Action Alert No. 04-14
April 8, 2004

NOTICE OF MEETINGS

OPEN BOARD MEETING
(Board meetings are available by audio webcast and telephone.)

Wednesday, April 14, 2004, 9:00 a.m.

  1. Business combinations: purchase method procedures. The Board will discuss (a) clarifications and potential changes to the October 2003 FASB-IASB joint decision about which assets and liabilities should be considered part of the business combination accounting and (b) the effective date for the proposed changes for purchase method procedures and noncontrolling interests. (Estimated 60-minute discussion.)

  2. Short-term convergence: income taxes. The Board will consider the accounting for acquired temporary differences in certain purchase transactions that are not accounted for as business combinations. (Estimated 60-minute discussion.)

  3. Liability extinguishment. The Board will discuss the scope and direction of the project. (Estimated 60-minute discussion.)

Wednesday, April 14, 2004, 1:00 p.m.

  1. AcSEC clearance. The Board will meet with representatives of the Accounting Standards Executive Committee (AcSEC) to consider clearance of a draft of the final AICPA Statement of Position, Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment, and a draft of the final FASB Statement on accounting in interim and annual financial statements for certain costs and activities related to property, plant, and equipment. (Estimated 2-hour discussion.)

  2. 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 SESSIONS

Tuesday, April 13, 2004, 9:00 a.m.
Wednesday, April 14, 2004, immediately following the Board meeting

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the April 22 and 23, 2004 joint IASB and FASB Board meetings and at the April 28, 2004 FASB Board meeting. Those topics will be posted to the FASB calendar four days prior to the education sessions.

OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS BOARD'S USER ADVISORY COUNCIL

Monday, April 12, 2004, 9:00 a.m. to approximately 4:00 p.m.

The University Club
1 West 54th Street
New York, New York

The Board and the User Advisory Council will meet to discuss the following:

  1. Complex financial instruments with debt and equity characteristics

  2. The use of fair value measurements in accounting

  3. The FASB's agenda.

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.

March 31, 2004 Board Meeting

Financial performance reporting by business enterprises. The Board discussed a proposed plan for this project that was developed by a joint working group made up of staff from the FASB, the IASB, and the UK Accounting Standards Board. The Board decided that:

  1. The overall goals and subgoals for the project are:

    1. Goal 1: To require a consistently presented and converged set of required primary financial statements by:

      (1)  Consistently defining definitions for the types of items or transactions or events that are to be presented in each statement

      (2)  Developing similar requirements for the number of years to be presented in comparative financial statements, including note disclosures

      (3)  Defining the totals and subtotals to be reported on each required financial statement (including categories such as business and financing)

      (4)  Developing consistent principles for disaggregating information on each of the required financial statements

      (5)  Addressing whether the statement of cash flows should be presented using the direct method, the indirect method, or either at the option of the reporting entity.

    2. Goal 2: Whether there is value in the notion of "recycling" items between the subtotals of net income and other comprehensive income and, if so, to determine a basis for the types of transactions and events that should be recycled and when recycling should occur in the recognition process.

  2. The two goals should be worked on simultaneously by two separate teams.

The Board discussed, but did not decide, whether the initial due process document resulting from this project would be in the form of an Exposure Draft of a proposed Statement or other form of document (such as a Preliminary Views).

The Board acknowledged that the project plan described above differs in some respects from the IASB's decisions. The FASB and IASB will discuss their respective views at their joint meeting scheduled for April 2004 with the objective of reaching agreement on an approach that would maximize opportunities for convergence.

Interpretation of Statement 87 (cash balance plans). The Board discussed remaining measurement issues, disclosures, and transition and effective date of a proposed Interpretation of FASB Statement No. 87, Employers' Accounting for Pensions, on measurement of "cash balance" pension plan obligations. The Board decided:

  1. A turnover/forfeiture assumption for nonvested participants of cash balance pension plans would continue to be considered in calculating a pension obligation for variable interest crediting rate plans.

  2. Additional disclosures specific to cash balance pension plans are not necessary.

  3. The proposed Interpretation would be effective for all entities with fiscal years beginning after December 15, 2004.

  4. Entities would perform a new measurement upon adoption of the proposed Interpretation, and any difference in the measurement of the projected benefit obligation resulting from the adoption of the Interpretation would be fully recognized in the income statement as a cumulative-effect-like adjustment.

