Action Alert No. 04-19
May 13, 2004

NOTICE OF MEETINGS

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

Wednesday, May 19, 2004, 8:30 a.m.

1. Beneficial interests in securitized financial assets. The Board will evaluate two proposed alternatives to account for beneficial interests: (Estimated 60-minute discussion.)

   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 value purchased and retained beneficial interests under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, with any identified derivatives being accounted for as derivatives and the host contract and other assets being accounted for under applicable GAAP.

2. Mortgage servicing rights. The Board will discuss issues related to accounting for mortgage servicing rights at fair value including (a) project scope, (b) when to apply fair value measurement, (c) how to reflect fair value measurement in financial statements, and (d) disclosure requirements. (Estimated 45-minute discussion.)

3. Agenda decision: request to provide an option to elect using fair value for certain instruments. The Board will consider whether to undertake a project to permit entities a one-time election upon initial recognition to report certain financial instruments (and similar nonfinancial instruments) at fair value with the changes in fair value included in earnings. (Estimated 30-minute discussion.)

4. Fair value measurements. The Board will reconsider the effective date for a proposed Statement on fair value measurements and discuss other issues, if any, on the draft of that proposed Statement. (Estimated 45-minute discussion.)

5. 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

Wednesday, May 19, 2004, immediately following the Board meeting

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the May 26 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.

OPEN MEETING WITH REPRESENTATIVES OF THE EQUIPMENT LEASING ASSOCIATION

Tuesday, May 18, 2004, 10:00 a.m.

The Board will meet with representatives of the Financial Accounting Committee of the Equipment Leasing Association to discuss matters of mutual interest.

OPEN MEETING WITH THE FASB LIABILITIES AND EQUITY RESOURCE GROUP

Tuesday, May 18, 2004, 1:00 p.m.

The Board will meet with the resource group for the liabilities and equity project to discuss a possible approach—the Reassessed Expected Outcomes (REO) Approach—for determining classification, unit of account, measurement, and earnings per share (EPS) for financial instruments involving an issuer’s own shares.

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.

May 5, 2004 Board Meeting

Financial instruments: liabilities and equity. The Board listened to a staff presentation about a possible alternative approach—the REO approach—for determining classification, unit of account, measurement, and EPS for all financial instruments involving an issuer’s own shares. The meeting was informational, and no decisions were reached.

FASB Staff Position: Medicare Act of 2003. The Board considered the comment letters received on the proposed FASB Staff Position FAS 106-b, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," and directed the staff to issue that proposed FSP as final with the following revisions. The Board decided:

1. To clarify that the guidance in the final FSP regarding the accounting for the subsidy would apply only to plans for which the sponsor has concluded that prescription drug benefits available under the plan to some or all participants are "actuarially equivalent" to Medicare Part D—that is, the final FSP would apply to any subsidy to which the sponsor is entitled based on the benefits provided to specific groups of employees and/or for specified future years of coverage.
2. For purposes of the disclosures of expected benefit payments required by paragraph 5(f) of FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, both the gross benefit payments and the implied subsidy receipts based on those benefit payments should be disclosed.
3. For purposes of disclosure of the reconciliation of changes in plan assets and obligations required by paragraph 5(a) of Statement 132(R), both the gross benefit payments and the gross subsidy receipts (actually received in the period) should be disclosed.
4. That, in addition to the transition provisions in the proposed FSP, the final FSP would permit prospective application from the effective date.
5. If the effects of the Act are not significant, even for a plan that provides actuarially equivalent benefits, to permit delayed recognition of the effects of the Act until the next regularly scheduled measurement date following the issuance of the final FSP.
6. That the transitional remeasurement required by the final FSP for those who elect retrospective transition may be performed as of either the date of enactment—December 8, 2003—or the end of the fiscal period containing the date of enactment.
7. That the final FSP would permit plan sponsors that amend plans after the date of enactment but prior to the effective date of the FSP in such a way that the plan will not be eligible for the subsidy to account for that plan amendment without considering any intervening impact of the subsidy between the enactment date and the effective date of the FSP.

