8(d). Other
The APC [Accounting Policy Committee] has considered and expresses below its opinions on a number of specific issues affecting financial accounting standards and financial reports. The APC believes that the following items should be included in the single body of accounting concepts, standards, principles and methods: [RMA90, p. 5]
RMA supports comprehensive interperiod allocation of income taxes for all temporary book/tax differences. Because of its emphasis on future cash flow effects, RMA prefers the liability method to the deferred method to account for the tax effect of revenues and expenses that appear on the income statement currently, but which will have tax consequences in the future. [RMA90, p. 8]
Future tax benefits should not be recognized until they are assured beyond a reasonable doubt. In the case of benefits arising from operating loss carryforwards, that assurance is not obtained until such time as the benefits are realized via applying the carryforward to actual taxable income. A company's ability to realize future tax benefits from temporary differences is dependent on so many factors that its determination is better left to the auditors of individual companies than to the standards-setting process. [RMA90, p. 8]
Accounting for pensions and other forms of postemployment benefits should adhere to the methodology employed in FAS 87 for defined benefit pension plans of private sector enterprises. Specifically: [RMA90, p. 8]
a. The cost of providing benefits should be accrued over the working life of the employees covered by the plan(s). [RMA90, p. 8]
b. A single actuarial method should be used in determining plan liabilities and periodic cost. [RMA90, p. 8]
c. There should be internal consistency in the valuation of plan assets and liabilities. [RMA90, p. 8]
d. Standard methodology should be used systematically to recognize:
1) investment gains and losses
2) underwriting gains and losses
3) changes in actuarial assumptions
4) changes in the provisions of the plan [RMA90, p. 8]
e. Adequate disclosure, includes but is not limited to, the major components of periodic cost, the current funding status of the plan including the balances of individual unrecognized amounts, changes arising from business acquisitions or dispositions, and the effect of transition amounts not associated with the current period. [RMA90, p. 8]
There appears to be little reason to require inclusion on the balance sheet of a "minimum liability" computed on a different actuarial method or basis than the one used to determine periodic benefit cost. [RMA90, p. 8]
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Business Activities That Do Not Fit a Manufacturing/Mercantile Accounting Model
The traditional accounting model was developed originally to fit mercantile firms by matching to sales revenue the costs of products sold together with the other periodic costs of running the business. It also was grounded in the concept of the business entity. It was modified, through the aegis of cost accounting to include manufacturing activities. That modification was less than perfect and resulted oftentimes in the need for additional information to be generated outside the accounting system for use in decision making and control. But, for external reporting purposes the fit was considered adequate and is being followed more or less faithfully today even though much business activity takes place for which the traditional accounting model is inadequate. We do not think that it should be discarded or replaced, but we believe that it is in need of some major modifications, as we specify in more detail later. . . . [Also included in 8(b)] [AIMR/FAPC92, p. 16]
In addition to the problem of when to recognize new values at the time of business combinations, we have the old one of when to derecognize values that no longer exist. It is difficult today to find a major company that has not during the three most recent years had at least one major writedown of asset values under the rubric of "restructuring charge" or some similar appellation. More times than not these come as fourth quarter "surprises" to financial analysts. Not only do we need standards that make asset impairment writedowns more predictable, we also find it peculiar that many accountants deem writedowns to be good because they are "conservative" whereas writeups are not. It seems to us that whatever criteria are applied to determine writedowns would be every bit as verifiable and useful if also applied to writeups. [AIMR/FAPC92, p. 16-17]
The matters discussed in this section currently have been and are addressed in several FASB Discussion Memoranda (DMs). We commend the Board for confronting them. Completion of the FASB's work on this subject is needed to eliminate the remarkable conceptual inconsistency in accounting in these areas and its exacerbation by intense business acquisition and combination activity. [Also included in 8(b)] [AIMR/FAPC92, p. 17]
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Although our experience in the securities industry indicates to us that mark-to-market measures lack a good amount of reliability, one exception is marketable equity securities. As they are defined by Statement of Financial Accounting Standards No. 12, "Accounting for Certain Marketable Securities," they have market values that are relatively easily determined by frequent trades in markets of sizable breadth and depth. All but one member of AIMR's Accounting Policy Committee agree that those securities should be reported at market value. In fact, the FAPC recommends that market value replace the lower-of-cost-or-market method currently mandated for those securities. The FAPC's view is based also on the unique characteristic of equity securities that they provide no contractually-specified future cash payments5. Therefore, in their case, expected or hoped-for changes in market value are much if not all of the reason for investing in them. [Also included in 4] [AIMR/FAPC92, p. 25-26]
To improve financial reporting, from an analyst's point of view, [one analyst] recommended . . . the following. . . : [Also included in 1(b), 2(c), 3(a), 15, and 17(d)] [BEAR STEARNS, p. 2]
Improve comparability in the use of accounting principles between companies within the same industry. For example, the transition provision in FASB Statement No. 106 (OPEBs) that allows companies to adopt the Statement either by cumulative adjustment or by recording a transition obligation and amortizing that obligation over a long period of time, results in diminished comparability of otherwise similar companies. [Also included in 2(c) and 15] [BEAR STEARNS, p. 2]