nos. 63, 89 and 121. To use the cross reference tool for SFAS No. 139, you would need to go to the standards it amended to find it in the FASB ASC. Below is a screen shot of what you would see when performing a search of SOP 94-4 on the FASB ASC Website. 4

Referencing to the FASB ASC Preparers and auditors should include references to applicable sections of the FASB ASC in their documentation of policies and procedures, technical memorandums, financial statements and filings, and engagement working papers since the underlying financial statements will now reference the FASB ASC. The FASB encourages the use of plain English describing broad accounting topics in the financial statements. For example, when discussing the principles of fair value measurements and the corresponding levels assigned to plan investments in the financial statement disclosures, it is suggested to include the following reference, as required by the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification. The FASB also recommends establishing a consistent referencing approach for items such as working papers, articles, textbooks, and other similar items, such as an approach described below. FASB ASC references begin with FASB ASC followed by the topic number and, if applicable, the subtopic, section, sub-section, and paragraph numbers. A general reference to guidance previously included in a FASB standard (for example, FAS 157 Fair Value Measurements) would cite the applicable 5

FASB ASC (for example, FASB ASC 820 Fair Value Measurements and Disclosures). The following are some examples of referencing the FASB ASC. FASB ASC 820 Fair Value Measurements and Disclosures A broad reference to the entire topic on fair value measurements and disclosures. FASB ASC 820-10-50 A specific reference to the disclosure requirements in FASB ASC 820 (topic Fair Value Measurements and Disclosures, subtopic Overall, section Disclosure) FASB ASC 820-10-50-8 A specific reference to how the fair value information should be presented in the disclosures (topic Fair Value Measurements and Disclosures, subtopic Overall, section Disclosure, paragraph Tabular Format Required) How New Standards Will Be Issued Under the FASB ASC Future changes to accounting and reporting standards will be issued by the FASB as Accounting Standards Updates (ASU) that will be included in the FASB ASC (FASB will no longer issue SFASs, EITFs, etc.) These updates will be sequentially numbered within each calendar year. Each update will include a summary and basis for conclusion and Codification update instructions. The ASUs will be included in the What s New in FASB ASC section of the FASB ASC Website and the FASB ASC content will be simultaneously updated with the issuance of the new ASU. Each FASB ASC subtopic revised will include a table at the beginning of the FASB ASC subtopic outlining all the FASB ASC sections revised by the new update. At the appropriate FASB ASC section/paragraph references, the revisions will be noted as Pending Content in a box with the transition date (effective date) of the new standard. For example, ASU No. 2009-12, Fair Value Measurements and Disclosures, Topic 820, Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) revised FASB ASC 820, Fair Value Measurements and Disclosures (formerly SFAS No. 157); thus, at the beginning of FASB ASC 820-10 (the Overall subtopic), a table is included listing the section and paragraph references where the information is either amended or added. Cross Reference of Original Authoritative Guidance to the FASB ASC Note: The following information is excerpted from Appendix C of the AICPA Audit and Accounting Guide, Employee Benefit Plans, with conforming changes as of March 1, 2009. Cross Reference of FASB and AICPA Accounting Pronouncements to the FASB Accounting Standards Codification (ASC) Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) has disassembled and reassembled thousands of accounting pronouncements (including those of FASB, the Emerging Issues Task Force, and the AICPA) to organize them under approximately 90 topics. Most codified accounting pronouncements were codified into numerous topics; the following list includes the most prevalent and relevant topic(s) discussed in this guide and the specific accounting pronouncement to which it was codified. It is important to remember that the accounting guidance in each of the industry 6

specific topics (in this case 960, 962, & 965) only explain the industry specific guidance for guidance on a topic as it would relate to all entities, consult the appropriate topic in the Codification (for example, receivables). As stated in the FASB ASC Notice to Constituents, "these topics [industries] relate to accounting that is unique to an industry or type of activity." This table provides a cross reference listing of the more frequently referenced FASB and AICPA accounting pronouncements to the FASB ASC. Pronouncement Reference Name FASB ASC Reference Name FASB Statements FASB 5 Accounting for Contingencies 450 Contingencies FASB 35 Accounting and Reporting by Defined Pension Benefit Plans 960 Defined Benefit Pension Plans FASB 102 Statement of Cash Flows Exemption of Certain 230 Statement of Cash Flows Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale an amendment of FASB Statement No. 95 FASB 106 Employers Accounting for Postretirement Benefits Other 715 Compensation Retirement Benefits Than Pensions FASB 112 Employers Accounting for Postemployment Benefits an amendment of FASB Statements No. 5 and 43 712 Compensation Nonretirement Postemployment Benefits FASB 133 Accounting for Derivative Instruments and Hedging 815 Derivatives and Hedging Activities FASB 140 Accounting for Transfers and 860 Transfers and Servicing Servicing of Financial Assets and Extinguishments of Liabilities a replacement of FASB Statement No. 125 FASB 144 Accounting for the Impairment or Disposal of Long-Lived 360 Property, Plant, and Equipment Assets FASB 154 Accounting Changes and Error Corrections a replacement of 250 Accounting Changes and Error Corrections APB Opinion No. 20 and FASB Statement No. 3 FASB 157 Fair Value Measurements 820 Fair Value Measurements and Disclosures 7

FASB 159 The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 825 Financial Instruments AICPA Statements of Position (SOPs) SOP 92-6 (as amended by SOP 01-2) SOP 94-4 (as amended by FASB Staff Position AAG INV- 1 and SOP 94-4-1) SOP 94-6 SOP 99-2 SOP 99-3 Accounting and Reporting by Health and Welfare Benefit Plans Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans Disclosure of Certain Significant Risks and Uncertainties Accounting for and Reporting of Postretirement Medical Benefit (401(h)) Features of Defined Benefit Pension Plans Accounting for and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters 965 Health and Welfare Benefit Plans 962 Defined Contribution Pension Plans 965 Health and Welfare Benefit Plans 275 Risks and Uncertainties 960 Defined Benefit Pension Plans 965 Health and Welfare Benefit Plans 962 Defined Contribution Pension Plans 965 Health and Welfare Benefit Plans Accounting Principles Board (APB) Opinions APB Opinion No. 22 Disclosure of Accounting Policies 235 Notes to Financial Statements FASB Interpretation (FIN) FIN 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 740 Income Taxes 8