Action Alert No. 03-31
August 6, 2003

NOTICE OF MEETINGS

OPEN BOARD MEETING

Tuesday, August 12, 2003, 9:00 a.m.

Business combinations: purchase method procedures. The Board will meet with selected analysts and other users of financial statements to discuss matters related to proposed (1) disclosure requirements for information about a business combination and (2) accounting, presentation, and disclosure requirements surrounding transactions with and balances for the interests of minority (noncontrolling) shareholders in partially owned subsidiaries. The meeting is educational, and no decisions are expected. (Estimated 3-hour discussion.)

Wednesday, August 13, 2003, 9:00 a.m.

  1. Stock-based compensation. The Board will discuss the following issues: (a) the definition of grant date and (b) the accounting for and attribution of stock-based compensation arrangements that are or have characteristics similar to liabilities. (Estimated 90-minute discussion.)

  2. Revenue recognition. The Board will discuss certain findings from the completed inventory of existing revenue recognition guidance and practices. The meeting is expected to include a general discussion of (a) the potential implications of the conceptual approach to revenue recognition on existing revenue recognition guidance, (b) the primary causes of financial statement restatements resulting from improper revenue recognition, and (c) a general approach to developing the standard. No decisions on technical issues are expected. (Estimated 60-minute discussion.)

  3. Consolidation of variable interest entities. The Board will consider the following issues related to FASB Interpretation No. 46, Consolidation of Variable Interest Entities:

    1. Should fixed and unsubordinated fees paid to decision makers by variable interest entities be included in the computation of expected residual returns as required by paragraph 8(c) if the decision maker has no other interest in the variable interest entity?

    2. Should the term investor in the last sentence of paragraph 5 include the investor’s related parties as indicated in footnote 6?

    3. Should private investment companies be included in the exception in paragraph 4(e)?

    4. Should the second reference to paragraph 5 in paragraph 11 (regarding development stage enterprises) be changed to paragraph 5(a)?

    5. Are there events other than those listed in paragraph 15 that should require an enterprise to consider whether it is the primary beneficiary of a variable interest entity?

    The staff will also raise the following other issues on which FASB Staff Positions are being considered:

    1. 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, and whether other parties’ rights to remove the decision maker is a factor to consider)

    2. Determination of which party absorbs a majority of expected losses and expected residual returns. (Estimated 30-minute discussion.)

  4. FASB ratification of EITF consensuses. The Board will consider the ratification of consensuses reached at the July 31, 2003 EITF meeting. See discussion under EITF ACTIONS. (Estimated 30-minute discussion.)

  5. 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.

Wednesday, August 13, 2003, 2:00 p.m.

Stock-based compensation. The Board will meet with representatives of the National Venture Capital Association to discuss matters relating to the project on stock-based compensation. The meeting will be educational, and no decisions will be reached. (Estimated 2-hour discussion.)

OPEN EDUCATION SESSION

Tuesday, August 12, 2003, 1:00 p.m.

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the August 20 Board meeting and at future Board meetings. Those topics will be posted to the FASB calendar four days prior to the education session.

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.

July 30, 2003 Board Meeting

Pension disclosures. The Board discussed the following three issues on disclosures about pensions and other postretirement benefits:

  1. Should entities participating in multiemployer plans provide additional disclosures? Although the Board considered requiring additional disclosures for entities participating in multiemployer plans and potentially requiring disclosure of the number of employees participating in a multiemployer plan and the basis on which costs are shared, the Board did not believe that it had enough information to make a decision at this time. The Board asked the staff to provide it with more details about disclosure of these plans.

  2. Should changes in actuarial assumptions be considered a change in accounting estimate, triggering the requisite disclosures of the impact on income and earnings per share? Paragraph 33 of APB Opinion No. 20, Accounting Changes, indicates that changes in actuarial assumptions represent a change in accounting estimate; however, that guidance is being reconsidered in the Board’s short-term convergence project. The Board did not favor carrying forward this guidance into a new standard as part of this disclosure project.

  3. Which additional disclosures about defined benefit pension plans, if any, should be required for other postretirement benefits? The Board agreed that other postretirement benefits should be required to present all of the same disclosures as those required for pensions; however, the Board had different ideas of whether or not the disclosures should be subject to a significance test. In addition, several Board members expressed interest in considering a significance test that would only require disclosures to be made for pension and other postretirement benefit plans that are deemed to be significant. The Board directed the staff to provide alternatives as to measures of significance and how to determine and apply the notion of significance.

