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Action Alert No. 04-21
May 27, 2004
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
No Board meetings are planned for the week of May 31, 2004. The next
scheduled Board meeting is June 9, 2004, and topics for that meeting will
be announced in next week’s issue of Action Alert.
OPEN EDUCATION SESSION
Wednesday, June 2, 2004, 9:00 a.m.
The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the June 9 and June
15 Board meetings. Those topics will be posted to the FASB calendar four
days prior to the education session.
OPEN MEETING WITH THE AMERICAN ACCOUNTING ASSOCIATION
Thursday, June 3, 2004, 1:00 p.m.
The Board will meet with representatives of the Financial Accounting
Standards Committee of the American Accounting Association to discuss
matters of mutual interest.
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 19, 2004 Board Meeting
Beneficial
interests in securitized financial assets. The Board decided that
beneficial interests in securitized financial assets should be accounted
for at the holder’s election:
- At fair value with changes recognized in earnings or
- Through the application of existing accounting literature (without
the exemption provided to beneficial interests in Statement 133
Implementation Issue No. D-1, “Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets”), with additional
guidance to be provided as to how embedded derivatives would be
identified.
The Board also outlined issues that it plans to discuss at future
meetings, including:
- Guidance on identification of an embedded derivative
- Guidance on application of the bifurcation option
- Impact on the status of qualifying special-purpose entities
- Subsequent measurement issues and their impact on existing
accounting guidance, specifically EITF Issue No. 99-20, “Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial
Interests in Securitized Financial Assets.”
Servicing
rights (formerly mortgage servicing rights). The Board decided
that:
- Entities should be permitted to choose either fair value or the
lower-of-carrying-amount-or-market (LOCOM) as the subsequent measurement
attribute for all servicing rights that are separately accounted for
under GAAP.
- Subsequent changes in the fair value of all servicing rights
accounted for using the fair value measurement attribute should be
recognized in earnings.
The Board also discussed amending FASB Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, to require that servicing rights, or potentially all
retained interests, be initially accounted for at fair value. The Board
did not make a decision, and it will discuss that issue again at a future
meeting.
Agenda decision: request to provide an option to elect using fair
value for certain instruments. The Board added a project to its agenda
to consider whether entities should be permitted a one-time election, at
the initial recognition of a contract, to report financial instruments,
and perhaps certain nonfinancial instruments with characteristics similar
to financial instruments, at fair value with the changes in fair value
included in earnings. The Board instructed the staff to provide additional
information for refining the scope of the project.
Fair
value measurements. The Board discussed issues raised by external
reviewers on a draft of the proposed Statement on fair value measurements.
In response, the Board:
- Reconsidered its decision to prohibit broker-dealers and investment
companies from using blockage factors in measuring the fair value of
blocks, which would have required conforming changes to the AICPA Audit
and Accounting Guides for entities in those industries. Instead, the
Board decided that the guidance in those Guides should remain unchanged
until such time as it addresses other related issues that are beyond the
scope of the initial phase of the fair value measurements project.
- Discussed the proposed disclosures about the use of fair value to
remeasure assets and liabilities recognized in the statement of
financial position. The Board clarified that for assets and liabilities
with periodic fair value remeasurement requirements, the disclosures
should apply regardless of the timing of the measurement (that is,
whether before or at the reporting date). Also, disclosures about the
effect of fair value measurements on earnings for the period should
include unrealized gains and losses on those assets and liabilities. The
Board decided that disclosures about other similar remeasurements should
be encouraged but not required (for example, about inventories measured
at current value under ARB No. 43, Chapter 4, “Inventory Pricing,”
or impaired loans measured at a present value amount under FASB
Statement No. 114, Accounting by Creditors for Impairment of a
Loan).
- Clarified that the guidance for measuring the fair value of
restricted securities should apply to equity securities with
restrictions terminating within one year that are included in the scope
of FASB Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities.
- Reconsidered the proposed effective date. The Board decided that the
Statement should be effective for financial statements issued for fiscal
years beginning after June 15, 2005, and interim periods within those
fiscal years.
BOARD ACTIONS
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 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)
Tuesday, June 15,
2004—FASB Board Meeting
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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