New FASB Rules Could Cut Shareholder Equity by 10%

[papau]

http://www.watsonwyatt.com/news/press.asp?ID=15967
New FASB Rules Could Cut Shareholder Equity by 10%

April 19, 2006 – New pension and other post-employment benefits (OPEB) accounting rules proposed by the Financial Accounting Standards Board (FASB) could cut shareholders’ equity of Fortune 1000 companies by 10%, according to an analysis from Watson Wyatt Worldwide.
While Fortune 1000 firms as a group would lose 10% in shareholders' equity, the median decrease for individual firms in the Fortune 1000 would be 4.8%, according to a news release on the analysis.

The analysis, which projects decreases from 2004 shareholders' equity, found different effects on different industries. Watson Wyatt found that manufacturers of durable goods would see a decrease of 25%, while those in the transportation, communication and utility sectors would see a cut of 13%. Durable manufacturers would be particularly hard hit because many offer both pension and retiree health insurance plans, which both would have to be accounted for on the balance sheet under the proposed rules, the release said. Among the sectors likely to be most affected are car manufacturers, steel makers and airlines.

By contrast, financial services firms would see cuts of only 2%, and mining companies would experience declines of only 3%.

[Kagemusha]

1. I'll say it again....

This equity was fictional in the first place with the stuff that these companies were allowed to get away with in terms of hiding their obligations. Not that a lot of these companies intend to fulfill those obligations if they can at all avoid it through, for instance, a company like GM declaring bankrupcy (to use the layman's term for it).

[papau]

2. Very True - Financial engineering is still going on - but this takes

pensions out of the adjustments that one must do in order to see actual net assets.

[On the Road]

3. The Article Seems to Insinuate

that it's costing the companies money in some way. In reality it's just forcing companies to reverse previous efforts to hide their liabilities on the balance sheet. The tone is so different from the substance, I read it three times to make sure.

This means that the industries experiencing the greatest "impact", such as manufacturing and utilities, are just the ones who had been concealing the most. The financial industry (which coincidentally leans Democratic) seems to have been the cleanest.