The Board directed the staff to compile the information requested above concurrently with its work on the Exposure Draft for this project, which is expected to be issued in the third quarter of 2003.

Financial instruments: derivatives implementation. The Board discussed the comments received on Statement 133 Implementation Issue No. A23, “Prepaid Interest Rate Swaps,” and did not object to the staff’s posting of Implementation Issue A23, as revised consistent with the staff’s recommendations, on the FASB website as cleared guidance. The effective date for Implementation Issue A23 is the first day of the first fiscal quarter beginning after the date that the cleared guidance is posted on the website, with early application permitted for all contracts entered into or substantively modified on or after August 1, 2003. If an entity had been accounting for a contract entered into prior to the effective date as a derivative in its entirety under Statement 133 Implementation Issue No. A9, “Prepaid Interest Rate Swaps,” but, under the guidance in Implementation Issue A23, that contract would not be a derivative in its entirety, the entity should continue accounting for that contract as a derivative in its entirety.

EITF ACTIONS

July 31, 2003 EITF Meeting

The task force discussed the following issues:

  1. Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." This Issue will be discussed further at a future meeting.

  2. Issue 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." A consensus was reached. The Board will consider the ratification of that consensus at its August 13, 2003 meeting.

  3. Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share." This Issue will be discussed further at a future meeting.

  4. Issue 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 Issue 90-19)." A consensus was reached. The Board will consider the ratification of that consensus at its August 13, 2003 meeting.

  5. Issue No. 03-8, "Accounting for Claims-Made Insurance and Retroactive Insurance Contracts by the Insured Entity." The task force discussed the codification of the guidance set forth in the following pronouncements that address various aspects of the accounting for retroactive insurance contracts and claims-made insurance policies by an insured entity, including an insurance entity that purchases insurance unrelated to its core insurance operations: EITF Issues No. 86-12, "Accounting by Insureds for Claims-Made Insurance Policies," and No. 03-3, "Applicability of EITF Abstracts, Topic No. D-79, 'Accounting for Retroactive Insurance Contracts Purchased by Entities Other Than Insurance Enterprises,' to Claims-Made Insurance Policies," and Topic D-79. When finalized, this codification will be included in EITF Abstracts.

  6. Issue No. 03-9, "Evaluating the Criteria in Subparagraph 11(d) of FASB Statement No. 142, Goodwill and Other Intangible Assets, Regarding Renewal or Extension When Determining the Useful Life of an Intangible Asset." This Issue will be discussed further at a future meeting.

  7. Issue No. 03-10, "Application of EITF Issue No. 02-16, 'Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,' by Resellers to Sales Incentives Offered to Consumers by Manufacturers." The task force reached a tentative conclusion, and a draft abstract will be posted for public comment following the finalization of the minutes of the meeting. The task force will consider any comments received at a future meeting.

  8. Issue 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.'" A consensus was reached. The Board will consider the ratification of that consensus at its August 13, 2003 meeting.

  9. The task force also discussed and approved minor editorial revisions to EITF Issue No. 02-9, "Accounting for Changes That Result in a Transferor Regaining Control of Financial Assets Sold," and Issue 03-3.

The SEC Observer made an announcement regarding EITF Abstracts, Topic No. D-42, "The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock," to clarify that when calculating the excess of (1) fair value of the consideration transferred to the holders of the preferred stock over (2) the carrying amount of the preferred stock in the registrant's balance sheet, the carrying amount of the preferred stock should be reduced by the issuance costs of the preferred stock, regardless of where those costs initially were classified on issuance. This clarification of Topic D-42 should be reflected retroactively in the first period ending after September 15, 2003, by restating the financial statements of prior periods in accordance with the provisions of paragraphs 27–30 of APB Opinion No. 20, Accounting Changes.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through August. 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.

Monday, August 18, 2003—Liaison Meeting with the Risk Management Association
Wednesday, August 20, 2003—FASB Board Meeting
Wednesday, August 20, 2003—FASB Education Session
Thursday, August 21, 2003—Liaison Meeting with the Financial Executives International Committee on Corporate Reporting
Monday, August 25, 2003—Liaison Meeting with the New York Society of Security Analysts
Wednesday, August 27, 2003—FASB Board Meeting
Wednesday, August 27, 2003—FASB Education Session
Thursday, August 28, 2003—Open Roundtable on Qualifying Special-Purpose Entities