General Motors may be in trouble, according to a Wall Street Journal article by Michael Rapoport. Proposed changes to accounting law and regulations might force corporations to report liabilities incurred from pension plans. Current regulations permit organizations to report pension plans as net assets, by stating the difference between pension contributions and pension payouts. However, as Rapoport notes, the current approach fails to accurately account for the total value of the pension plan and therefore might inflate the value of the corporation and its shareholder equity.

             The Financial Accounting Standards Board (FASB) sets the federal rules that would dictate the new changes. Although the proposed accounting regulation changes have yet to be implemented, the FASB is already requiring organizations to list the funding status of pension plans on their annual balance sheets: the difference between pension plan funding and pension plan payouts. However, companies are not forced to report other potential losses incurred through the maintenance of or payouts related to pension plans.

             Rapoport's article refers to a handful of accounting issues, especially those related specifically to company financial statements. Shareholder equity is also referred to throughout the article, entitled "GM Faces a New Threat to its Books." Shareholder equity is basically the absolute value of the organization if it were liquidated and if all creditors were paid off. A financial statement inflated by inaccurate presentation of pension plan values would increase shareholder equity on paper but not in reality, notes Rapoport. GM and corporations like it might be forced to reduce their shareholder equity in light of the changes the FASB proposes, but the result would be more accurate accounting. A company's annual financial statements should ideally reflect the true value or worth of the organization, in order to offer stakeholders and potential investors an accurate portrait.