Action Alert No. 04-15
April 15, 2004

NOTICE OF MEETINGS

OPEN JOINT IASB/FASB BOARD MEETINGS
(Board meetings are available by audio webcast and telephone. As a reminder, webcasts are archived on the FASB website until the next meeting.)

Radisson SAS Portman Hotel
22 Portman Square
London, England

The IASB and the FASB will meet in London to discuss the following projects:

Thursday, April 22, 2004, 4:00 a.m. EDT (9:00 a.m. BST)

1. Short-term convergence: income taxes. The Boards will discuss tentative conclusions and alternative approaches in accounting for deferred taxes in the initial acquisition of an asset other than a business combination. The Boards also may discuss certain interperiod tax allocation issues. (Scheduled for 4:00 a.m. EDT – 5:30 a.m. EDT)

2. Short-term convergence: research and development. The Boards will discuss the scope of their potential short-term convergence project on research and development. The Boards also will be updated on the IASB’s progress on IAS 37, Provisions, Contingent Liabilities and Contingent Assets. (Scheduled for 5:45 a.m. EDT – 6:45 a.m. EDT)

3. Business combinations: purchase method procedures. The Boards will discuss issues for which they have reached different interpretations or conclusions in this joint project. The primary issues are (a) determining which assets and liabilities should be included in the business combination accounting, and (b) whether risks that result from the acquired entity’s past actions constitute a stand-ready obligation that should be recognized on the acquisition date. (Scheduled for 6:45 a.m. EDT – 7:45 a.m. EDT)

4. Financial performance reporting by business enterprises/reporting comprehensive income. The Boards will further discuss the decisions reached by each Board during the March 2004 meetings regarding a proposed plan for the project that was developed by a joint working group made up of staff from the FASB, IASB, and the UK Accounting Standards Board. (Scheduled for 8:45 a.m. EDT – 10:45 a.m. EDT)

5. Agenda planning. The Boards will discuss plans for coordinating their future standard-setting activities. Among the issues planned for discussion are (a) a staff proposal to undertake a joint project to develop a common conceptual framework for use by both Boards and (b) whether other existing potential and future agenda projects should be undertaken either jointly or concurrently. (Scheduled for 11:00 a.m. EDT – 12:30 p.m. EDT)

Friday, April 23, 2004, 4:00 a.m. EDT (9:00 a.m. BST)

1. Agenda planning. The Boards will continue their discussion from the April 22, 2004 joint meeting. (Scheduled for 4:00 a.m. EDT – 6:15 a.m. EDT)

2. Revenue recognition. The Boards will discuss four issues related to the definition of revenues: (a) the distinction between revenues and gains, (b) whether to recognize revenue from subcontracting or outsourcing, (c) whether to recognize revenue from commodities when they become readily marketable, and (d) whether to recognize revenue from nonreciprocal transfers. (Scheduled for 6:30 a.m. EDT – 7:30 a.m. EDT, resuming at 8:30 a.m. EDT – 9:30 a.m. EDT)

OPEN EDUCATION SESSION

No education sessions are scheduled for the week of April 19, 2004.

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.

April 7, 2004 Board Meeting

Business combinations: purchase method procedures. The Board discussed two sets of issues pertaining to the interrelation of its project on business combinations with (1) its project on equity-based compensation and (2) FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.

Equity-Based Compensation Issues

The Board discussed whether the fair value of replaced equity-based awards—that is, outstanding awards issued by the acquiree, such as employee stock options, that are replaced by the acquirer as part of a business combination—should be considered part of the consideration paid in such a combination or whether the fair value of the replacement awards should be treated as a separate compensation arrangement of the acquirer. The Board also discussed how, if at all, any portion treated as consideration paid for the acquired business should be measured.

The Board reached the following tentative decisions with respect to the replacement of equity-based awards in a business combination:

1. For the fair value of replaced equity-based awards to be considered part of the consideration paid in a business combination, an acquirer must have an obligation as part of the business combination to replace outstanding equity-based awards issued by the acquiree. If there is no obligation, then the replacement awards issued by the acquirer would be treated as a separate compensation arrangement of the acquirer.

2. If the acquirer has an obligation, the Board rejected approaches that would require the acquirer to allocate the entire fair value of all replacement awards either to the consideration paid in the business combination (purchase price) or to compensation cost. In determining the amount that would be allocated to purchase price, the Board decided that a number of factors would be taken into consideration including the percentage of requisite service that had been rendered at the date of the acquisition.

3. The fair value of the acquirer-issued replacement awards would be compared with the fair value of the replaced equity-based awards of the acquiree. To the extent that the fair value of the acquirer-issued replacement awards exceeds the fair value of any replaced equity-based awards of the acquiree, that excess would be compensation cost of the acquirer.

4. To the extent that service is explicitly required subsequent to the consummation date of the acquisition in order to vest in the acquirer-issued replacement awards, a portion of the fair value of the acquirer-issued replacement awards would be recognized as compensation cost over the requisite service period.