The Board reconsidered and affirmed the following decisions, deciding:

1. Not to provide additional guidance clarifying the manner in which an employer should determine the employer’s share of the costs of postretirement prescription drug coverage for purposes of determining the applicability of the final FSP.
2. Not to expand the scope of the final FSP to address situations in which the subsidy exceeds the employer’s share of the costs of the underlying postretirement prescription drug coverage.
3. That the effects of the subsidy on benefits attributed to past service should be treated as an actuarial gain.
4. With regard to a plan amendment that qualifies a plan sponsor to receive the subsidy, that (a) plan sponsors should combine the effects of that plan amendment with the consequential effects of the subsidy and (b) the net increase or decrease in the accumulated postretirement benefit obligation (APBO) should be accounted for as prior service cost or actuarial gain, respectively.
5. Not to provide additional illustrative guidance regarding the accounting for the deferred tax consequences of the effect of the subsidy on accrued postretirement benefit cost.

The Board also directed the staff to include as an appendix to the final FSP a flowchart illustrating the application of the transition guidance.

The Board directed the staff to post the final FSP to the FASB website by May 19, 2004.

Financial instruments: derivatives implementation. The Board discussed possible revisions to Implementation Issue No. G25, "Hedging the Variable Interest Payments in a Group of Prime-Rate-Based Interest-Bearing Loans," that would allow entities to use the first-interest-payments-received technique (described in Question 2 of that Implementation Issue) under certain circumstances. The Board directed that the staff analyze the ramifications of those possible revisions and determine the most effective way for Board-directed guidance to be communicated. The Board will discuss a staff draft of those revisions at the May 12, 2004 Board meeting.

Agenda decision: request to amend Statement 133. The Board discussed a request to amend FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to permit (a) hedging entities to designate the risk of changes in only certain aspects of a nonfinancial asset’s fair value as the hedged risk in a fair value hedge and (b) a similar bifurcation of risks for cash flow hedge accounting related to nonfinancial assets. The Board directed the staff to obtain more information from the constituents who had requested the amendment. The Board will continue its discussion at the May 12, 2004 Board meeting.

NOTICE OF FASB PUBLIC ROUNDTABLE DISCUSSIONS ON THE FASB STAFF REQUEST FOR INFORMATION ABOUT ISOLATION OF TRANSFERRED ASSETS

In connection with the planned revisions to the June 10, 2003 FASB Exposure Draft, Qualifying Special-Purpose Entities and Isolation of Transferred Assets, which would amend FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, the Board will hold a public roundtable discussion on May 25, 2004. The scope of the roundtable will focus on legal issues related to the isolation requirement of Statement 140, including the impact of setoff rights. The Board expects to invite 10 to 12 attorneys from the respondents to the April 9, 2004 FASB Staff Request for Information to participate in that roundtable discussion.

The Board will hold an additional public roundtable discussion related to isolation issues that apply specifically to regulated financial institutions on June 17, 2004. The Board expects to invite attorneys and regulators to the second roundtable.

FASB STAFF POSITION GUIDANCE AVAILABLE

On May 5, 2004, a majority of the Board directed the staff to issue final FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."

That final FSP will be available on the FASB website by the end of business on May 19, 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 June. 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, May 25, 2004—Qualifying Special-Purpose Entities Roundtable Discussion
Wednesday, May 26, 2004—FASB Board Meeting
Wednesday, May 26, 2004—FASB Education Session
Wednesday, June 2, 2004—FASB Board Meeting
Wednesday, June 2, 2004—FASB Education Session
Thursday, June 3, 2004—Liaison Meeting with the American Accounting Association
Wednesday, June 9, 2004—FASB Board Meeting
Wednesday, June 9, 2004—FASB Education Session
Thursday, June 10, 2004—Liaison Meeting with the Financial Executives International
Friday, June 11, 2004—Liaison Meeting with the CFA Institute (formerly the Association for Investment Management and Research)
Wednesday, June 16, 2004—FASB Board Meeting
Thursday, June 17, 2004—Qualifying Special-Purpose Entities Roundtable Discussion
Monday, June 21, 2004—FASB Education Session
Tuesday, June 22, 2004—Financial Accounting Standards Advisory Council Meeting
Thursday, June 24, 2004—Equity-Based Compensation Roundtable Discussion, Palo Alto, CA
Monday, June 28, 2004—FASB Board Meeting
Tuesday, June 29, 2004—Equity-Based Compensation Roundtable Discussion, Norwalk, CT
Wednesday, June 30, 2004—Emerging Issues Task Force Meeting