Action Alert No. 03-45
November 13, 2003

NOTICE OF MEETINGS

OPEN BOARD MEETING

Wednesday, November 19, 2003, 9:00 a.m.

  1. Fair value measurement. The Board will discuss phase 1 scope and codification issues relating to existing pronouncements with fair value measurement requirements, including SEC, AICPA, and EITF pronouncements. The Board will focus on (a) additional phase 1 scope exclusions, if any, (b) bid-asked spread pricing issues, (c) measurement of restricted securities, and (d) unit-of-account issues. (Estimated 60-minute discussion.)

  2. Equity-based compensation (EBC). The Board will discuss issues related to accounting for the income tax effects of EBC arrangements, including the method of allocating those effects to the income statement and equity and the classification of cash flows associated with income taxes. This is a continuation of the discussion held with the IASB at the tripartite meeting in October 2003. The Board also will discuss issues related to the method of transition and effective date for nonpublic enterprises. (Estimated 90-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.

Wednesday, November 19, 2003, 1:00 p.m.

  1. AcSEC documents. The Board will meet with representatives of the AICPA’s Accounting Standards Executive Committee (AcSEC) to consider final clearance of the following AICPA Statements of Position (SOPs): (Estimated 60-minute discussion.)

    1. Reporting Financial Highlights and Schedule of Investments by Nonregistered Investment Partnerships: An Amendment to the Audit and Accounting Guide, Audits of Investment Companies and AICPA Statement of Position 95-2, Financial Reporting by Nonpublic Investment Partnerships

    2. Financial Highlights of Separate Accounts: An Amendment to the Audit and Accounting Guide, Audits of Investment Companies.

  2. FASB Staff Positions (FSPs). The Board will discuss issuance of the following: (Estimated 60-minute discussion.)

    1. Final FSP on exclusion of certain decision-maker fees from paragraph 8(c) of FASB Interpretation No. 46, Consolidation of Variable Interest Entities

    2. Proposed FSP on identifying variable interests and computing expected losses under Interpretation 46.

OPEN EDUCATION SESSION

Wednesday, November 19, 2003, if necessary, immediately following the Board meeting

If necessary, the Board may hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the November 26, 2003 Board meeting. No topics are scheduled but if that status should change, topics will be posted to the FASB calendar as soon as possible.

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.

November 5, 2003 Board Meeting

Financial instruments: liabilities and equity. The Board discussed a proposed FASB Staff Position (FSP) and directed the staff to issue final FSP FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The Board made the following decisions with regard to that FSP:

Certain Mandatorily Redeemable Financial Instruments of Nonpublic Entities

The effective date of Statement 150 will be deferred for mandatorily redeemable financial instruments of nonpublic entities that are not SEC registrants, as follows:

  1. For instruments that are mandatorily redeemable on fixed dates for amounts that are fixed or determined by reference to an interest-rate index, currency index, or another external index, the classification, measurement, and disclosure provisions of Statement 150 will be deferred for an additional year, becoming effective for fiscal periods beginning after December 15, 2004.

  2. For other instruments, the classification, measurement, and disclosure provisions of Statement 150 will be deferred indefinitely pending further Board action.

The Board noted that while the disclosure requirements of Statement 150 do not apply to those instruments while application of Statement 150 to those instruments is deferred, the requirements of FASB Statement No. 129, Disclosure of Information about Capital Structure, still apply.

Certain Mandatorily Redeemable Noncontrolling Interests

The effective date of Statement 150 will be deferred for certain mandatorily redeemable noncontrolling interests (of both public entities and nonpublic entities) as follows:

  1. For interests that would not have to be classified as liabilities by the subsidiary, under the “only upon liquidation” exception in paragraph 9 of Statement 150, but would be classified as liabilities by the parent in consolidated financial statements, the classification and measurement provisions of Statement 150 will be deferred indefinitely pending further Board action.

  2. For other mandatorily redeemable noncontrolling interests that were issued before November 5, 2003, the measurement provisions of Statement 150 will be deferred indefinitely, both for the parent in consolidated financial statements and for the subsidiary that issued the instruments that result in the mandatorily redeemable noncontrolling interest, pending further Board action. However, the classification provisions will not be deferred.

The Board also decided that for mandatorily redeemable noncontrolling instruments created before the effective date designated by Statement 150 (or in this FSP) and that still exist at the beginning of the period of adoption, transition will be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by Statement 150.

The Board did not object to the finalization of FSP FAS 150-3, incorporating the Board decisions as listed above, or FSP FAS 150-4, “Issuers' Accounting for Employee Stock Ownership Plans under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” The staff announced that both FSPs would be posted to the FASB website as final on November 7, 2003.

Financial instruments: derivatives implementation. The Board discussed the comments received on 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.” The Board unanimously agreed with the staff’s proposed revisions as well as with a Board member recommendation to relax the requirements for use of the shortcut method if a change in consolidation practices due to the initial application of Interpretation 46 causes the consolidated entity to discontinue a preexisting hedging relationship for which effectiveness was being assessed under the shortcut method in paragraph 68 of Statement 133. In those circumstances, if the company contemporaneously designates a new hedging relationship, that new relationship can qualify for the shortcut method if certain criteria are met, even though the fair value of the hedging interest rate swap is not zero at the inception of the new hedging relationship.

The Board did not object to the staff’s posting of Implementation Issue G24, as revised consistent with the above decisions, on the FASB website as cleared guidance. The Board also discussed a clarifying revision to Statement 133 Implementation Issue No. C15, “Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity.” The revision clarified that the nine characteristics listed in Implementation Issue C15 are relevant only for option contracts and not for forward contracts. The Board did not object to the staff’s proposed revisions to the cleared guidance in Implementation Issue C15.

Implementation Issue G24, which was renumbered as Issue E22 and retitled “Accounting for the Discontinuance of Hedging Relationships Arising from Changes in Consolidation Practices Related to Applying FASB Interpretation No. 46,” was posted on the FASB website on November 10, 2003.

FASB STAFF POSITION GUIDANCE AVAILABLE

On November 11, 2003, a majority of the Board did not object to the release of the following FSPs:

  1. Final FSP FAS 144-1, “Determination of Cost Basis for Foreclosed Assets under FASB Statement No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings, and the Measurement of Cumulative Losses Previously Recognized under Paragraph 37 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.” This final FSP is available on the FASB website where it will remain until it can be incorporated into printed FASB literature.

  2. Proposed FSP FIN 46-f, “Evaluating Whether as a Group the Holders of the Equity Investment at Risk Lack the Direct or Indirect Ability to Make Decisions about an Entity’s Activities through Voting Rights or Similar Rights under FASB Interpretation No. 46, Consolidation of Variable Interest Entities," for public comment. This proposed FSP will be posted to the FASB website by the end of business on Friday, November 14, 2003, and comments are requested by December 14, 2003.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through December. 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, November 25, 2003—FASB Board Meeting
Wednesday, November 26, 2003—FASB Board Meeting
Wednesday, November 26, 2003—FASB Education Session
Wednesday, December 3, 2003—FASB Board Meeting
Wednesday, December 3, 2003—FASB Education Session
Thursday, December 4, 2003—Financial Accounting Standards Advisory Council Meeting
Wednesday, December 10, 2003—FASB Board Meeting
Wednesday, December 10, 2003—FASB Education Session
Wednesday, December 17, 2003—FASB Board Meeting
Wednesday, December 17, 2003—FASB Education Session
Thursday, December 18, 2003—Liaison Meeting with the American Insurance Association