5. There would be no subsequent adjustments to the amount considered as part of the consideration paid stemming from the acquirer-issued replacement awards issued as part of a business combination. Accordingly, any events subsequent to the business combination affecting equity-based awards issued as part of a business combination should be accounted for in accordance with FASB Statement No. 123, Accounting for Stock-Based Compensation, as amended by the proposed FASB Statement, Share-Based Payment.

Interpretation 46(R) Issues

The Board also discussed whether and how to conform the initial measurement guidance in paragraphs 18–21 of Interpretation 46(R) and the measurement guidance in the draft of the proposed Statement on business combinations.

The Board reached the following tentative decisions:

1. When an enterprise becomes the primary beneficiary of a variable interest entity that meets the definition of a business, the enterprise would be required to apply the measurement, recognition, and disclosure requirements in the draft of the proposed Statement on business combinations.

2. When an enterprise becomes the primary beneficiary of a variable interest entity that does not meet the definition of a business, the enterprise would be required to apply the recognition and measurement guidance in the draft of the proposed Statement on business combinations for the assets (other than goodwill) and liabilities of the newly consolidated variable interest entity unless those assets and liabilities were transferred by the enterprise at, after, or shortly before the date of initial consolidation. If a variable interest entity is not a business, no goodwill would be recognized; any difference between (a) the consideration paid, if any, and the reported amount of any previously held interests and (b) the net amount of the variable interest entity’s recognized assets, liabilities, and noncontrolling interests would be recorded as a gain or loss and separately disclosed in notes to the consolidated financial statements.

3. The requirement in paragraph 19 of Interpretation 46(R) for enterprises and variable interest entities that are under common control will be retained.

Interpretation of Statement 143. The Board discussed whether FASB Statement No. 143, Accounting for Asset Retirement Obligations, requires an entity to recognize a liability for a legal obligation to perform asset retirement activities when the retirement of the asset is conditional on a future event. The Board also discussed what the appropriate effective date, transition requirements, and comment period would be for the proposed Interpretation of Statement 143.

The Board decided that Statement 143 requires an entity to recognize a liability for a legal obligation to perform asset retirement activities when the retirement of the asset is conditional on a future event. Any uncertainty with respect to if and when the asset will be retired should be factored into the measurement of the fair value of the liability.

The Board decided that the proposed Interpretation should be effective for financial statements issued for fiscal years ending after December 15, 2005 (December 31, 2005, for calendar year-end enterprises). Initial application of this proposed Interpretation should be as of the end of an enterprise’s fiscal year.

The Board also decided that the requirements for recognition of transition amounts should be consistent with Statement 143. Amounts resulting from initial application of the proposed Interpretation should be measured using the current information, current assumptions, and current interest rates that are applicable at the date the proposed Interpretation is adopted. The amount recognized as an asset retirement cost should be measured as of the date the asset retirement obligation was incurred. Cumulative accretion and accumulated depreciation should be measured for the time period from the date the liability would have been recognized had the provisions of the proposed Interpretation been in effect to the date of adoption of the proposed Interpretation. For recognition of transition amounts, an entity should recognize the cumulative effect of initially applying the provisions of the proposed Interpretation.

Lastly, the Board decided that the comment period for the Exposure Draft of the proposed Interpretation should be limited to 45 days. The Board expects to issue that Exposure Draft in the second quarter of 2004.

NOTICE OF FASB PUBLIC ROUNDTABLE MEETINGS ON THE FASB EXPOSURE DRAFT, SHARE-BASED PAYMENT

The FASB plans to hold public roundtable meetings on its March 31, 2004 Exposure Draft, Share-Based Payment, on June 24, 2004, in Palo Alto, California, and June 29, 2004, in Norwalk, Connecticut. The purpose of those roundtable meetings is to listen to the views of and obtain information from interested constituents about that Exposure Draft. Any individual or organization desiring to participate must notify the FASB by sending an email to director@fasb.org by May 17, 2004. The email notification should specify the location of the roundtable meeting in which the individual or organization desires to participate. The Board plans to have a wide variety of constituents—including investors, preparers of financial statements, auditors, valuation experts, and others—participate at each roundtable meeting. Depending on the number of responses received, the Board may not be able to accommodate all requests to participate. Notifications of selection status will be distributed by June 9, 2004.

Copies of all written submissions and minutes of the roundtable meetings will be publicly available on this website.

FUTURE OPEN MEETINGS

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

Wednesday, April 28, 2004—FASB Board Meeting
Wednesday, April 28, 2004—FASB Education Session
Wednesday, May 5, 2004—FASB Board Meeting
Wednesday, May 5, 2004—FASB Education Session
Monday, May 10, 2004—Liaison Meeting with the American Petroleum Institute
Tuesday, May 11, 2004—Small Business Advisory Committee Meeting
Wednesday, May 12, 2004—FASB Board Meeting
Wednesday, May 12, 2004—FASB Education Session
Tuesday, May 18, 2004—Liaison Meeting with the Equipment Leasing Association
Wednesday, May 19, 2004—FASB Board Meeting
Wednesday, May 19, 2004—FASB Education Session
Tuesday, May 25, 2004—Qualifying Special-Purpose Entities Roundtable Discussion
Wednesday, May 26, 2004—FASB Board Meeting
Wednesday, May 26, 2004—FASB Education Session