Beneficial interests in securitized financial assets. The Board discussed several alternative approaches to accounting for beneficial interests and decided to consider the following two alternatives in more detail at a future meeting:

  1. Require all beneficial interests to be accounted for at fair value, whether they are purchased by an investor or retained by a transferor

  2. Permit an enterprise to choose to account for all beneficial interests at fair value or to:

    1. Account for purchased beneficial interests under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, with any identified derivatives, based on an analysis of the cash flows of the purchased beneficial interests, being accounted for as derivatives and the host contract being accounted for under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities

    2. Account for retained beneficial interests under Statement 133 with any identified derivatives, based on an analysis of the cash flows of the assets in the securitization transaction, being accounted for as derivatives and the host contract and other assets being accounted for under applicable GAAP.

The Board also directed the staff to investigate accounting for retained beneficial interests at fair value and separately accounting for an embedded credit liability in a securitization transaction at fair value.

Mortgage servicing rights. The Board decided that fair value is the appropriate measurement attribute for mortgage servicing rights and possibly for other types of servicing rights. The Board also directed the staff to investigate the feasibility of a separate project to permit, but not require, entities to account for financial instruments and similar instruments at fair value (similar to the fair value option in IAS 39, Financial Instruments: Recognition and Measurement).

Loan commitments. The Board decided to remove the loan commitments project from its technical agenda. The principal motivating factor for the Board's decision last quarter to undertake a separate project on loan commitments was the significant diversity in practice existing among issuers of loan commitments, both in determining the fair value of loan commitments that must be accounted for as derivatives and in whether such commitments can ever be reported by the issuer as assets. The Board expects that the SEC's issuance of Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments, will significantly reduce that diversity in practice; therefore, the Board decided to remove the project from its agenda.

FASB ratification of EITF consensuses. The Board discussed the consensuses reached at the March 17–18, 2004 EITF meeting, and ratified the task force's consensuses on the following issues:

  1. Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments"

  2. Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share"

  3. Issue No. 03-16, "Accounting for Investments in Limited Liability Companies"

  4. Issue No. 04-3, "Mining Assets: Impairment and Business Combinations."

The Board also ratified the consensus reached by the task force on Issue 04-2, "Whether Mineral Rights Are Tangible or Intangible Assets," subject to the finalization of a Board-directed FASB Staff Position (FSP) to resolve the inconsistency between the task force's consensus that mineral rights are tangible assets and the guidance in FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, that characterizes mineral rights as intangible assets. The Board directed the staff to release a proposed FSP that would amend Statements 141 and 142 to resolve that inconsistency.

FASB Staff Position: mineral rights. A majority of the Board directed the staff to release the proposed FSP FAS 141-a and FAS 142-a, "Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and EITF Issue No. 04-2, 'Whether Mineral Rights Are Tangible or Intangible Assets,'" for a 15-day comment period. Comments are requested by April 16, 2004. The proposed FSP is available on the FASB website.

FASB STAFF REQUEST FOR INFORMATION ABOUT ISOLATION OF TRANSFERRED ASSETS

For the Board's project on qualifying special-purpose entities and isolation of transferred assets that will amend FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, the FASB staff has prepared a paper that requests information about isolation of transferred assets. The FASB is seeking information from members of the legal profession, regulatory agencies, and rating agencies about (1) rights of parties in mutual debtor-creditor relationships to set off amounts due to one another in the event either party defaults, becomes insolvent, or enters bankruptcy or receivership and (2) any other factors or conditions affecting isolation of transferred assets that the Board may not be aware of. It is expected that the request will be posted to the FASB website by the close of business on Friday, April 9, 2004, and comments are requested in writing by May 10, 2004. Responses should be submitted to director@fasb.org, and be identified by using the subject line "Setoff and Isolation." Those without email may respond to "TA&I Director—Setoff and Isolation" at 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116. Responses will become a part of the FASB's public records.

FASB STAFF POSITION GUIDANCE AVAILABLE

On April 7, 2004, it was announced that a majority of the Board had not objected to the release of the final FSP FAS 129-1, "Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Financial Instruments." This final FSP will be available on the FASB website by the end of business on April 9, 2004, where it will remain until it can be incorporated into printed FASB literature.

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.

Thursday, April 22, 2004—IASB/FASB Joint Board Meeting, London
Friday, April 23, 2004—IASB/FASB Joint Board Meeting, London
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
Wednesday, May 26, 2004—FASB Board Meeting
Wednesday, May 26, 2004—FASB Education Session