FASB Exposure Draft Indefinitely Defers Certain ESOP Disclosures

Posted by Aaron Juckett, CPA, CPC, QPA, QKA on Mon, May 06, 2013
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Our most recent Update on FASB ESOP Disclosure Requirements Effective in 2012 discussed the April 10, 2013 FASB board meeting and the decision to defer the regulations indefinitely. 

FASB ESOP Disclosure Requirements

FASB Issues Exposure Draft on ESOP Disclosures; Comment Period Open reviews the confidentiality concerns and reiterates that the parties must still comply with elements of the disclosure requirements:

Because the financial statement of an employee benefit plan that covers 100 or more participants is subject to audit under the Employee Retirement Income Security Act, and those audited financial statements are uploaded to the Department of Labor’s (DoL) EFAST2 database, this disclosure requirement has caused some consternation. It means that competitors of a private company, potential acquirers for a company, attorneys looking for potential litigation on the share price, or other potentially adverse parties have unrestricted access to this potentially confidential information.  

This confidentiality issue has prompted FASB to propose an indefinite deferral of the effective date of the quantitative disclosure described above for employer securities. The indefinite deferral recognizes that FASB is able to move on this quickly and is intended to allow time for discussions between the employee benefit plan community and DOL to resolve this issue. Those parties charged with preparing the financial statements and footnotes for the ESOP must still consider the required elements of the disclosures – valuation methodologies, unobservable inputs and the description of the process used by the ESOP fiduciary in arriving at fair value.  The only required item that is proposed to be omitted is the quantification of the unobservable inputs.

FASB Exposure Draft:  Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04 was issued on April 30, 2013 and comments are due on May 31, 2013: 

Summary and Questions for Respondents

Why Is the FASB Issuing This Proposed Accounting Standards Update (Update)?

Stakeholders have raised concerns that certain disclosure requirements in paragraph 820-10-50-2 of the FASB Accounting Standards Codification®, which was effective for nonpublic entities for annual periods beginning after December 15, 2011, would potentially provide proprietary information about nonpublic entities through the dissemination of their employee benefit plans’ financial statements on the regulator’s website.

The amendments in this proposed Update would address those concerns by permitting an indefinite deferral of certain quantitative disclosure requirements in paragraph 820-10-50-2(bbb) for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities.

Who Would Be Affected by the Amendments in This Proposed Update?

The amendments in this proposed Update would apply to certain quantitative disclosure requirements for a nonpublic employee benefit plan that holds investments in its plan sponsor’s own nonpublic entity equity securities and are within the scope of the disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

What Are the Main Provisions?

The amendments in this proposed Update would defer indefinitely the effective  date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative  information about the significant unobservable inputs used in Level 3 fair value measurement for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities. The indefinite deferral is intended to allow time for discussions between the employee benefit plan regulator(s) and stakeholders about the specific quantitative disclosures and their potential effect on the plan sponsor as a result of the public dissemination of proprietary nonpublic employee benefit plan information through posting on the regulator’s website. The amendments in this proposed Update would not defer the effective date for those certain quantitative disclosures for other nonpublic  entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures.

When Would the Amendments Be Effective?

The proposed deferral would be effective upon issuance of the final Update. That final Update is expected to be issued in June 2013.

How Do the Proposed Provisions Compare with International Financial Reporting Standards (IFRS)?

Currently, there are no differences between U.S. GAAP and IFRS as they relate to the content of the required fair value measurement disclosures. IFRS 13, Fair Value Measurement, should be applied for annual periods beginning on or after January 1, 2013, with earlier application permitted. The amendments in Update 2011-04 are effective for public entities during interim and annual periods beginning after December 15, 2011, and effective for nonpublic entities for annual periods beginning after December 15, 2011. The proposed U.S. GAAP amendments would indefinitely defer certain quantitative disclosures for nonpublic employee benefit plans.

Questions for Respondents

The Board invites individuals and organizations to comment on all matters in this proposed Update, particularly on the issues and questions below. Comments are requested from those who agree with the proposed guidance as well as from those who do not agree. Comments are most helpful if they identify and clearly explain the issue or question to which they relate. Those who disagree with the proposed guidance are asked to describe their suggested alternatives, supported by specific reasoning.

Question 1: Do you agree with the indefinite deferral, as well as the Board’s decision to defer for investments held by nonpublic employee benefit plans, only the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement of its plan sponsor’s own nonpublic entity equity securities, and not the qualitative information, required by paragraph 820-10-50-2(bbb)? Why or why not?

Question 2: Do you agree with the limited scope of plan sponsor’s own nonpublic entity equity securities covered by the proposed Update? If not, what other investments should be included or excluded from the guidance in the proposed Update and why?

Question 3: Do you agree with the scope of the employee benefit plans in this proposed Update? If not, which other employee benefit plans should be included or excluded from the guidance in the proposed Update and why?

Question 4: Do you agree with the definition of nonpublic employee benefit plan? Is it understandable and operable?

 

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Topics: rules and regulations, Employee Stock Ownership Plan (ESOP)

Aaron Juckett, CPA, CPC, QPA, QKA
Written by Aaron Juckett, CPA, CPC, QPA, QKA

Aaron is President and Founder of ESOP Partners and provides implementation, administration, and consulting services to hundreds of companies. He is a member of The ESOP Association (TEA) and the National Center for Employee Ownership (NCEO).

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