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Action Alert No. 03-33
August 20, 2003
NOTICE OF MEETINGS
OPEN BOARD MEETING
Wednesday, August 27, 2003, 9:00 a.m.
- Business
combinations: purchase method procedures. The Board will
discuss the outcome of its meeting on August 12, 2003, with
members of the financial statement user community. Specifically,
the Board will discuss certain existing and proposed business
combination disclosures and proposals for the display of
noncontrolling interests in the consolidated financial statements.
(Estimated 60-minute discussion.)
- Stock-based
compensation. The Board will discuss accounting for
modifications and settlements of stock-based compensation awards.
The Board also will discuss other issues, including whether the
scope of the proposed standard will cover equity interests in
unincorporated entities. (Estimated 90-minute discussion.)
- Financial
instruments: liabilities and equity. The Board will
discuss whether to reconsider whether nonpublic entities should be
exempt from applying, or given further time to apply, the
provisions of FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity, requiring mandatorily redeemable shares to be
classified as liabilities. (Estimated 30-minute
discussion.)
- Fair
value measurement. The Board will discuss proposed
clarifications to the guidance for using present value to estimate
fair value in FASB Concepts Statement No. 7, Using Cash Flow
Information and Present Value in Accounting Measurements.
(Estimated 60-minute discussion.)
- Open discussion. If necessary, the Board will allow
time to discuss minor issues with staff members on technical
projects or administrative matters. Those discussions are held
following regular Board meetings as topics come up.
OPEN EDUCATION SESSION
The Board has not scheduled any educational, non-decision-making
sessions for the week of August 25, 2003. If the Board should decide
to add an educational session, that information will be posted to
the FASB calendar
as soon as possible.
OPEN MEETING WITH REPRESENTATIVES OF THE NEW YORK SOCIETY OF
SECURITY ANALYSTS
Monday, August 25, 2003, 1:00 p.m.
The Board will meet with representatives of the Committee for
Improved Corporate Reporting of the New York Society of Security
Analysts to discuss matters of mutual interest.
OPEN ROUNDTABLE DISCUSSION ON QUALIFYING SPECIAL-PURPOSE ENTITIES
AND ISOLATION OF TRANSFERRED ASSETS
Thursday, August 28, 2003, 9:00 a.m. – noon and 1:30 p.m. –
4:30 p.m.
The Board will hold a public roundtable meeting with respondents
to the June 10, 2003 FASB Exposure Draft, Qualifying
Special-Purpose Entities and Isolation of Transferred Assets, to
discuss various aspects of that document.
BOARD ACTIONS
The Board Actions are provided for the information and
convenience of constituents who want to follow the Board’s
deliberations. All of the conclusions reported are tentative and may
be changed at future Board meetings. Decisions are included in an
Exposure Draft for formal comment only after a formal written
ballot. Decisions in an Exposure Draft may be (and often are)
changed in redeliberations based on information provided to the
Board in comment letters, at public hearings, and through other
communication channels. Decisions become final only after a formal
written ballot to issue a final Statement or Interpretation.
August 12, 2003 Board Meeting
Business
combinations: purchase method procedures. The Board met with
members of the financial statement user community and others to
discuss issues related to (1) the accounting, presentation, and
disclosure of minority (noncontrolling) interests and (2)
disclosures for a business combination. The meeting was educational,
and no decisions were reached.
August 13, 2003 Board Meeting
Stock-based
compensation. The Board discussed several issues relating to
the definition of grant date and the accounting for and attribution
of stock-based compensation arrangements classified as liabilities.
The Board reached the following decisions with respect to those
issues:
- The definition of grant date in FASB Statement No. 123,
Accounting for Stock-Based Compensation, will be retained.
- The guidance in paragraph 39 of Statement 123 will be retained
and subsequently revised, if necessary, based on the outcome of
the Board’s deliberations in phase two of its project on
liabilities and equity.
- The guidance in FASB Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, with
respect to stock-based compensation awards with tax net-settlement
features will be retained.
- The guidance on cashless exercises found in EITF Issue No.
00-23, “Issues Related to the Accounting for Stock Compensation
under APB Opinion No. 25 and FASB Interpretation No. 44,” will be
retained.
- Stock-based compensation arrangements with characteristics
similar to financial instruments classified as liabilities under
FASB Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, will be classified as liabilities.
- For public entities, stock-based compensation liabilities will
be accounted for using fair value as the measurement attribute.
The Board will consider this issue as it relates to nonpublic
entities at a subsequent meeting.
- Stock-based compensation liabilities will be attributed
according to the method established in FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans, with the initial grant-date fair
value of stock-based compensation liabilities and subsequent
fluctuations in value characterized as compensation cost.
- The guidance in paragraph 39 as well as illustrations 7 and 8
of Statement 123 with respect to measurement and attribution of
stock-based compensation arrangements with multiple settlement
features will be retained and subsequently revised, if necessary,
based on the outcome of the Board’s deliberations in phase two of
its project on liabilities and equity.
Revenue
recognition. The Board discussed an inventory of the
existing guidance related to revenue recognition and the various
revenue recognition conventions that are used in practice. The Board
also discussed an approach to developing a comprehensive standard on
revenue recognition. The Board was not asked to make any decisions
at this meeting; instead, the Board was asked to consider the
following aspects of that approach.
- Scope of the standard. Several Board members suggested that
the staff consider removing financial instruments from the scope
of the revenue recognition standard. Other Board members suggested
that the removal of issues from the project’s scope is premature;
they asked the staff to continue to develop broad-scoped guidance.
- Balancing principles-based guidance and rules-based guidance.
The Board generally agreed that the staff should develop a
standard that balances broad principles with clear, concise
implementation guidance. Some Board members noted that some
industries or transactions may require more detailed guidance than
others.
