Action Alert No. 04-46
November 24, 2004

NOTICE OF MEETINGS

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

Tuesday, November 30, 2004, 9:00 a.m.

  1. Fair value measurement. The Board will continue redeliberations of the FASB Exposure Draft, Fair Value Measurements. The Board will consider issues raised by respondents on the valuation premise, the use of valuation techniques to estimate fair value, and valuation techniques to estimate fair value using bid and asked prices and offsetting positions. (Estimated 90-minute discussion.)

  2. FASB Staff Position: EITF Issue 85-24 (formerly FSP FAS 140-b). The Board will discuss whether to post the revised proposed FSP EITF Issue 85-24, "Application of EITF Issue No. 85-24, 'Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,' When Future Distribution Fees Are Sold to Third Parties," to the FASB website for a 30-day comment period. (Estimated 60-minute discussion.)

  3. Ratification of EITF consensuses. The Board will consider the ratification of the consensuses reached at the November 17 and 18, 2004 Emerging Issues Task Force meeting. (Estimated 15-minute discussion.)

  4. 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 30, 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 future Board meetings. Those topics will be posted to the FASB calendar four days prior to the education session.

OPEN MEETING OF THE SMALL BUSINESS ADVISORY COMMITTEE
(This meeting is available by audio webcast and telephone.)

Wednesday, December 1, 2004, 9:00 a.m.

The Board and the Small Business Advisory Committee (SBAC) will meet to discuss:

  1. The Board's procedures for assessing the benefits and costs of proposed changes to accounting standards
  2. The FASB's conceptual framework
  3. The Board's project on liabilities and equity
  4. The Board's project on equity-based compensation
  5. The results of the SBAC survey.

The Advisory Committee will hear a report from the chairman of the FASB on other Board activities. The group also will discuss any new issues that SBAC members believe may require the Board's attention.

OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS ADVISORY COUNCIL
(This meeting is available by audio webcast and telephone.)

Thursday, December 2, 2004, 9:00 a.m.

The Advisory Council will meet to discuss:

  1. Current accounting and financial reporting issues
  2. The Board's project on the conceptual framework
  3. The Board's project on liabilities and equity
  4. The proposed FASB Staff Positions relating to the American Jobs Creation Act of 2004
  5. The Board's activities with respect to the XBRL Consortium.

The Advisory Council will hear reports from the chairman of the FASB on other Board activities and from the senior associate chief accountant of the SEC on current accounting-related developments. The Advisory Council also will hear a report from the assistant chief auditor of the Public Company Accounting Oversight Board.

Closed to Public Observation

Time permitting, the Advisory Council will hold a brief closed session for FASAC members only to discuss administrative matters. The public portion of the meeting is expected to end at approximately 2:30 p.m., at which time the closed session will begin.

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 17, 2004 Board Meeting

Equity-based compensation. The Board discussed issues identified during the course of drafting the final Statement. The Board made the following decisions regarding those issues.

Calculated Value Method for Liability Awards of Nonpublic Companies

  1. The Board decided that nonpublic entities may use the calculated value method for liability awards, following the same measurement pattern for equity awards.

Transition for Nonpublic Companies That Become Public Companies during the Transition Period

  1. The Board decided that nonpublic entities that become public subsequent to June 15, 2005, should follow one of the following required effective dates:
    1. If a nonpublic entity becomes public subsequent to June 15, 2005, and does not file as a small business issuer, the required effective date would be the first interim or annual reporting period beginning after the date the entity becomes a public company.
    2. If a nonpublic entity becomes a public entity subsequent to June 15, 2005, and files as a small business issuer, the required effective date would be the first interim or annual reporting period beginning after December 15, 2005.
  2. The Board also decided that nonpublic entities that become public after June 15, 2005, should follow one of the following transition methods:
    1. Nonpublic entities that used the fair-value-based method for either recognition or pro forma disclosure under Statement 123 should apply the modified prospective application method as of the required effective date. For periods before the required effective date, those entities are permitted to apply the modified retrospective application transition method (that is, to retrospectively restate either (1) all prior years for which Statement 123 was effective or (2) prior interim periods in the year of initial adoption if the required effective date of the final Statement does not coincide with the beginning of the entity's fiscal year).
    2. All other nonpublic entities are required to apply the provisions of the final Statement prospectively as of the required effective date (or upon going public after the entity has adopted the final Statement). That is, those entities should continue to account for any nonvested portion of awards outstanding at the required effective date using the accounting principles originally applied to those awards (for example, the calculated value or intrinsic value under the final Statement, the minimum value method under Statement 123, or the provisions of Opinion 25 and its related interpretative guidance).

Modifications

  1. The Board decided to change the modification guidance such that total recognized compensation cost for an award would not be less than the fair value of the award at grant date under any circumstances unless at the date of the modification the performance or service conditions of the original award are not expected to be satisfied.

