Action Alert No. 03-30
July 30, 2003

NOTICE OF MEETINGS

OPEN BOARD MEETING

No Board meetings will be held during the week of August 4, 2003.

OPEN EDUCATION SESSION

Friday, August 8, 2003, 9:00 a.m.

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the August 13 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 23, 2003 Board Meeting

Revenue recognition. The Board continued to discuss a conceptual model for analyzing assets and liabilities arising from contracts and contractual rights and obligations. Specifically, the Board addressed enforceability of contracts and the implications that different legal remedies might have for the recognition of assets and liabilities, including the unit of account.

The Board agreed that contracts that are not enforceable do not meet the definitions of assets and liabilities. Unless a contract is enforceable, the obligations that it imposes on the contracting parties will not meet the definitions of liabilities, and the corresponding rights that it conveys to counterparties will not meet the definitions of assets.

The Board noted that the subjects of most contracts are fungible, although the subjects of some contracts are unique. The Board also noted that the usual legal remedy is money damages for breaches of wholly or partially executory contracts in which the subjects are fungible and that those contracts are in some respects akin to financial contracts that are or can be settled on a net basis in cash. The Board agreed that the unit of account for an executory contract in which the subject is fungible should be the contract as a whole. The Board further noted that the legal remedy can be specific performance for breaches of wholly or partially executory contracts in which the subjects are unique and that those contracts are in some respects akin to financial contracts that are settled physically. The Board agreed that the unit of account for an executory contract in which the subject is unique should be the assets and liabilities arising from the unconditional contractual rights and obligations in that contract.

The Board asked the staff to prepare illustrations of the conceptual model by applying it to examples relating to existing guidance, including the guidance for long-term construction contracts, for discussion at a future meeting.

Stock-based compensation. The Board discussed the method of accounting for income tax effects associated with stock-based compensation transactions for employees and agreed to retain the method of accounting for those effects set forth in FASB Statement No. 123, Accounting for Stock-Based Compensation. The Board also discussed how imputed cash flows associated with excess income tax benefits should be presented in the statement of cash flows but did not reach a decision on that issue.

Open discussion: FASB Staff Positions (FSPs). The Board directed the staff to issue the guidance in the final FSP, Applicability of Interpretation 46 to entities subject to the AICPA Audit and Accounting Guide, Health Care Organizations.

In addition, a majority of the Board did not object to the release of four other final FSPs, which provide guidance on the following provisions of Interpretation 46:

1. Reporting variable interests in specified assets of variable interest entities as separate variable interest entities
2. Application of paragraph 5 of Interpretation 46 when variable interests in specified assets of a variable interest entity are not considered interests in the entity under paragraph 12 of the Interpretation
3. Transition requirements for initial application of Interpretation 46
4. Calculation of expected losses.

Those five final FSPs are posted to the FASB website and will remain there until they can be incorporated into printed FASB literature.

The staff has not completed the process of finalizing the proposed FSP on the treatment of fees paid to decision makers and guarantors in determining expected losses and expected residual returns.

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.