Action Alert No. 04-37
September 23, 2004

NOTICE OF MEETINGS

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

Wednesday, September 29, 2004, 9:00 a.m.

  1. FASB technical plan. The Board will discuss the status of its agenda projects and a draft of the October 2004 technical plan for research and technical activities that focuses on the plans for the next six-month period. (Estimated 15-minute discussion.)

  2. 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.

Thursday, September 30, 2004, 12:30 p.m.

FASB Staff Position (FSP). The Board will consider comments received on proposed FSP EITF Issue 03-1-b, "Effective Date of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,'" including comments received on Issue 2 of the Requests for Comments accompanying the proposed FSP, and whether to direct the staff to post FSP EITF Issue 03-1-b to the FASB website as final. (Estimated 30-minute discussion.)

OPEN EDUCATION SESSION

Wednesday, September 29, 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 October 6, 2004 Board meeting. 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, September 29, 2004, 10:30 a.m. - noon and 1:00 p.m. - 5:30 p.m.
Thursday, September 30, 2004, 8:00 a.m. - noon and 1:00 p.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 four issues on Wednesday and to begin discussions on Thursday with Issue 04-8):

  1. 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"

  2. Issue No. 04-1, "Accounting for Preexisting Relationships between the Parties to a Business Combination"

  3. Issue No. 04-6, "Accounting for Stripping Costs Incurred during Production in the Mining Industry"

  4. Issue No. 03-9, “Determination of the Useful Life of Renewable Intangible Assets under FASB Statement No. 142, Goodwill and Other Intangible Assets"

  5. Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share"

  6. Issue No. 04-7, "Determining Whether an Interest Is a Variable Interest in a Potential Variable Interest Entity"

  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"

  8. Issue No. 04-9, "Accounting for Suspended Well Costs"

  9. Issue No. 04-10, "Applying Paragraph 19 of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, in Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds."

In addition, the SEC staff plans to make an announcement at the meeting regarding "Use of the Residual Method to Value Acquired Assets Other than Goodwill."

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.

September 15, 2004 Board Meeting

Equity-based compensation (EBC). The Board met with representatives of Cisco Systems, Genentech, Qualcomm, and Latham and Watkins to discuss a proposed method for measuring the value of stock options issued to employees as part of a share-based payment arrangement. The meeting was informational and no decisions were reached.

Short-term international convergence: phase one. The Board redeliberated the provisions of the December 2003 FASB Exposure Draft, Exchanges of Productive Assets, an amendment to APB Opinion No. 29, Accounting for Nonmonetary Transactions. The Board made the following decisions:

  1. Affirmed its decision to require that a cash flow test be used to determine whether a nonmonetary exchange of productive assets has commercial substance. The Board decided to clarify, however, that a qualitative assessment will, in some cases, be conclusive in determining whether the commercial substance criterion is met.

  2. Decided to modify the commercial substance test described in paragraph 21 of Opinion 29 as amended by the Exposure Draft. Specifically, the Board decided that commercial substance may be established by assessing the change in configuration of cash flows, without regard to the significance of that change to the fair values of the exchanged assets. The Board also decided that paragraph 21(b) of Opinion 29 should be revised to exclude the phrase portion of the reporting entity’s operations. The new requirement will read as follows:

    21.  To determine whether a nonmonetary exchange has commercial substance, the entity determines whether its future cash flows* are expected to change as a result of the exchange. A transaction has commercial substance if either:
    a.  The configuration (risk, timing, or amount) of the expected future cash flows  of   the asset(s) received differs significantly from the configuration of the expected future cash flows of the asset(s) transferred, or
    b.  The entity-specific value* of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair value of the assets exchanged.
    *Calculation of expected future cash flows and entity-specific value is discussed in FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements.

  3. Consistent with the provisions of the Exposure Draft, decided not to:

    1. Require disclosure of the circumstances surrounding, or the reasons for, a nonmonetary asset exchange.

    2. Include example transactions in the final Statement.

  4. Affirmed the following provisions in the Exposure Draft:

    1. The requirement that commercial substance must not be predicated on tax cash flows that arise solely because the tax business purpose is based on achieving a specified financial reporting result should be retained.

    2. The scope of the Exposure Draft should remain as is except for the following revision to paragraph 3(c) of Opinion 29:

      A transfer of a nonmonetary asset is not considered an exchange unless the transferor has no significant continuing involvement in the transferred asset such that substantially all the risks and rewards of ownership of the asset are transferred. [Emphasis added.]

    3. FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, will be amended to eliminate the scope exception for exchanges of equity method investments for similar productive assets.

    4. The final Statement will be effective on a prospective basis for nonmonetary asset exchanges in fiscal years beginning after December 15, 2004.

AcSEC document. The Board met with representatives of the AICPA’s Accounting Standards Executive Committee (AcSEC) and discussed clearance of a revised exposure draft of the AICPA Statement of Position (SOP), Accounting by Insurance Enterprises for Deferred Acquisition Costs on Internal Replacements Other Than Those Specifically Described in FASB Statement No. 97. The Board did not object to issuance of the exposure draft for comment subject to staff review of editorial changes. The AICPA expects to issue the draft in October for a 30-day comment period.

Real estate time-sharing. The Board approved the issuance of a final Statement that would amend FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (1) incidental operations and (2) costs incurred to sell real estate projects will not apply to real estate time-sharing transactions. That amendment is required to facilitate the issuance of the final AICPA SOP, Accounting for Real Estate Time-Sharing Transactions, for which the Board provided final clearance at its August 25, 2004 meeting. The Board also decided that the final Statement should amend FASB Statement No. 66, Accounting for Sales of Real Estate, to include a footnote that refers to the interpretive guidance in the SOP for time-sharing transactions. The Board authorized the staff to proceed to a draft of a final Statement for vote by written ballot.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through October. All meetings are held in Norwalk, CT 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, October 6, 2004—FASB Board Meeting
Wednesday, October 6, 2004—FASB Education Session
Friday, October 8, 2004—Liaison Meeting with the AICPA Private Companies Practice Section Technical Issues Committee
Wednesday, October 13, 2004—FASB Board Meeting
Wednesday, October 13, 2004—FASB Education Session
Thursday, October 14, 2004—User Advisory Council Meeting, New York City
Friday, October 15, 2004—FASB Insurance Industry Forum
Tuesday, October 19, 2004—Joint FASB/IASB Board Meeting
Wednesday, October 20, 2004—Joint FASB/IASB Board Meeting
Thursday, October 21, 2004—FASB Education Session
Wednesday, October 27, 2004—FASB Board Meeting
Wednesday, October 27, 2004—FASB Education Session