Estimating Forfeitures upon Transition

  1. The Board decided to clarify in the basis for conclusions that a cumulative-effect adjustment for forfeitures upon transition would only be made for past awards to the extent that compensation cost was recognized for those awards and only to the extent that companies were recognizing forfeitures as they occurred.

Changes in Estimates—Cumulative Effect of Prospective

  1. The Board decided to clarify through drafting the methods used in the final Statement to account for certain changes in estimates (for example, prospective and cumulative catch-up adjustments) and provide, in the basis for conclusions, some discussion related to those methods and when they would be used.

Disclosures

  1. The Board decided not to add any additional disclosures to the minimum disclosures enumerated in the final Statement's implementation guidance.

Nonemployee Transactions

  1. The Board considered whether certain aspects of the final Statement should apply to share-based payment transactions with nonemployees and directed the staff to obtain additional input on this matter from members of the equity-based compensation resource group.

Reasonable Period of Time

  1. The Board considered the meaning of the phrase reasonable period of time for distinguishing between equity and liability classification of awards of shares embodying a conditional obligation to transfer assets (for example, puttable shares) and decided that a period of six months or longer constitutes a reasonable period of time for purposes of the final Statement.

Uncertain tax positions. The Board discussed transition date and measurement issues for the proposed Interpretation on uncertain tax positions. The Board made the following decisions:

  1. A taxpayer should record the financial statement benefit of an uncertain tax position based on the "best estimate" of the amount that will be ultimately sustained upon resolution of the litigation or appeals process.
  2. The proposed Interpretation should be effective for all companies for the first annual period ending after December 15, 2005. Early adoption is encouraged.

The Board revisited the tentative decision reached at the July 27, 2004 Board meeting on the method for transition. The Board did not change the tentative decision made at that meeting but may reconsider it at a future Board meeting.

Leveraged leases. The Board discussed two issues related to transactions that are classified as leveraged leases under the provisions of FASB Statement No. 13, Accounting for Leases. The Board considered whether to issue guidance to address these issues and, if so, in what form.

The Board decided that a change in the timing alone of the tax benefits that are realized by a lessor in a leveraged lease should result in a recalculation of the leveraged lease. The Board also discussed whether a threshold or scope limitation should be established such that a recalculation need not be performed in all instances when there is a change in timing. The Board directed the FASB staff to conduct additional research on what threshold or scope limitation, if any, should be incorporated into the guidance.

The Board tentatively decided that a lessor should reevaluate the classification of a leveraged lease when a recalculation for a change in the timing of the tax benefits is performed. However, that decision is subject to further staff research of EITF Issue No. 86-43, "Effect of a Change in Tax Law or Rates on Leveraged Leases."

The Board discussed whether guidance should be issued in the form of an FASB Staff Position or an Interpretation. The Board did not reach any decision and will discuss this at a future Board meeting.

EITF ACTIONS

November 17–18, 2004 EITF Meeting

The task force discussed the following issues:

  1. 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." A consensus was reached. The Board will consider the ratification of that consensus at its November 30, 2004 meeting.
  2. 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." Various tentative conclusions were reached, and the task force asked the FASB staff to post a draft abstract to the FASB website for public comment. The task force also asked the FASB staff to include in the request for comment a question for constituents regarding whether certain guidance for evaluating voting rights would be appropriate for corporate entities. The task force will consider these comments when evaluating whether the additional guidance also should be added to EITF Issue No. 96-16, "Investor's Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights." The draft abstract will be posted after the Board has considered whether to amend certain provisions of AICPA Statement of Position 78-9, Accounting for Investments in Real Estate Ventures. This Issue will be discussed further at a future meeting.
  3. Issue No. 04-6, "Accounting for Stripping Costs in the Mining Industry." This Issue will be discussed further at a future meeting.
  4. Issue No. 04-7, "Determining Whether an Interest Is a Variable Interest in a Potential Variable Interest Entity." This Issue will be discussed further at a future meeting.
  5. Issue No. 04-11, "Accounting in a Business Combination for Deferred Postcontract Customer Support Revenue of a Software Vendor." The task force was unable to reach a consensus and agreed to discontinue discussion of this Issue and remove it from the EITF agenda.
  6. Issue No. 04-12, "Determining Whether Equity-Based Compensation Awards Are Participating Securities." The task force was unable to reach a consensus and agreed to discontinue discussion of this Issue and remove it from the EITF agenda. The FASB staff will consider whether to propose that an FASB Staff Position be issued to provide guidance on this Issue.
  7. Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty." This Issue will be discussed further at a future meeting.

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, 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
Monday, December 13, 2004—FASB Education Session
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