Accounting rulemakers seek more time on pensions

The officials who set U.S. accounting standards on Wednesday sought more time to decide whether to overhaul rules on how companies account for pension plans and stock options; issues that have moved centerstage among corporate America's list of worries.

After receiving several letters asking it to change current pension accounting rules, the Financial Accounting Standards Board directed its staff to prod deeper and find out what specifically corporate America was unhappy with.

FASB also decided it would not debate adding a project on stock option expensing to its agenda until it finished receiving responses to its call for feedback on the issue.

FASB, which sets accounting rules in the U.S., had asked for comment on whether it should follow the footsteps of its European counterparts, which has proposed making stock option expensing mandatory.

In recent months, a tumbling stock market and accounting scandals have pushed stock options and pension woes up on the list of issues demanding attention from companies.

The U.S. stock market — which has been on a downward trend for the third straight year — has left several pension plans underfunded and started cutting into corporate profits. Analysts are also increasingly focusing on overly rosy assumptions about future returns from pension assets, which in turn can minimize the blow to profits.

Last month, FASB Chairman Robert Herz, who maintains that current pension accounting rules are complex and opaque, said in an interview that the board would discuss whether to improve them.

Nevertheless, the board's approach on tackling the hot button issue of pension accounting wasn't without debate at the accounting board's regular meeting at its Norwalk, Connecticut offices on Wednesday.

One board member, Katherine Schipper, for example, said she had little sympathy for analysts who didn't understand the current pension accounting standard but, as the topic became prominent during the downturn, began to point fingers at the rule's “smoothing” attributes, such as allowing companies to spread pension costs over several years

“Where was that person when the stock market was going up?” Schipper asked. “I have no sympathy for that person.”

Other board members suggested a project on pensions would be best approached as a joint project with international accounting standard setters and to perhaps educate Wall Street and investors on pension accounting as part of the initiative.

Pressure has also steadily built on FASB to require all companies to deduct option costs from profits, after a series of accounting scandals and a spate of announcements from companies voluntarily choosing to expense stock options,

Under current accounting rules in the U.S., companies have the option of treating stock options as an expense or simply disclosing it in the footnotes of their annual report. Expensing stock options takes a bite out of profits and as a result, U.S. corporations have bitterly fought any efforts to make that mandatory.

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