Liquidation Presentation

Liquidation Basis of
Accounting
Health and Welfare Benefit Plans

Background: ASU
 July 2, 2012 ASU on Presentation of Financial
Statements (Topic 205) - Liquidation Basis of
Accounting

 Currently limited guidance regarding liquidation basis of accounting

 Affects all entities following GAAP
 Proposed ASU help entities determine how to use liquidation basis of accounting and associated disclosures Background:

Health and Welfare Benefit Plans

 Health and welfare benefit plans part of this proposed amendment, as well as defined benefit and contribution pension plans

 New accounting treatments applied to determine measurement

 Assess how changes will effect affect recognition and disclosures of financial reporting

Recognition: New Provision
Current GAAP

New ASU Proposal

 FASB ASC 965-40:
Liquidation basis in year termination decision is made

 Paragraph 205-30-25-1:
Liquidation basis accounting when imminent

 Does not offer Health and
Welfare Benefit plans any guidance on:
①
②

Determining when liquidation is imminent
When decision to terminate a plan is made

Recognition: Current
Debate
 AICPA claims use of “imminent” unnecessary and confusing because “imminent” can refer to:
 Process to begin liquidation (could take long time)
 To the final liquidation

 Suggests FASB to clarify this issue
 Example: If regulatory approval, that takes a very long time to complete, is required before fund liquidated, is liquidation considered to be imminent?

 Most agree with ASU provision on recognition
 Debate over whether “imminent” based on timing or certainty Recognition: “Imminent”
 Accounting Standards Update defines liquidation to be imminent if:
 A plan of liquidation has been approved by management to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties OR

 A plan of liquidation is imposed by outside forces such as involuntary bankruptcy, and the likelihood that the fund