National Grid 2006 Annual Report Download - page 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
FIN 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143,
“Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are conditional on a future
event that may or may not be within the control of the entity. The obligation to perform the asset
retirement activity is unconditional even though the uncertainty exists about the timing and (or)
method of settlement. Uncertainty about the timing and (or) method of settlement of a conditional
asset retirement obligation should be factored into the measurement of the liability when sufficient
information exists. FIN 47 also clarifies when an entity would have sufficient information to reason-
ably estimate the fair value of an asset retirement obligation.
This statement is effective for the Company as of its March 31, 2006 fiscal year end. The
Company recorded a $13 million asset retirement obligation reserve as of March 31, 2006 which
is not material to the Company’s results of operations or its financial position.
SFAS 154
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3.” Previously APB No. 20,
“Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
Statements,” defined the requirements for the accounting and the reporting of a change in
accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial
statements of changes in accounting principle, unless it is impracticable to determine the period-
specific effects of an accounting change on one or more individual prior periods presented, SFAS
No. 154 requires that the new accounting principle be applied to the balances of assets and liabili-
ties as of the beginning of the earliest period for which retrospective application is practicable and
that a corresponding adjustment be made to the opening balance of retained earnings for that
period rather than being reported in an income statement.
SFAS No. 154 becomes effective for fiscal years ending after December 15, 2005. The Company
adopted it as of its March 31, 2006 fiscal year.
FASB Exposure Draft on Pension and Other Post-retirement Benefits
On March 31, 2006, the FASB issued an Exposure Draft of proposed rules on employers'
accounting for defined benefit pensions and other post-retirement benefit plans that would require
employers to fully recognize the plan's funded status on the balance sheet. If adopted as pro-
posed, the new rules would be applied retroactively to prior financial statements presented and be
effective for fiscal years ending after December 15, 2006. The new rules, if adopted as proposed,
may significantly increase the Company’s recorded pension and other postretirement liabilities.
NEP and Niagara Mohawk, as set forth in each of their respective current rate agreements, would
recover the additional pension costs from customers and therefore the costs would be recognized
as a regulatory asset upon adoption. The comment period on this Exposure Draft ended on May
31, 2006. The Company is currently evaluating the Exposure Draft and at this time cannot deter-
mine the full impact that the potential requirements of the Exposure Draft may have on its financial
statements.
17. Reclassifications:
Certain amounts from prior years have been reclassified on the accompanying consolidated finan-
cial statements to conform to the fiscal 2006 presentation. The Company’s consolidated financial
statements for the fiscal year ended March 31, 2006 included out-of-period adjustments. The out-
of-period adjustments had an immaterial impact on reported net income for the fiscal year ended
March 31, 2006. These adjustments were recorded in fiscal year 2006 because they did not meet
the materiality threshold for prior period restatement.
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National Grid USA / Annual Report