The FASB met last week to discuss feedback on its October 2011 proposed Accounting Standards Update (ASU) on technical corrections.¹ In their feedback, respondents noted three primary areas of concern: (1) net appreciation of net plan assets, (2) fair value of net plan assets less costs to sell, and (3) continuing care retirement communities (CCRCs).

Pension Plans

Respondents had concerns about the proposal to require employee benefit plans to disaggregate the net appreciation (depreciation) of plan assets available for plan benefits by “significant class of transaction” for each level of the fair value hierarchy (i.e., Levels 1, 2, and 3). Current guidance only requires disaggregation for Level 1 investments and all other investments.

The Board clarified the requirement (and related illustrative guidance) to indicate that employee benefit plans must disclose net appreciation (depreciation) of (1) Level 1 and (2) all other (i.e., Levels 2 and 3 together) assets by significant class of investment.

The Board also affirmed the proposed amendment under which the fair value of plan assets in ASC 962² (defined contribution benefit plans) would be reduced by costs to sell if such costs are significant. This amendment conforms the subsequent measurement of plan assets under ASC 962 with that under ASC 960 and ASC 965.

Continuing Care Retirement Communities

Nearly half the respondents commented on the proposed amendments to the accounting for refundable advance fees by CCRCs. Some CCRCs account for all refundable advance fees that are contingent on reoccupancy as deferred revenue and amortize that revenue into income over the estimated life of the facility, regardless of whether the refund is limited to the proceeds of reoccupancy. The amendments clarify that accounting for refundable advance fees contingent on reoccupancy as deferred revenue, and amortizing this revenue into income over the estimated life of the facility, is only appropriate to the extent that the refund is limited to the proceeds of reoccupancy.

Respondents indicated that the changes related to CCRCs might be more than “technical corrections” and presented a number of alternatives. However, the Board affirmed the amendments, noting that the proposed amendments would be issued in a separate ASU but that those amendments would not be reexposed. The Board explained that the proposed change had already been exposed publicly in the current proposed ASU as well as proposed by the AICPA in the CCRC chapter of its accounting guide on health care entities.³ In both cases, comments generally focused on the need for transition guidance as opposed to the accounting under the clarified guidance.

Transition, Effective Date, and Next Steps

The Board agreed to provide transition guidance on certain amendments, including those related to (1) debt and equity (paragraph 35 of the proposed ASU), (2) rabbi trusts (paragraph 96 of the proposed ASU), (3) troubled debt restructurings (paragraph 205 of the proposed ASU), and (4) the pension plan items discussed above. The Board also agreed to retain the amendment stating that transition guidance should be applied to certain substantive transactions as of the beginning of the fiscal year of adoption, with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings or other appropriate components of equity or net assets in the statement of financial position. The Board also decided to allow the option of full retrospective application for the specified amendments.

The Board tentatively agreed that the effective date would be fiscal periods beginning after December 15, 2012, for public entities, and fiscal periods beginning after December 15, 2013, for nonpublic entities. Amendments without transition guidance would be effective upon issuance of the final ASU.

The Board decided that the transition for the CCRC amendments should be a cumulative effect of a change in accounting principle as of the earliest period presented and should have the same effective dates as the proposed ASU on technical corrections. Early adoption would be permitted.

The Board is targeting early July for the release of both the ASU on technical corrections and the new ASU on CCRCs.

[1] FASB Proposed Accounting Standards Update, Technical Corrections.

[2] For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s "Titles of Topics and Subtopics in the FASB Accounting Standards Codification."

[3] AICPA Auditing and Accounting Guide Health Care Entities.