FAS 87 Accrued/Prepaid

[Kenny]

I just thought I would share my disagreement with the authors of the EDGE study manual. On page 8:21 of the summary it states that the accrued/prepaid still needs to be calculated to determine the G/L at the end of the year. It isn't necessary to use the A/P you can simply reconcile the g/l for the year.

If you aren't familiar with the A/P calculation there isn't any need to learn it, for this purpose at least.

G/L reconciliation:

(G)/L at end of prior year
+ asset (G)/L [calculated as expected return - actual return]
+ liability (G)/L
- (G)/L recognized in expense
= (G)/L at end of current year

[jrhollow]

Note that the edge author did use the G/L reconciliation to check that they matched the number they backed into using the A/P. Personally, I would know how to do it both ways, since you never know what the SOA is going to provide you on an exam.

[qwyjiboChu]

Also, the SOA exam is likely to include a special event requiring curtailment/settlement accounting at some point. In those cases, the G/L reconciliation can get a whole lot more confusing and using the FAS 87 style (A)PPC is much easier.

Also, FYI I think that some actuarial firms are still showing the (A)PPC in actuarial reports, but referring to it as "Net Contributions in Excess of Net Periodic Benefit Costs" instead of (Accrued)/Prepaid.

[Kenny]

Also, the SOA exam is likely to include a special event requiring curtailment/settlement accounting at some point. In those cases, the G/L reconciliation can get a whole lot more confusing and using the FAS 87 style (A)PPC is much easier.I disagree on its usefulness. I have a client that has settlement accounting every year. I have removed the acc/ppd from that report and from any calculations I might preform. I find no benefit from keeping it when it no longer relates to required accounting and does not aid in completing a calculation.
Also, FYI I think that some actuarial firms are still showing the (A)PPC in actuarial reports, but referring to it as "Net Contributions in Excess of Net Periodic Benefit Costs" instead of (Accrued)/Prepaid.

My guess is those who keep it are doing it because that is what they are familiar with and are having difficulty understanding the transition. (I think posts on the benefitslink DB and COPA list serve make it clear this is likely the case for many people.)

However, this is tangetial to my oringinal point. The point of my original post was to help those who are not familiar with the acc/ppd accounting measures (if you are, then continuing to think in that manner may certainly be helpful). If they confuse you, it is probably not worth your time to learn them. The only time I think they are likely to show up is if we are asked to complete accounting for the year of transition to FAS 158. Of course, I could be wrong, but these exams are all about maximizing useful study time and knowing as much as we can as well as we can. You will never know everything so it can be important to determine what can be left out of the memory banks. (Either that or I think it is likely to show up and I'm trying to screw everyone else to help myself :danim:)

[wooHoo]

The only time I think they are likely to show up is if we are asked to complete accounting for the year of transition to FAS 158.

Please see question 3. Spring 2007.

[Kenny]

Please see question 3. Spring 2007.
Haven't looked at the question, but at that point acc/ppd was still required for some employer's disclosures. That portion of FAS 132/158 was not required for employers w/o publicly traded securities until plan years ending after 6/15/2007. It is now required for all employers filing annual statements and the accrued/prepaid item is no longer a disclosure requirement. Obviously whether we will be tested in this topic is all conjecture on my part. It is possible that we will be tested on something that is no longer applicable to anyone, but I will continue to think it unlikely.

[Kenny]

Please see question 3. Spring 2007.

I just looked at the question and I am confused, were you trying to make my point for me? That is exactly what I was referring to when I said needing to calculate the transition to incorporate 158. At no point in that question did you need to calculate a new accrued/prepaid because the 12/31/2005 acc/ppd was given in the case study.

This is my biggest issue with model solutions, unnecessary work is included and information that might have garnered points is excluded.

[wooHoo]

My point is that is was a 158 transition question.

[EweTupper]

I still calculate Prepaid/Accrueds when I'm doing my accounting work, as a double check that everything is adding up correctly. It can be quite useful when you have alot of one-off events going on. That being said, I shudder whenever someone backs into Unrecognized G/L. Its OK to do as a check, but otherwise you're just asking for a mistake.