At first glance, I would say this is long overdue:
The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before.
In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that they will wipe out the net worth of the company.
The panel, the Financial Accounting Standards Board, said the new method, which it plans to issue today for public comment, would address a widespread complaint about the current pension accounting method: that it exposes shareholders and employees to billions of dollars in risks that they cannot easily see or evaluate. The new accounting rule would also apply to retirees’ health plans and other benefits.
A member of the accounting board, George Batavick, said, “We took on this project because the current accounting standards just don’t provide complete information about these obligations.”***
Using information in the footnotes of Ford’s 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford’s balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford’s retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment.
Applying the same method to General Motors’ balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued.
I don;t know how this would impact the overall stock market in the short run, but it appears that in the long run this would be a change towards more healthy accounting practices. You business folks can correct me if I am wrong.