Accounting and reporting by health and welfare benefit plans.Statement on Auditing Standards no. 69, The Meaning of "Present Fairly in Conformity With Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting " in the Independent Auditor's Report Auditor's Report Recorded in the annual report, the auditor's report tests to see that a corporation's financial statements comply with GAAP. This is sometimes referred to as the clean opinion. Notes: Most auditor's reports consist of three paragraphs. , identifies American Institute of CPAs statements of position (SOPs) as sources qt' established generally accepted accounting principles. This month's column summarizes SOP no. 92-6, Accounting and Reporting by Health and Welfare Benefit Plans, which is available both as a separate pamphlet pamphlet, short unbound or paper-bound book of from 64 to 96 pages. The pamphlet gained popularity as an instrument of religious or political controversy, giving the author and reader full benefit of freedom of the press. (product no. 014869JA) and in the AICPA AICPA See American Institute of Certified Public Accountants (AICPA). Technical Practice Aids and Audit and Accounting Guides loose-leaf services. For pricing and ordering information, contact the AICPA order department, JA1092, P.O. Box 1003, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , New York 10108-1003. Phone: 1-800-862-4272. SOP NO. 92-6 On August 3, 1992, the AICPA accounting standards division released SOP no. 92-6, which provides guidance on accounting and reporting by health and welfare benefit plans. It amends AMENDS. A satisfaction, given by a wrong doer to the party injured for a wrong committed. 1 Lilly's Reg. 81. 2. By statute 24 Geo. II. c. 44, in England, and by similar statutes in some of the United States, justices of the peace, upon being notified of an and will eventually supersede To obliterate, replace, make void, or useless. Supersede means to take the place of, as by reason of superior worth or right. A recently enacted statute that repeals an older law is said to supersede the prior legislation. chapter 4 of the AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans. The SOP is effective for audits of financial statements of single-employer plans with more than 500 participants for plan years beginning after December 15, 1992, and for single-employer plans with 500 or fewer participants and multiemployer plans for plan years beginning after December 15, 1994, and December 15, 1995, respectively. SOP no. 92-6 originated as part of the AICPA employee benefit plans committee's project to revise the guide, which began in 1988. Because of the many complex accounting and reporting issues involved with health and welfare plans, including those related to postemployment benefits other than pensions, the committee decided in 1990 to address health and welfare benefit plans in a separate project. When the revised guide was issued on March 31, 1991, the chapter on health and welfare benefit plans was unchanged from the 1983 guide pending the issuance of this SOP. SOP no. 92-6 describes generally accepted accounting principles that are particularly important to defined-benefit and defined-contribution health and welfare plans, including detailed guidance on the various financial statement elements by plan type and the related accounting and reporting requirements. It also has * Information on arrangements with insurance companies. * Information on terminating plans. * Background information related to the nature of health and welfare plans. * An appendix illustrating certain applications of SOP no. 92-6 provisions to the annual financial statements of two hypothetical health and welfare benefit plans that have assets in underlying trusts. SOP no. 92-6 makes a number of changes to and clarifications of existing accounting and reporting requirements for health and welfare benefit plans, many of which relate to postemployment benefits other than pensions. The related accounting and reporting requirements outlined in the SOP are consistent with those of FASB Statement FASB Statement A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting no. 106, Employers Accounting for Post-retirement Benefits Other Than Pensions. While Statement no. 106 does not apply to health and welfare benefit plans, the SOP adopts certain of its measurement concepts. The most significant changes or clarifications in accounting and reporting requirements set forth in the guide include the following: * Defined-contribution health and welfare plans are distinguished from defined-benefit health and welfare plans and a description of each is provided. Generally, defined-contribution health and welfare plans maintain an individual account for each plan participant. The benefits a plan participant will receive are limited to participant and employer contributions plus or minus investment experience, less expenses, plus any forfeitures allocated to the participant's account. Defined-benefit health and welfare plans specify a determinable Liable to come to an end upon the happening of a certain contingency. Susceptible of being determined, found out, definitely decided upon, or settled. determinable adj. benefit, which may be in the form of a reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. to the covered plan participant or a direct payment to providers or third-party insurers for the cost of specified services. * The financial reporting objective of a defined-benefit health and welfare plan has been clarified and is the same as the financial reporting objective of a defined-benefit pension plan defined-benefit pension plan A pension plan in which retirement benefits rather than contributions into the plan are specified. Thus, a retired employee who has reached a certain age with a given number of years of service and has earned a certain income is ; each type of plan provides a determinable benefit. Accordingly, the primary objective of a defined-benefit health and welfare plan's financial statements is to provide financial information useful in assessing the plan's present and future ability to pay its benefit obligations when due. To accomplish that objective, a plan's financial statements should provide information about (a) plan resources and the manner in which the stewardship responsibility for those resources has been discharged, (b) benefit obligations, (c) the results of transactions and events affecting the information about those resources and obligations and (d) other factors necessary for users to understand the information provided. * Single-employer, multiemployer and multiple-employer defined-benefit health and welfare plans should separately report benefit obligations, including postretirement benefit obligations, determined under Statement no. 106. Benefit obligations should include the actuarial present value In actuarial science, an actuarial present value can be defined as the present value of a contingent event. In the field of life insurance, one can think of this as the market value of an insurance policy given some interest rate. , as applicable, of claims payable, insurance premiums payable, active participants' claims incurred but not reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. to the plan (IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant ), active participants' accumulated eligibflity credits and postretirement benefits. Certain information about benefit obligations should be presented on the face of one or more financial statements. Note disclosure is not appropriate. * The requirement to recognize IBNR has been clarified. For a self-funded plan, the IBNR cost should be measured at the present value, as practicable, of the plan's estimated ultimate cost of settling the claims. Estimated ultimate costs should reflect the plan's obligation to pay claims to or for participants (for example, continuing health coverage or long-term disability), regardless of employment status, beyond the financial statement date pursuant to the plan's provisions or regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. . * The SOP clarifies that benefit obligations should not include death benefits actuarially expected to be paid during participants' active service period. * The calculation of the obligation for accumulated eligibility credits has been clarified. This benefit obligation generally is determined by applying current insurance premium rates or, for a self-funded plan, the average cost of benefits per eligible participant, to accumulated eligibility credits. In either case, the calculation should consider assumptions on mortality rates and the probability of employee turnover. By SUSAN W. HICKS Hicks , Edward 1780-1849. American painter of primitive works, notably The Peaceable Kingdom, of which nearly 100 versions exist. , CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , technical manager, of the AICPA federal government division. Edited by LINDA A. VOLKERT, CPA, technical manager, of the AICPA technical information division. * SAS (1) (SAS Institute Inc., Cary, NC, www.sas.com) A software company that specializes in data warehousing and decision support software based on the SAS System. Founded in 1976, SAS is one of the world's largest privately held software companies. See SAS System. NO. 69 identifies SOPs as sources of established GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . * SOP NO. 92-6 amends chapter 4 of the AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans. Significant amendments include 1. Distinguishing between defined-contribution and defined-benefit health and welfare plans. 2. Clarifying the financial reporting objective of defined-benefit health and welfare plans. 3. Adopting certain measurement concepts of FASB Statement no. 106, Employers' Accounting for Postretirement Benefits Other Than Pansions, to postretirement benefit obligations. 4. Requiring separate reporting on the face of one or more financial statements for defined-benefit health and welfare plans' benefit obligations. 5. Clarifying IBNR recognition requirements. 6. Excluding from benefit obligations death benefits actuarially expected to be paid during the active service period of participants. 7. Considering mortality and expected employee turnover assumptions in the calculation of the accumulated eligibility credits obligation. |
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