Action Alert No. 03-23
June 11, 2003

NOTICE OF MEETINGS

OPEN BOARD MEETING

Wednesday, June 18, 2003, 9:00 a.m.

1. Stock-based compensation. The Board will discuss measurement issues related to stock-based compensation transactions with parties other than employees. (Estimated 90-minute discussion.)

2. AcSEC document. The Board will meet with representatives from the Accounting Standards Executive Committee (AcSEC) to discuss the proposed SOP, Accounting for Real Estate Timesharing Transactions. (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, June 18, 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 June 25 Board meeting. 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.

June 4, 2003 Board Meeting

Short-term convergence. The Board discussed the balance sheet classification of short-term obligations expected to be refinanced and the balance sheet classification of obligations due on demand because of breach of a borrowing agreement. The Board decided the following:

1. To converge with the IASB position that a long-term financial liability due to be settled within 12 months of the balance sheet date should be classified as a current liability, unless an agreement to refinance the liability on a long-term basis is completed on or before the balance sheet date. The current practice of classifying such liabilities as long-term if a financing agreement is completed after the balance sheet date but before the financial statements are authorized for issue would no longer be permitted.

2. To retain the application guidance currently included in U.S. GAAP that establishes conditions that must be met for a financing agreement in place at the balance sheet date to be considered evidence of an ability to consummate a refinancing.

3. That a long-term financial liability payable on demand at the balance sheet date because the entity breached a condition of its loan agreement should be classified as current, unless:
   1. The lender has agreed on or before the balance sheet date to not demand payment as a consequence of the breach (convergent with the IASB position) or

   2. The lender has agreed on or before the balance sheet date to provide a period of grace during which the obligation is not callable, and within which an entity can rectify the breach, and either (i) the entity rectifies the breach within the period of grace, or (ii) at the time that the financial statements are issued, it is probable that the breach will be rectified within the period of grace (consistent with existing U.S. GAAP).

4. To ask the staff to explore the implications of adopting the IASB’s definition of current assets and current liabilities.

Business combinations: purchase method procedures. The Board reconsidered and reaffirmed two of its previous decisions as follows:

1. The October 2002 decision that the full goodwill method would be used to recognize goodwill in the acquisition of less than a 100 percent controlling interest in an acquired entity. Under the full goodwill method, all of the goodwill of an acquired entity, not just the acquirer’s share, would be recognized. Goodwill would be measured as the difference between the fair value of the acquired entity taken as a whole and the sum of the fair values of the identifiable net assets acquired at the date control is obtained. However, Board members indicated the need for further discussions with users of financial statements before issuance of an Exposure Draft.

2. The December 2002 decision for the subsequent recognition of deferred tax benefits acquired in a business combination. That previous decision would amend paragraph 30 of FASB Statement No. 109, Accounting for Income Taxes, to require that deferred tax benefits recognized subsequent to the acquisition be reported as a reduction of income tax expense. However, the Board decided to modify that previous decision as follows:
   1. To include a rebuttable presumption that acquired deferred tax benefits recognized within one year following the acquisition date (that is, by reduction of any valuation allowance for acquired deferred tax assets) be reported as an adjustment to goodwill, rather than as a reduction of income tax expense. However, if the recognition of the acquired deferred tax benefit results from an identifiable event or circumstance that occurred subsequent to the acquisition (for example, a change in tax rates that was not known or anticipated at the acquisition date), the rebuttable presumption would be overcome and the deferred tax benefit would be reported as a reduction of income tax expense for that period.

   2. To require disclosure of the events or change in circumstances that resulted in the subsequent recognition of deferred tax benefits.

Measurement. The Board decided to add to its agenda a project to codify and improve existing guidance for measuring fair value. The near-term objective of the project is to develop a Statement that provides guidance for fair value measurements of assets and liabilities measured at fair value under other accounting pronouncements. The longer-term objective of the project is to improve related conceptual guidance in FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises.

FASB DOCUMENT AVAILABLE

The Board issued the FASB Exposure Draft, Qualifying Special-Purpose Entities and Isolation of Transferred Assets, on June 10, 2003. Comments are requested by July 31, 2003. That Exposure Draft is being distributed primarily through the FASB website. You also can order a printed copy by calling the FASB Order Department at 1-800-748-0659.

FASB STAFF POSITIONS AVAILABLE

A majority of the Board did not object to the following final FASB Staff Positions: (1) Accounting for Accrued Interest Receivable Related to Securitized and Sold Receivables under Statement 140, and (2) Accounting for Intellectual Property Infringement Indemnifications under FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Those final Staff Positions are posted to the FASB website and will remain there until they can be incorporated in printed FASB literature.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through July. 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, June 24, 2003—Financial Accounting Standards Advisory Council Meeting
Wednesday, June 25, 2003—FASB Board Meeting
Wednesday, June 25, 2003—FASB Education Session
Monday, July 7, 2003—FASB Education Session
Tuesday, July 8, 2003—Option Valuation Group Meeting
Wednesday, July 9, 2003—FASB Board Meeting
Wednesday, July 9, 2003—FASB Education Session
Wednesday, July 16, 2003—FASB Board Meeting
Wednesday, July 16, 2003—FASB Education Session
Wednesday, July 23, 2003—FASB Board Meeting
Wednesday, July 23, 2003—FASB Education Session
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