The Inner Turmoil of Financial Statement PreparersPosted: July 2, 2012
A number of CPAs in B&I have been fighting mixed feelings since last Thursday. That was the day the Supreme Court came out with its historic ruling on the Patient Protection and Affordable Care Act – better known as Obamacare. I say mixed feelings because, like most CPAs, a significant majority of CPA Financial Statement preparers are conservative in nature and in politics and probably had a particular viewpoint on whether the court should have struck down the law or not. The mixed feelings come in when one considers what those same financial statement preparers – at least any that work for companies that provide retiree health care and therefore have an Other Post Retirement Benefit (OPRB) liability on their books – were looking at having to do if the law was overturned.
First off, the change in the tax effect on any company participating in providing drugs to retirees under the retiree drug subsidy portion of Medicare Part D would have had to be recorded immediately. Striking down the law could have been considered a tax law change and the many charges taken by companies when Obamacare first passed would have to have been reversed.
Second, there were many changes in the law that could impact the assumptions used to develop the OPRB liability. Since these changes were not the result of a change in the company benefit plans they would be considered changes in actuarial assumptions. Usually assumption changes only impact a preparer during the annual update of the OPRB liability, but buried in the standard is a requirement to remeasure the whole liability if the assumption change was significant enough to the company.
And that is where the inner turmoil really started for public company Financial Statement preparers. With the decision coming down on June 28, they would have had a little more than a month to measure the event, determine if it was indeed significant to the company, get the auditors to agree with your judgment (or revisit it if agreement cannot be reached), and then remeasure the liability if the impact was deemed significant. That is a short time to cram in work that normally takes about three months at year-end.
So while the radio show pundits were giving their critique of the Supreme Court and Chief Justice Roberts, many financial statements were secretly breathing a sigh a of relief that this would be a relatively normal quarter-end.