addition, this chapter will not address additional accounting or reporting requirements for plans of issuers subject to the provisions of the Sarbanes-Oxley Act, the regulations of the SEC, and the rules and standards of PCAOB.
Knowledge check
1 Which authoritative standards are used for the accounting and reporting for nonissuer employee benefit plans?FASB through the codification.SEC and PCAOB.DOL.IRS.
Applicable guidance
Generally accepted auditing standards and accounting principles apply to employee benefit plans. In addition, the AICPA Audit and Accounting Guide Employee Benefit Plans, provides guidance to practitioners on certain accounting, auditing, and reporting matters unique to employee benefit plans.
Defined benefit, defined contribution, and health and welfare are types of employee benefit plans. The objectives of financial reporting for all types of employee benefit plans are to report the resources available to fund participant benefits and the claims on those benefits. Regardless of plan type, employee benefit plan financial statements should include a statement of net assets available for benefits as of the end of the year and a statement of changes in net assets available for benefits. Defined benefit plans have additional statements in connection with disclosing the actuarial present value of accumulated benefits. Common elements in the financial statements of an employee benefit plan include investments, contributions receivable and received, investment income receivable and received, net appreciation (depreciation) in the fair value of investments, benefits paid and expenses paid. Refer to appendixes A– C and B-1–C-1 in this course and appendixes C–F in the Audit and Accounting Guide Employee Benefit Plans for illustrative financial statements and disclosures by plan type.
FASB ASC 960, plan accounting: Defined benefit pension plans
FASB Accounting Standards Codification (ASC) 960 provides guidance on financial accounting and reporting for defined benefit plans and includes the following subtopics:
1 Overall
2 Accumulated Plan Benefits
3 Net Assets Available for Plan Benefits
4 Terminating Plans
5 Presentation of Financial Statements
6 Receivables
7 Investments – Other
8 Property, Plant, and Equipment
FASB ASC 962, plan accounting: Defined contribution pension plans
FASB ASC 962 provides guidance on accounting and reporting for defined contribution plans and includes the following subtopics:
1 Overall
2 Terminating Plans
3 Presentation of Financial Statements
4 Notes to Financial Statements
5 Receivables
6 Investments – Other
FASB ASC 965, Plan accounting: Health & welfare benefit plans
FASB ASC 965 provides guidance on accounting and reporting for health and welfare benefit plans and includes the following subtopics:
1 Overall
2 Net Assets Available for Plan Benefits
3 Plan Benefit Obligations
4 Terminating Plans
5 Presentation of Financial Statements
6 Receivables
7 Investments – Debt and Equity Securities
8 Investments – Other
9 Property, Plant, and Equipment
Fair value measurements
FASB ASC 820, fair value measurement
FASB ASC 820 applies whenever other standards require or permit assets or liabilities to be measured at fair value. This guidance establishes a fair value hierarchy and gives the highest priority to quoted market prices. FASB ASC 820 indicates that the determination of fair value should be based on assumptions (or inputs) market participants would use in pricing the asset or liability. Such inputs can be divided between those that are developed using market data (known as observable inputs) and those for which market data is not available and that the reporting entity develops based on the best information available (known as unobservable inputs). FASB ASC 820-10-35 describes valuation techniques that should be used to measure fair value. The guidance requires that valuation techniques should always maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy in FASB ASC 820 categorizes and prioritizes these inputs into three broad levels, as follows:
Level 1 inputs. Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Quoted market prices in an active market provide the most reliable evidence of fair value and should be used without adjustment to measure fair value whenever available.
Level 2 inputs. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (such as quoted prices for similar assets or liabilities in active markets).
Level 3 inputs. Unobservable inputs used when relevant observable inputs are not available. Unobservable inputs should be developed based on the best information available.
FASB ASC 820-10-50 expands the disclosure requirements for assets and liabilities measured at fair value. Disclosures include the fair value measurements, the hierarchy within which they are categorized, significant transfers between levels, the reasons for those transfers, and the policy for determining when those transfers have occurred. A reconciliation from the opening to closing balances is required for Level 3 measurements. A description of the valuation process and a table for unobservable inputs is also required for Level 3 measurements. Public entities have certain additional disclosures. Readers should consult the full text of FASB ASC 820 and subsequent Accounting Standards Updates (ASUs) for further guidance and disclosure requirements.
Help Desk. In August 2018, FASB issued ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements
