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Task Force to Discuss Employee Benefit Plan Changes, Electricity Contracts

The FASB’s Emerging Issues Task Force (EITF) is scheduled to review the feedback submitted on a proposal to simplify the measurement of employee benefit plans and another proposal to exempt some contracts for the future delivery of electricity from following derivatives accounting. The task force also is scheduled to discuss three topics in earlier stages of development.

The FASB’s Emerging Issues Task Force (EITF) on June 18, 2015, plans to discuss five issues, including potential changes to employee benefit plan accounting.

The FASB in April released Proposed Accounting Standards Update (ASU) No. EITF-15C Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Fully Benefit-Responsive Investment Contracts, Plan Investment Disclosures, Measurement Date Practical Expedient — a Consensus of the FASB Emerging Issues Task Force.

The draft guidance is intended to simplify the measurement of employee benefit plans and the disclosures plans are required to make.

The guidance lets the plans employ a provision in ASU No. 2015-04, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, which allows companies to measure retirement plan assets and liabilities as of the last day of the month closest to the end of their fiscal year.ASU No. 2015-04 was published in April and becomes effective for public companies in 2016.

The task force also is scheduled to discuss Proposed ASU No. EITF-15A,Derivatives and Hedging (Topic 815): Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts Within Nodal Energy Markets — a Consensus of the FASB Emerging Issues Task Force. The April proposal is intended to exempt some contracts for the future delivery of electricity from following derivatives accounting.

The proposal says electricity contracts within a type of electricity grid called a nodal market represent physical delivery of the electric current. They would therefore qualify for the normal purchases and normal sales scope exception in Topic 815, Derivatives and Hedging, and would not have to be measured at fair value. The transactions could be accounted for under the accrual method, which is considered less complex than hedge accounting.

A nodal market is an interconnected electricity grid operated by an independent system operator with established price points at each node or hub location.

The three remaining topics are in earlier stages of development, and the task force is expected to decide whether it should recommend forwarding them to the FASB to be released for public comment. The FASB has final say on all EITF decisions.

EITF Issue No. 15-D, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,” aims to determine the effect of derivative contract novations on existing hedge accounting relationships.

In a derivative contract, the term “novation” refers to replacing one party to the derivative contract with another, typically a clearinghouse.A derivative instrument subject to novation may be the designated instrument in a hedge accounting relationship under Topic 815. The issue is whether the novation of a derivative instrument results in a requirement to de-designate that hedging relationship, and, as a result, discontinue the application of hedge accounting.

EITF Issue No. 15-E, “Simplification of Accounting for Embedded Put and Call Options in a Debt Instrument,” attempts to ease the accounting for embedded put and call options.

In EITF Issue No. 15-F, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” the task force plans to examine nine areas of confusion in company cash flow statements, a long-standing source of frustration for investors and a leading cause of company financial restatements.

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