Accounting for OPEB Costs and Regulatory Assets
Statement on Auditing Standards no. 69, The Meaning of "Present Fairly in Conformity With Generally Accepted Accounting Principles" in the Independent Auditor's Report, identifies Financial Accounting Standards Board emerging issues task force (EITF) consensuses as sources of established generally accepted accounting principles. This month's column lists 1992 and 1993 EITF consensuses adopted from January 21 through May 20, 1993 (see the sidebar on page 95). In addition, three consensuses on FASB Statement no. 106, Employers' Accounting for Post-retirement Benefits Other Than Pensions (OPEB), are summarized: plan assets under FASB Statement no. 106, accounting for OPEB costs by rate-regulated enterprises and accounting for regulatory assets. The summaries are presented below in the order of importance from broad to narrow applicability. EITF Abstracts, copyrighted by the FASB, is available in soft-cover and loose-leaf versions and may be obtained by contacting the FASB order department at 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116. Phone: (203) 847-0700. ISSUE NO. 93-3 Issue no. 93-3, Plan Assets Under FASB Statement No. 106, discusses whether a trust established to pay post-retirement benefits must be determined to be "bankruptcyproof' (that is, the trust assets are insulated from the claims of general creditors in bankruptcy) for the trust assets to qualify as plan assets under Statement no. 106. The protection afforded these plans in bankruptcy proceedings is unclear in many cases and often not easily determinable. The EITF reached a consensus that it is not necessary to determine a trust is bankruptcy-proof for the assets of the trust to quaIify as plan assets under Statement no. 106. However, the EITF also reached a consensus that assets held in a trust that explicitly provides for such assets to be available to the employer's general creditors if the employer enters bankruptcy do not qualify as plan assets under Statement no. 106. Once the trust assets qualify as plan assets under Statement no. 106 and this consensus, they may be offset against the accumulated post-retirement benefit obligation in determining the obligation or asset recognized in the employer's balance sheet. The return on the plan assets also may offset post-retirement benefit cost in the statement of income. ISSUE NO. 92-12 Issue no. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises, is a specialized industry issue. Statement no. 106 permits companies to adopt the standard by recognizing the transition obligation (related to prior service cost) either immediately on adoption or by amortizing the obligation over the employees' average remaining service period or 20 years, whichever is longer. When rate-regulated enterprises adopt Statement no. 106, OPEB costs may increase significantly. Traditionally, regulators allowed costs to be included in rates on a pay-as-you-go basis. The regulators will need some time to decide how these OPEB costs are to be included in rates. Until the regulatory proceedings are concluded, rate-regulated enterprises must decide whether a regulatory asset can be recognized for the difference between OPEB costs under Statement no. 106 and OPEB costs included in rates. FASB Statement no. 71, Accounting for the Effects of Certain Types of Regulation, says costs incurred should be deferred and recognized as a regulatory asset ff it is probable the costs will be recoverable through future revenues resuiting from the rate-making process. The issue is what additional criteria or evidence, if any, is needed for a rate-regulated enterprise to satisfy the Statement no. 71 requirements for recognizing a regulatory asset for Statement no. 106 costs for which rate recovery has been deferred. The EITF reached several consensuses on this issue, all of which apply only to differences arising from the application of Statement no. …