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Action Alert No. 04-20
May 20, 2004
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
Wednesday, May 26, 2004, 9:00 a.m.
- Financial
instruments: liabilities and equity. The Board will discuss
whether to focus on one 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. (Estimated 90-minute discussion.)
- 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 26, 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 a future Board
meeting. Those topics will be posted to the FASB calendar four
days prior to the education session.
OPEN ROUNDTABLE DISCUSSION WITH RESPONDENTS TO THE FASB STAFF
REQUEST FOR INFORMATION ABOUT ISOLATION OF TRANSFERRED ASSETS
(This
meeting is available by audio webcast and telephone.)
Tuesday, May 25, 2004, 9:00 a.m. – 12:00 p.m.
The Board will hold a public roundtable discussion with several
attorneys who responded to the April 9, 2004 FASB
Staff Request for Information about isolation of transferred
assets, in connection with the Board’s planned revisions to its 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 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 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 that second roundtable.
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 12, 2004 Board Meeting
Interpretation
of Statement 87. The Board discussed issues related to scope,
effective date and transition, and implementation issues.
The Board decided to expand the scope of the project to amend FASB
Statement No. 35, Accounting and Reporting by Defined Benefit Pension
Plans, to apply the Board’s March 3, 2004 decision—that the obligation
for cash balance pension plans with a market or market-related (variable)
interest crediting rate should be measured by reference to the notional
account balance, that is, to the measurement of accumulated plan benefits
under Statement 35. The Board also asked the staff to research the
implications of further expanding the scope of the project to amend the
guidance on the selection of discount rates in Statement 35 to make that
guidance consistent with the discount rate guidance in FASB Statement No.
87, Employers’ Accounting for Pensions. The Board deferred
discussion of the transition and effective date of the amendment to
Statement 35 until a decision is reached regarding the discount rate
issue.
The Board decided the following with respect to the implementation
issues considered:
- Service cost should be determined by the pay/principal credits
allocated to employees’ notional account balances; similarly, interest
cost should be determined by the interest credits allocated to
employees’ notional account balances.
- The interest cost component of net periodic pension cost should be
based on the actual interest credited to plan participants’ notional
account balances for the period.
- For plans that contain a cash balance formula with a variable
interest crediting rate, the assumed discount rate that should be
disclosed is the discount rate used to measure the portion of the
projected benefit obligation (PBO) that is not attributable to the
variable cash balance formula. The PBO amount measured at that rate also
should be disclosed.
- For mixed formula plans in which a cash balance pension plan formula
has been integrated into traditional defined benefit pension plans (or
vice versa) and an employee is entitled to the greater benefit of the
two formulas, the PBO should be based on the formula that results in the
greater of the two benefits to the participant at the plan’s measurement
date.
The Board discussed the transition guidance for a particular fact
pattern in which an entity has an unfunded accumulated benefit obligation
(ABO) before the application of the Interpretation and upon application of
the Interpretation, the unfunded ABO increases but the PBO decreases. In
such instances, the Board decided that the following transition guidance
should be applied:
- The increase in the unfunded ABO should be recognized in the income
statement in a manner similar to the cumulative effect of a change in
accounting principle.
- The decrease in the PBO would reduce unrecognized losses and prior
service cost (the items giving rise to the unfunded ABO).
Financial
instruments: derivatives implementation. The Board discussed staff
revisions to Implementation Issue No. G25, "Hedging the Variable Interest
Payments on a Group of Prime-Rate-Based Interest-Bearing Loans." The Board
did not object to the staff’s recommended revisions to permit the use of
the first-payments-received technique when the hedged variable interest
payments for an interest-bearing financial asset are based on the same
rate or index as the underlying for the hedging instrument or on (1) a
financial institution’s prime interest rate, (2) the prime rate published
in the Wall Street Journal, or (3) the interest rate for "bank
prime loan" in Federal Reserve Statistical Release H-15, "Selected
Interest Rates," provided that the underlying for the hedging instrument
also is based on one of the above prime interest rates (even though it is
not exactly the same prime interest rate on which the financial asset is
based).
Also, the Board unanimously supported recommendations to reorganize the
format of Implementation Issue G25 and allow outside review by the
Derivatives Implementation Group and other selected constituents before
that Implementation Issue is finalized.
The Board did not object to the staff’s posting of Implementation Issue
G25, as revised consistent with Board recommendations, on the FASB website
as cleared guidance after considering the comments received from the
outside review.
Agenda decision: request to amend Statement 133. The Board
discussed requests from constituents to add a project to amend FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to permit the bifurcation of risks for both fair value and
cash flow hedge accounting related to nonfinancial assets. The Board
unanimously agreed not to add a project to the Board’s technical agenda at
this time to amend Statement 133 to permit the bifurcation of risks for
both fair value and cash flow hedge accounting related to nonfinancial
assets. The Board also expressed a preference to consider this issue a
high priority for discussion in a future coordinated project with the
IASB.
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.
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
Tuesday, June 29, 2004—Equity-Based
Compensation Roundtable Discussion, Norwalk, CT
Wednesday, June 30,
2004—FASB Board Meeting
Wednesday, June 30, 2004—Emerging Issues
Task Force Meeting
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