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Action Alert No. 04-44
November 11, 2004
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
Wednesday, November 17, 2004, 9:00 a.m.
- Equity-based
compensation. The Board will discuss certain issues that have
arisen during the drafting of the final Statement. (Estimated
90-minute discussion.)
- Uncertain
tax positions. The Board will consider certain measurement
issues in addition to alternatives for the effective date of the
proposed Interpretation. (Estimated 45-minute discussion.)
- Leveraged leases. The Board will discuss various issues that
have arisen regarding income tax settlements and their potential impact
on transactions classified as leveraged leases under the provisions of
FASB Statement No. 13, Accounting for Leases. The Board will
consider whether to issue guidance to address those issues and, if so,
in what form. (Estimated 60-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
Tuesday, November 16, 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 November 24,
2004, and November 30, 2004 Board meetings. Those topics will be posted to
the FASB calendar four
days prior to the education session.
OPEN MEETING OF THE EMERGING ISSUES TASK FORCE
(EITF meetings are
available by audio webcast and telephone.)
Wednesday, November 17, 2004, 1:00 p.m. – 5:15 p.m.
Thursday,
November 18, 2004, 8:00 a.m. – 4:00 p.m.
The task force plans to discuss all of the following issues in the
order shown (the task force plans to discuss the first three issues on
Wednesday and to begin discussions on Thursday with Issue 04-7):
- 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"
- Issue No. 04-6, "Accounting for Stripping Costs Incurred during
Production in the Mining Industry"
- 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"
- Issue No. 04-7, "Determining Whether an Interest Is a Variable
Interest in a Potential Variable Interest Entity"
- Issue No. 04-12, "Determining Whether Equity-Based Compensation
Awards Are Participating Securities"
- Issue No. 04-11, "Accounting in a Business Combination for Deferred
Postcontract Customer Support Revenue of a Software Vendor."
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 3, 2004 Board Meeting
Financial
instruments: liabilities and equity. The Board continued its
discussion of the proposed Ownership/Settlement Approach for
distinguishing liabilities and assets from equity for single component
instruments.
The Board discussed a staff-prepared analysis of the status and
continuing relevance of past Board decisions under the proposed
Ownership/Settlement Approach. (The staff analysis is contained in the Board meeting
handout.) The Board agreed with the staff analysis, including the
list of issues that will require deliberation at a future Board
meeting.
The Board discussed the application of the approach in distinguishing
assets from equity. The Board decided that the Ownership/Settlement
Approach should be consistently applied to single component instruments
embodying rights and to those embodying obligations. That is, instruments
embodying rights to receive assets, services, shares, or other instruments
would be classified as an asset or as equity depending on whether the
instrument establishes an ownership relationship and, if the ownership
relationship is indirect, the form of settlement. Similar to the
application for obligations, an instrument embodying a right, for example,
a purchased option, would establish an indirect ownership relationship if
the counterparty’s payoff at settlement would be based on and would move
in the same direction as the fair value of the reference instrument.
The integrated Ownership/Settlement Approach in distinguishing
liabilities and assets from equity would be as follows:
- An instrument that does not embody a settlement obligation or right
is equity. An example is a share (common or preferred) that is not
subject to redemption requirements or rights.
- An instrument that establishes a direct ownership relationship
between the issuer and the counterparty is equity, even if it embodies a
settlement obligation (or possibly, a right). An example is a common
share that is mandatorily redeemable at its proportionate share of the
fair value of the entity.
- An instrument that embodies a settlement obligation or right and
does not establish either a direct or indirect ownership relationship is
a liability or an asset. Examples are a written put option (liability)
and a purchased call option (asset).
- An instrument that establishes an indirect ownership relationship
that would be settled or ultimately settled by issuing or receiving an
instrument that establishes a direct ownership relationship is equity
(such as a physically settled written call or purchased put option).
Otherwise, the instrument is a liability or an asset (such as a net
cash-settled written call or purchased put option).
Finally, the Board discussed single component instruments that
establish an indirect ownership relationship and can be settled by
delivering assets, services, or shares (that is, instruments
containing settlement alternatives). The Board decided that if the choice
of settlement is outside the control of the issuer (that is, if the choice
is decided or controlled by the counterparty or is determined by factors
or other conditions not controlled by the issuer), the issuer should
assume delivery of assets or services and classify an instrument embodying
an obligation as a liability. The Board decided that if the issuer
controls the choice of settlement, the issuer can assume share settlement
(and classify the instrument as equity), if that settlement choice is
substantive. The Board directed the staff to further analyze the issue of
substantive versus nonsubstantive features as it relates to settlement
alternatives and other features of instruments. Instruments embodying
rights that can be settled by the issuer’s receipt of assets or shares
will be included in that analysis.
Short-term
convergence: inventory costs and exchanges of nonmonterary assets.
The Board discussed issues related to the final Statements on inventory
costs and exchanges of nonmonetary assets. The Board made the following
decisions:
- The final Statement on inventory costs will be effective for costs
incurred in fiscal years beginning after June 15, 2005. Earlier
application will be permitted for inventory costs incurred in fiscal
years beginning after the date the final Statement is issued.
- The final Statement on exchanges of nonmonetary assets will be
effective for nonmonetary asset exchange transactions occurring in
fiscal periods beginning after June 15, 2005. Earlier application for
nonmonetary asset exchange transactions occurring in fiscal periods
beginning after the date the final Statement is issued.
The Board also considered but decided not to make certain changes to
the final Statement on inventory costs suggested by constituents.
The final Statement on earnings per share now is expected in the first
quarter of 2005.
FASB Staff Position (FSP). The Board decided to issue proposed
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," for a 45-day comment
period. Proposed FSP FIN 46(R)-b will clarify that a reporting enterprise
should consider whether it holds an implicit variable interest in a
variable interest entity resulting from a related party relationship under
Interpretation 46(R). The Board directed the staff to distribute the draft
FSP to members of the AICPA Technical Issues Committee and the Small
Business Advisory Committee for comment prior to issuance.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
December. 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, November 24, 2004—FASB Board Meeting
Wednesday, November
24, 2004—FASB Education Session
Tuesday, November 30, 2004—FASB Board
Meeting
Tuesday, November 30, 2004—FASB Education Session
Wednesday,
December 1, 2004—Small Business Advisory Committee Meeting
Thursday,
December 2, 2004—Financial Accounting Standards Advisory Council
Meeting
Wednesday, December 8, 2004—FASB Board Meeting
Wednesday,
December 8, 2004—FASB Education Session
Friday, December 10,
2004—Liaison Meeting with the National Investor Relations
Institute
Wednesday, December 15, 2004—FASB Board Meeting
Wednesday,
December 15, 2004—FASB Education Session
Wednesday, December 22,
2004—FASB Board Meeting
Wednesday, December 22, 2004—FASB Education
Session
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