- Transition from existing guidance. The Board noted that it
will need to consider existing literature individually for
retention, modification, or elimination.
Consolidation of variable interest entities. The Board
added a limited-scope project to its agenda to modify FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities, to address the following issues:
- Whether the term investor in part (i) of the last
sentence of paragraph 5 should include the investor’s related
parties as indicated in footnote 6
- Whether to change the second reference to paragraph 5 in
paragraph 11 (regarding development stage enterprises) to
paragraph 5(a) to clarify that paragraph 11 does not exempt
development stage companies from the requirements of paragraph
5(b)
- Whether events other than those listed in paragraph 15 should
require an enterprise to reconsider whether it is the primary
beneficiary of a variable interest entity
- Whether a decision maker’s fee should be considered part of
the expected returns of a variable interest entity under paragraph
8(c) if the decision maker has (a) no exposure to the expected
losses of the entity (its fee does not provide subordinated
financial support), (b) no right to expected residual returns
except a fee that has no expected variability, and (c) no other
interest in the entity.
The Board also directed the staff to prepare FASB Staff Positions
to delay the effective date of Interpretation 46 for the following
parties:
- Non-registered investment companies that are currently
accounting for their investments in accordance with the
specialized accounting guidance in the AICPA Audit and Accounting
Guide, Audits of Investment Companies (the Audit Guide).
The deferral would not extend to investments made after March 27,
2002, that are held by an investment company that is not a
separate legal entity. The Board decided to delay the effective
date for these parties while the AICPA finalizes its Statement of
Position (SOP) on the clarification of the scope of the Audit and
Accounting Guide, Audits of Investment Companies, and
accounting by the parent companies and equity method investors for
investments in investment companies. When the AICPA issues the
final SOP, the Board will consider modifying paragraph 4(e) of
Interpretation 46 to provide an exception for companies that apply
the Audit Guide as revised by the SOP.
- A decision maker that (a) receives fees paid by a variable
interest entity that provide the decision maker with no exposure
to expected losses (the fees do not provide subordinated financial
support for the entity) and no rights to receive expected residual
returns other than expected residual returns provided by paragraph
8(c) and (b) has no other interests in the variable interest
entity. The Board decided to delay the effective date for those
parties to allow time to consider a modification of Interpretation
46 that may affect those parties. (See issue 4 above.)
The Board decided not to delay the effective date for any other
entities.
The staff announced that draft FASB Staff Positions are being
prepared to provide additional guidance on the following provisions
of Interpretation 46:
- The computation of expected losses and expected residual
returns, including:
- The amounts of the fees required to be included by
paragraphs 8(c) and 8(d)
- The effects of those fees on expected losses
- Whether other parties’ rights to remove the decision maker
are a factor to consider
- Clarification that the expected variability in paragraph
8(a) is based on estimates of an entity’s net income or loss
before the effects of variable interests
- The determination of which party absorbs a majority of
expected losses and expected residual returns.
One Board member suggested that financial statements issued prior
to the finalization of the FASB Staff Positions should be based on
the preparers’ and auditors’ current understanding of how to apply
the Interpretation. The staff indicated that transition guidance
will be included in the FASB Staff Positions for those situations
for which the finalized FASB Staff Position is different from the
approach used in issued financial statements.
FASB
ratification of EITF consensuses. The Board discussed and
ratified consensuses reached at the July 31, 2003 EITF meeting. The
Board ratified the task force's consensuses for Issues No. 03-5,
"Applicability of AICPA Statement of Position 97-2, Software
Revenue Recognition, to Non-Software Deliverables in an
Arrangement Containing More-Than-Incidental Software," No. 03-7,
"Accounting for the Settlement of the Equity-Settled Portion of a
Convertible Debt Instrument That Permits or Requires the Conversion
Spread to Be Settled in Stock (Instrument C of EITF Issue No. 90-19,
'Convertible Bonds with Issuer Option to Settle for Cash upon
Conversion')," and No. 03-11, "Reporting Realized Gains and Losses
on Derivative Instruments That Are Subject to FASB Statement No.
133, Accounting for Derivative Instruments and Hedging
Activities, and Not 'Held for Trading Purposes' as Defined in
EITF Issue No. 02-3, 'Issues Involved in Accounting for Derivative
Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities.'" No further EITF discussion
of those Issues is planned.
INTERPRETATION 46/STATEMENT 133 TENTATIVE GUIDANCE
AVAILABLE
The FASB staff posted tentative guidance for Statement
133 Implementation Issue No. G24, "Accounting for the
Discontinuance of Hedging Relationships Arising from Changes in
Consolidation Practices Due to Initially Applying FASB
Interpretation No. 46." Comments on this Implementation Issue are
requested by Wednesday, September 17, 2003.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled
through September. Because schedules may change, please check the
FASB calendar
before finalizing your plans. Revisions to this list since the last
issue of Action Alert are highlighted in bold.
Wednesday, September 3, 2003—FASB Board Meeting (p.m.
meeting)
Wednesday, September 3, 2003—FASB Education
Session
Friday, September 5, 2003—Liaison Meeting with the
Institute of Management Accountants
Tuesday, September 9,
2003—Liaison Meeting with the American Council of Life
Insurers
Wednesday, September 10, 2003—FASB Board
Meeting
Wednesday, September 10, 2003—FASB Education
Session
Friday, September 12, 2003—Liaison Meeting with the
Financial Managers Society
Wednesday, September 17, 2003—FASB
Board Meeting
Wednesday, September 17, 2003—FASB Education
Session
Wednesday, September 24, 2003—FASB Board
Meeting
Wednesday, September 24, 2003—FASB Education
Session
Thursday, September 25, 2003—Financial Accounting
Standards Advisory Council Meeting
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