Action Alert No. 03-28
July 16, 2003

NOTICE OF MEETINGS

OPEN BOARD MEETING

Wednesday, July 23, 2003, 9:00 a.m.

  1. Revenue recognition. The Board will continue to discuss a proposed conceptual model for analyzing contractual rights and obligations. The purpose of the discussion will be to further explore issues relating to the proposed conceptual model, including the effects of stated contractual penalties and legal remedies for either the payment of monetary damages or specific performance. (Estimated 60-minute discussion.)

  2. Stock-based compensation. The Board will discuss the accounting and reporting of the income tax effects of stock-based compensation awards. (Estimated 60-minute discussion.)

  3. 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

Wednesday, July 23, 2003, immediately following the Board meeting

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the July 30 and other 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 9, 2003 Board Meeting

Business combinations: purchase method procedures. The Board decided that an intangible asset that is included in the amount recorded as goodwill because it does not meet the criteria for separate recognition at the acquisition date should not be reclassified from goodwill if that intangible asset subsequently meets those criteria. The Board suggested including the following guidance in the Exposure Draft:

  1. Guidance for identifying and recognizing customer relationship assets existing at the acquisition date that are associated with contract negotiations that are ongoing but incomplete at that date.

  2. An acknowledgment that events that occur shortly after the acquisition date, such as a contract signing, should be carefully considered to determine whether they provide substantive evidence of the existence of an intangible asset at the acquisition date that, in fact, meets the criteria for recognition separate from goodwill.

The Board also discussed how to allocate between the controlling interest and the noncontrolling interests goodwill that arises in an acquisition of a less than 100 percent controlling interest and subsequent goodwill impairment losses if the full goodwill method is used for initial recognition. The Board decided:

  1. The goodwill initially allocated to the controlling interest should be calculated as the difference between the fair value of the ownership interest acquired and the controlling interest’s share in the fair value of the identifiable net assets acquired. The remainder of the goodwill should be allocated to the noncontrolling interests. The fair value of the ownership interest acquired should be measured as the fair value of the consideration paid by the acquirer on the acquisition date, if any, plus the fair value on the acquisition date of the acquirer’s previous investment in the acquiree, if any.

  2. The guidance in paragraphs 34 and 35 of FASB Statement No. 142, Goodwill and Other Intangible Assets, applies regardless of whether an acquired subsidiary is wholly or partially owned. That guidance requires that goodwill be assigned to the reporting unit expected to obtain the benefits of the synergies of the combination even though other assets or liabilities of the acquired entity may not be assigned to that reporting unit.

  3. If an entity has one or more partially owned subsidiaries, goodwill impairment losses should be allocated on a pro rata basis based on the relative carrying values of goodwill. Goodwill impairment losses should be allocated (a) to the components of the reporting unit, if the partially owned subsidiary is part of a larger reporting unit, and also (b) to the controlling and noncontrolling interests of the partially owned subsidiary. For example, if the partially owned subsidiary is part of a larger reporting unit, the portion of the impairment loss allocated to that subsidiary would be determined by multiplying the goodwill impairment loss by the proportion of the carrying value of the goodwill assigned to that subsidiary over the carrying value of the goodwill assigned to the reporting unit as a whole. The amount of the impairment loss allocated to the partially owned subsidiary would then be allocated to the controlling and noncontrolling interests based on the relative carrying values of goodwill allocated to those interests.

The staff also announced that issuance of the Exposure Drafts addressing business combinations: purchase method procedures, combinations between mutual enterprises, and combinations of not-for-profit organizations now is expected in the fourth quarter of 2003.

Financial instruments: accounting for instruments with characteristics of equity and of liabilities, assets, or both. The Board discussed the scope, objectives, and planning for its redliberations in the second phase of the project. The Board decided that:

  1. The project scope will be expanded to include financial instruments (and, potentially, components of financial instruments) with characteristics of both assets and equity.

  2. The objectives of the second phase are to:

    1. Improve accounting and reporting by issuers for financial instruments that contain characteristics of equity and of liabilities, assets, or both

    2. Amend and improve on the definitions of liability, equity, and perhaps assets in FASB Concepts Statement No. 6, Elements of Financial Statements, such that decisions made in FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and the second phase are consistent with those definitions.

The Board also discussed the project plan. In particular, the Board noted the importance of considering international convergence as each issue is deliberated. The Board also favored the staff’s plan to approach the second phase on a “fresh start” basis, by beginning with definitional and classification questions, before taking up issues related to the unit of accounting, that is, whether to separate financial instruments and, if so, how to separate them (using measurement methods).

The Board supported the staff’s plan to form an outside resource group to assist in phase two issues and noted that reexposure seems more likely than proceeding directly to final Statements.

Financial instruments: disclosures about fair value (replacement of Statement 107). The Board decided to remove from the technical agenda its project on disclosures about the fair value of financial instruments that would have replaced FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments. In making that decision, the Board noted that the primary objective of that project was to address issues related to measuring the fair value of financial instruments. The Board plans to address those issues as part of its broader project on fair value measurement.

As part of the project to replace Statement 107, the Board had decided to amend the provisions of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, relating to the requirement to carry an investment in restricted stock at fair value. The Board decided to make that amendment through a smaller-scope application and implementation project that would be undertaken at some future date.

NOTICE OF FASB OPEN ROUNDTABLE DISCUSSION
ON QUALIFYING SPECIAL-PURPOSE ENTITIES AND
ISOLATION OF TRANSFERRED ASSETS

On August 28, 2003, the FASB will hold a public roundtable discussion to obtain information from and views of interested individuals and organizations about its June 10, 2003 Exposure Draft, Qualifying Special-Purpose Entities and Isolation of Transferred Assets. Any individual or organization desiring to participate must notify the FASB by sending an email to director@fasb.org by August 7, 2003, and submit a position paper or a comment letter addressing the provisions of the proposed Statement by July 31, 2003. Depending on the responses, the Board may not be able to accommodate all requests to participate in the roundtable discussion. However, all submissions by those requesting to participate in the roundtable discussion will be available at the roundtable discussion for review.

PROPOSED FASB STAFF POSITIONS AVAILABLE

The Board did not object to the release of two proposed FASB Staff Positions (FSPs) for public comment:

  1. Applicability of FASB Statement No. 143, Accounting for Asset Retirement Obligations, to Legislative Requirements on Property Owners to Remove and Dispose of Asbestos or Asbestos-Containing Materials (extended comment deadline: August 13, 2003)

  2. Determining Whether a One-Time Termination Benefit Offered in Connection with an Exit or Disposal Activity Is, in Substance, an Enhancement to an Ongoing Benefit Arrangement Subject to FASB Statement No. 112, Employers’ Accounting for Postemployment Benefits (extended comment deadline: August 13, 2003).

The proposed FSPs are available on the FASB website and comments will be accepted until August 13, 2003.

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.

Tuesday, July 29, 2003—Liaison Meeting with the Edison Electric Institute
Wednesday, July 30, 2003—FASB Board Meeting
Wednesday, July 30, 2003—FASB Education Session
Thursday, July 31, 2003—Emerging Issues Task Force Meeting
Friday, August 8, 2003—FASB Education Session
Wednesday, August 13, 2003—FASB Board Meeting
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
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