By Michael Edwards
As part of its initiative to reduce the complexity of accounting standards (the Simplification Initiative), FASB has issued Accounting Standards Update (ASU) No. 2015-04, “Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” The ASU gives an entity whose year-end does not coincide with a month end (typically referred to as a 52/53 week fiscal year or “4-4-5” entities) the ability to measure defined benefit plan assets and obligations using the month end closest to the entities year end. The ASU should be prospectively applied.
The month end closest to the year-end should be used on a consistent basis and applied to all plans if the entity has more than one plan. If a significant event (for instance, a plan amendment, settlement, or curtailment that calls for remeasurement) occurs between the month end used to measure the plans assets and obligations and the entities fiscal year end, the entity should adjust the measurement of the plans assets and obligations to reflect the effects of the significant event. Events that occur but are not caused by the entity (i.e. changes in fair value or interest rates) do not qualify as a significant event. If a significant event does occur, the ASU permits the entity to use the month end statement closest to the date of the event to remeasure the plan assets and obligations.
If the ASU is applied by the entity, and a contribution is made by the entity from the time of measurement and its fiscal year end, the entity does not have to adjust the value of each class of plan assets for the effect of the contribution. Rather, it can disclose the amount of the contribution in order for the reader of the statements to reconcile the fair value of the classes of the plan assets fair value hierarchy to the ending balance of the plan assets on the balance sheet. The entity is required to disclose the accounting policy election and the date used to measure the plan assets and obligations.
ASU 2015-04 is effective for public business entities whose fiscal years begin after December 15, 2015, and interim periods within those fiscal years. For all other entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted.
Michael Edwards attended Appalachian State University, where he graduated with a Bachelor of Science in Business Administration, concentration in Accounting. He later graduated Magna Cum Laude with a Master of Science in Accounting. Michael has over 10 years of experience assisting privately- held and not-for-profit companies in the areas of accounting and auditing. As one of the firm’s Audit Managers, Michael specializes in accounting and audit services where he assists clients in the preparation of timely audited financial statements. He specializes in manufacturing and the non-profit sectors, and he his experience brings value- added experience to the clients he serves. He is a member of the American Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants.