Less is More

Proposed Changes to Employee Benefit Plan Financial Statements May Allow Certain Private Company Information to Remain Private.

By Jason Emery, Audit Senior Manager
May 2013

In response to concerns by stakeholders that certain disclosure requirements in paragraph 820-10-50-2 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification may reveal otherwise private information about nonpublic entities, the FASB has issued an Exposure Draft of a proposed amendment to Accounting Standards Update (ASU) 2011-04.

Certain nonpublic employee benefit plans that are not subject to the Securities and Exchange Commission’s requirement to file an annual report on Form 11-K and that hold their own nonpublic equity securities as investments (such as in a 401(k) plan or an ESOP) are directly impacted.  As a result of the current disclosure requirements, certain quantitative fair value disclosures for Level 3 assets under paragraph 820-10-50-2, specifically key assumptions used by a nonpublic plan to value its stock, may publically reveal information about the financial condition of the plan sponsor due to the financial statements of the plan being available on the US Department of Labor’s website.  This formerly private information could prove useful for companies in similar lines of business or in direct competition with the plan sponsor.

Consequently, the proposed amendment to ASU 2011-04 is aimed at providing an indefinite deferral of the quantitative disclosure requirements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities.  The indefinite deferral of these disclosure requirements is intended to allow time for discussion among the employee benefit plan regulators and stakeholders to discuss the nature of the specific disclosures in addition to weighing the costs and benefits of such disclosures.  The deferral would not apply to nonpublic benefit plans that hold other nonpublic equity securities in their investment portfolio, nor would it eliminate the current qualitative disclosures required for level 2 and 3 investments.  The FASB determined that investments in other nonpublic equity securities would not be considered proprietary to the plan and that required qualitative disclosures do not reveal proprietary information of the plan sponsor.

The update would not create new accounting guidance, and the FASB does not believe that entities would incur significant additional costs as a result of the update.  Comments on the Exposure Draft are due by May 31, 2013.  The final update is expected to be issued in June 2013.

For more information, please call your BNN advisor or Jason Emery.

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