Action Alert No. 04-51
December 30, 2004

NOTICE OF MEETINGS

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

Wednesday, January 5, 2005, 9:00 a.m.

1. FASB Staff Position (FSP). The Board will discuss a proposed FSP on accounting for an investor's proportionate share of an investee's equity adjustments for other comprehensive income upon a loss of significant influence. (Estimated 30-minute 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 SESSION

No education sessions are planned for the week of January 3, 2004. The next scheduled education session is Wednesday, January 12, 2005.

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 roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final Statement or Interpretation.

December 22, 2004 Board Meeting

Short-term convergence: accounting changes. The Board redeliberated certain issues related to the provisions of the FASB Exposure Draft, Accounting Changes and Error Corrections, issued in December 2003. The Board decided to:

1. Affirm its decision to require retrospective application for discretionary changes in accounting principle.

2. Affirm its decision to require retrospective application for changes in accounting principle mandated by new pronouncements of the FASB and other standard setters, unless a different transition approach is mandated by the individual pronouncement.

3. Clarify the distinction between restatement, which is due to correction of an error in previously issued financial statements, and retrospective application, which is due to a change in accounting principle or a change in the reporting entity.

4. Modify the impracticability guidance to acknowledge that retrospective application is impracticable if an entity is unable to apply the requirement after making every reasonable effort to do so.

5. Affirm its decision that a change in accounting principle should be applied retrospectively to pre-change interim periods and that impracticability of that requirement should not be asserted.

6. Carry forward into the final Statement the description of a change in estimate effected by a change in accounting principle that is contained in paragraph 11 of APB Opinion No. 20, Accounting Changes.

7. Clarify that in order to apply an accounting change retrospectively, management should be able to establish that information to develop significant estimates would have been available when an affected transaction would have been recognized in the financial statements. However, management need not have actually prepared or documented estimates contemporaneously with the preparation of the financial statements at that time.

8. Clarify the basis for the Board's conclusion that a change in depreciation method is a change in accounting estimate effected by a change in accounting principle by including the following within paragraph A6 of the basis for conclusions:
   
   

   The objective of depreciation accounting is to allocate the cost of tangible capital assets over the expected useful life of that asset in a manner that best represents the pattern of consumption of the expected benefits. Therefore, the Board affirmed that the pattern of consumption of the asset being depreciated dictates the depreciation method used.

9. Retain the disclosure requirements in the final Statement as proposed in the Exposure Draft.

The Board also decided that the provisions of the final Statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

Fair value option. The Board discussed certain relevant themes in the comment letters on the International Accounting Standards Board's Exposure Draft, The Fair Value Option, which was released for comment in April 2004. The discussion focused principally on the cited benefits from being able to use the fair value option and the specific assets and liabilities to which the respondents envisioned the fair value option being applied by reporting entities. This was an informational meeting and no decisions were made.

Beneficial interests. The Board discussed guidance for identifying and evaluating embedded derivatives in beneficial interests in securitized financial assets. In situations in which that identification and evaluation will be based on the terms of the interests themselves, the Board decided that the phrase the terms of the interests themselves refers to all of the information that describes those interests. That information can generally be found in the prospectus and in other documents such as the indenture or certificate that specifies the interests' conditions and priorities as to cash flows. However, the Board also decided to clarify that the objective is to obtain sufficient evidence to determine whether there are embedded derivatives requiring bifurcation in the beneficial interests. If there is not sufficient evidence to make that determination in the terms of the interests themselves, additional evidence should be obtained to make that determination.

The Board decided that the method of determining whether embedded derivatives requiring bifurcation exist in beneficial interests should be the same for both purchased interests and interests obtained or retained by transferors. That is, both purchasers and transferors will evaluate whether an embedded derivative requiring bifurcation exists at the level of the interests themselves.

The Board also decided that the fair value measurement option is applicable only to hybrid financial instruments. This decision excludes from the fair value measurement option hybrid instruments that have as their hosts the interests listed in paragraph 8 of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments.

FASB Staff Position (FSP). The Board discussed the FASB staff's view on determining whether two or more operating segments have similar economic characteristics under paragraph 17 of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Additionally, the Board considered whether to issue guidance in the form of a Board-directed FSP to address that issue. The Board decided that the staff's view should be issued as a Board-directed FSP, subject to some editorial changes, and that the comment period for the FSP should be 45 days.

SPECIAL NOTICE

ASSISTANCE REQUIRED FOR CODIFICATION AND RETRIEVAL PROJECT

Throughout the codification and retrieval project, the FASB will require assistance from constituents. The assistance ranges from user feedback to content migration to codification review. To learn more about how you can participate, visit the FASB website at http://www.fasb.org/cod_project/index.shtml.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through January. All meetings are held in Norwalk, Connecticut, unless otherwise noted. 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, January 12, 2005—FASB Board Meeting
Wednesday, January 12, 2005—FASB Education Session
Thursday, January 13, 2005—International Joint Advisory Group Meeting, London, England
Thursday, January 13, 2005—Liaison Meeting with National Association of College and University Business Officers
Friday, January 14, 2005—International Joint Advisory Group Meeting, London, England
Wednesday, January 19, 2005—FASB Board Meeting
Wednesday, January 19, 2005—FASB Education Session
Wednesday, January 26, 2005—FASB Board Meeting
Wednesday, January 26, 2005—FASB Education Session