Revised 12/14/04—See below

Action Alert No. 04-48
December 9, 2004

NOTICE OF MEETINGS

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

Wednesday, December 15, 2004, 8:30 a.m.

The Board meeting will begin at 8:30 a.m. instead of 9:00 a.m.

  1. Fair value measurement. The Board will continue redeliberations of its Exposure Draft, Fair Value Measurements. The Board will consider issues raised by respondents on the fair value hierarchy and reference markets. (Estimated 2-hour discussion.)

  2. Revenue recognition. [Revised 12/14/04: This topic has been rescheduled to the 12/22/04 Board meeting.] The Board will discuss a staff report of the results of October 2004 discussions with FASB and IASB Board members with the objective of discussing individual Board members’ views on the following three broad issues: (a) whether an increase in net assets that occurs at contract generation gives rise to revenue that should be recognized if it can be measured reliably, (b) whether the standard on revenue recognition should include a "special" reliability threshold for measuring the increase in net assets at contract generation, and (c) if the standard includes a "special" reliability threshold and that threshold is not met, how the increase in net assets at contract generation should be recognized and measured and when that increase should be recognized as revenue in the income statement. (Estimated 60-minute discussion.)

  3. Uncertain tax positions. [Revised 12/13/04: This topic will be rescheduled to a future Board meeting sometime in January 2005.] The Board will discuss the transition method for the proposed Interpretation. (Estimated 15-minute discussion.)

  4. Short-term convergence: income taxes. The Board will discuss the exceptions in FASB Statement No. 109, Accounting for Income Taxes, relating to (a) the recognition of deferred taxes for intercompany transfers of nonmonetary assets between tax jurisdictions and (b) the differences related to foreign nonmonetary assets and liabilities that are remeasured from the local currency into the functional currency where the functional currency is also the reporting currency and that result from changes in exchange rates or indexing for tax purposes (paragraphs 9(e) and 9(f) of Statement 109). (Estimated 60-minute discussion.)

  5. FASB Staff Positions (FSPs). The Board will consider comments received on proposed FSP FAS 109-a, "Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the American Jobs Creation Act of 2004," and proposed FSP FAS 109-b, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004," and whether to direct the staff to post those FSPs to the FASB website as final. (Estimated 45-minute discussion.)

  6. Financial instruments: derivatives implementation. The Board will discuss clearance of revised Statement 133 Implementation Issues No. C3, "Exception Related to Stock-Based Compensation Arrangements," No. E19, "Methods of Assessing Hedge Effectiveness When Options Are Designated as the Hedging Instrument," and No. G1, "Hedging an SAR Obligation," which will be amended by the anticipated final Statement on share-based payment. (Estimated 15-minute discussion.)

  7. 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

Monday, December 13, 2004, 1:00 p.m.
Wednesday, December 15, 2004, immediately following the Board meeting
Thursday, December 16, 2004, 9:00 a.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the December 15 and December 22, 2004 Board meetings. Those topics will be posted to the FASB calendar four days prior to the education sessions.

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.

November 30, 2004 Board Meeting

Fair value measurement. The Board discussed significant issues raised by respondents to its Exposure Draft, Fair Value Measurements, relating to the valuation premise and valuation techniques used to estimate fair value.

The Board agreed that the valuation premise is necessary to determine the assumptions that marketplace participants would use with respect to whether and, if so, how an asset will be used. The Board clarified that:

  1. For a nonfinancial asset, either an in-exchange or a going-concern/in-use valuation premise should be used to estimate fair value. As a basis for selecting the appropriate valuation premise, the Board decided to incorporate within the standard the concept that the fair value of the asset should reflect its highest and best use. Accordingly, an in-exchange valuation premise should be used if the highest and best use of the asset is to exchange it. A going-concern/in-use valuation premise should be used if the highest and best use of the asset is to continue to use it as it is currently being used by the reporting entity.

  2. For a financial asset, an in-exchange valuation premise should be used.

The Board clarified that only those valuation techniques that are relevant or applicable and for which sufficient reliable data are available should be used to estimate fair value. In all cases, the objective is to use the valuation technique (or techniques) that best approximates the price at which an asset (or liability) could be exchanged (settled) in the circumstances.

The Board decided that the same valuation objective should apply when using bid and asked prices to estimate fair value. In that case, the Board decided to permit an estimate within the bid/asked spread that best approximates an exchange-equivalent price in the circumstances, provided that the technique used for the estimate is consistently applied. Accordingly, when using bid and asked prices in active markets to estimate fair value, the use of bid prices for assets (long positions) and asked prices for liabilities (short positions) is permitted but not required, as proposed in the Exposure Draft.

FASB Staff Position: EITF Issue 85-24. The Board directed the staff to post to the FASB website proposed FSP EITF 85-24-a, "The Application of EITF Issue No. 85-24, ‘Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,’ When Cash for the Right to Future Distribution Fees for Shares Previously Sold Is Received from Third Parties," for a 30-day comment period. (Subsequent to this meeting, the staff posted FSP EITF 85-24-a to the website on December 8, 2004, and comments are requested by January 7, 2005.)

Ratification of EITF consensuses. The Board ratified the task force's consensus on EITF Issue No. 03-13, "Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations."

The Board ratified the task force’s decision to modify the consensuses of the following Issues by changing their effective dates:

  1. Issue No. 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share," should now be applied to reporting periods ending after December 15, 2004.

  2. Issue No. 04-10, "Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds." The effective date of Issue 04-10 now will coincide with the effective date of the anticipated FSP that will address the meaning of similar economic characteristics. The anticipated effective date of that FSP is in 2005.

The Board agreed to propose an amendment to certain provisions of AICPA Statement of Position 78-9, Accounting for Investments in Real Estate Ventures. At the November 17–18, 2004 EITF meeting, the task force acknowledged that the tentative conclusions reached in Issue No. 04-5, "Investor's Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights," are inconsistent with certain aspects of SOP 78-9. Accordingly, the task force requested that the Board consider amending the guidance in SOP 78-9 to be consistent with the tentative conclusions in Issue 04-5. The Board agreed to propose a Board-directed FSP to amend SOP 78-9 in anticipation that the task force will reach a final consensus that is consistent with the tentative conclusions in Issue 04-5. The Board directed the staff to post the proposed FSP for a 45-day comment period in conjunction with a draft Abstract that reflects the task force’s tentative conclusions in Issue 04-5.

FASB STAFF POSITION GUIDANCE

On December 6, 2004, the staff posted FSP FIN 46(R)-b, "Implicit Variable Interests Resulting from Related Party Relationships under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities," to the FASB website and comments are requested by January 20, 2005. The Board directed the staff to post that proposed FSP to the website at its November 3, 2004 meeting.

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, December 22, 2004—FASB Board Meeting
Wednesday, December 22, 2004—FASB Education Session
Wednesday, January 5, 2005—FASB Board Meeting
Wednesday, January 5, 2005—FASB Education Session
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