Action Alert No. 05-04
January 27, 2005

NOTICE OF MEETINGS

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

Wednesday, February 2, 2005, 9:00 a.m.

  1. Fair value option. The Board will discuss whether to expand the scope of the project to permit entities to elect to recognize the change in fair value attributable to only certain selected risks (rather than the total change in fair value). (Estimated 45-minute discussion.)

  2. Financial instruments: derivatives implementation. The Board will discuss a draft of proposed Statement 133 Implementation Issue No. B38, “Evaluation of Net Settlement with Respect to Embedded Prepayment Options in Certain Debt Instruments.” (Estimated 60-minute discussion.)

  3. Agenda decision: property, plant, and equipment. The Board will consider adding a project to its agenda that would provide certain near-term guidance on the accounting for property, plant, and equipment. (Estimated 30-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

Wednesday, February 2, 2005, 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 February 9, 2005 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.

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.

January 19, 2005 Board Meeting

Short-term convergence: income taxes. The Board considered certain differences between the provisions of FASB Statement No. 109, Accounting for Income Taxes, and IAS 12, Income Taxes, related to the tax rate to be used in measuring deferred tax assets and liabilities. The Board decided:

  1. To amend Statement 109 to clarify that enactment occurs when every action, other than perfunctory actions, has occurred that is required for a measure to become law.

  2. If corporate income is taxed at different rates depending on whether that income is distributed to shareholders, to require:

    1. Measurement of deferred tax assets and liabilities using the distributed rate.

    2. That for purposes of the consolidated financial statements, item (a) above would not apply to the extent that a subsidiary’s earnings qualify for the unremitted foreign earnings exception to deferred tax accounting in Statement 109. Rather, the undistributed rate would be used to the extent the subsidiary’s earnings qualify for the unremitted foreign earnings exception in measuring the deferred tax expense (or benefit) for the period that is recognized in the consolidated statements for that operation.

    3. That the stand-alone financial statements of a foreign subsidiary disclose whether any portion of that subsidiary’s earnings qualify for the unremitted foreign earnings exception in the consolidated financial statements of its parent. Specifically, to the extent that the foreign subsidiary’s earnings qualify for that exception, disclosure of that fact and the difference in the tax expense (or benefit) for the period that would result from the use of the undistributed rate.

Additionally, the Board agreed to consider whether to eliminate existing differences between Statement 109 and IAS 12 relating to the accounting for the recognition of an acquirer’s deferred tax benefits as a result of a business combination. The Board directed the staff to consider that issue in the context of the decisions reached in the joint IASB/FASB project on business combinations purchase method procedures.

Conceptual Framework. The Board discussed the staff’s draft of a proposed initial communications document. It is meant to inform constituents about the joint project, address the need for a conceptual framework, and explain how the existing IASB and FASB frameworks meet part, but not all of, that need. The Board approved the issuance of this document, after revisions are made in response to comments from IASB and FASB members.

Useful life and amortization of intangible assets. The Board decided to reconsider certain aspects of FASB Statement No. 142, Goodwill and Other Intangible Assets, as they relate to the determination of the useful life and amortization of intangible assets. The Board directed the staff to explore and develop alternative models for consideration at a future Board meeting. Specifically, the Board will reconsider:

  1. Certain aspects of Statement 142 relating to the determination of the useful life relative to the anticipated cash flows used to initially value the asset

  2. The requirements for recording a residual value for intangible assets

  3. The impairment model for renewable intangible assets.

The Board also will consider an amortization methodology that reflects the pattern in which the economic benefits of an intangible asset are consumed or otherwise used up.

Beneficial interests. The Board discussed several issues related to beneficial interests in securitized financial assets, specifically, issues with paragraph 14 of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, paragraph 14 of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, credit concentrations, and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.” The Board made the following decisions:

  1. To take a narrow approach to amending paragraph 14 of Statement 133. The narrow approach would exclude from the bifurcation requirements of Statement 133 interest-only and principal-only strips that are simple separations of interest and principal in noncomplex instruments without concentration of any risks except those naturally resulting from the separation. The Board directed the staff to develop language that better clarifies what risks naturally result from a simple separation.

  2. Concentrations of credit risk should not be recognized as embedded derivatives.

  3. Paragraph 14 of Statement 140 should not be amended as a result of this project.

  4. To include a footnote in the amendment to Statement 140 referring to Issue 99-20 as it relates to impairments due to changes in credit in beneficial interests in securitized financial assets.

Qualifying special-purpose entities with isolation of transferred assets. The Board decided to adopt a proposed approach that would define the circumstances for which isolation could be achieved for transfers of portions of financial assets without using a qualifying special-purpose entity (QSPE). The approach would require that a QSPE be used for all transfers of portions of financial assets unless each interest, including any retained interest, has equal rights to the cash flows from the underlying assets, no interest is subordinate to any other interest, and there is no recourse to the transferor or any other interest holder. The approach would also clarify that paragraph 9(b) would need to be applied to each step in a series of transfers.

FASB Staff Position (FSP): suspended well costs. The Board discussed issues related to a proposed FSP that would amend the guidance for suspended well costs in FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. The Board made the following decisions:

  1. An enterprise should disclose in the notes to the financial statements

    1. The amount of capitalized exploratory well costs that are pending the determination of proved reserves

    2. The net changes from period to period in the capitalized exploratory well costs in a roll-forward format

    3. The amount of exploratory well costs that have been capitalized for a period of greater than one year after the completion of drilling and the number of projects for which those costs relate

    4. An aging of well costs that are capitalized for periods significantly greater than one year and the number of projects for which those costs relate

    5. For those exploratory well costs that continue to be capitalized for more than one year after the completion of drilling, a description of the activities that it has undertaken to evaluate the reserves and the projects, the information still required to classify the associated reserves as proved, and the estimated timing for completing the evaluation of the reserves.

  2. The guidance in the proposed FSP should be applied to the first reporting period beginning after the date that the proposed FSP is finalized.

  3. The guidance should be applied prospectively to existing and newly capitalized exploratory drilling costs. An enterprise also will be required to provide transitional disclosures for periods preceding the adoption of the proposed FSP.

    The Board directed the staff to post the proposed FSP to the website for a 30-day public comment period.

    FUTURE OPEN MEETINGS

    The following is a list of open meetings tentatively scheduled through March. 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, February 9, 2005—FASB Board Meeting
    Wednesday, February 9, 2005—FASB Education Session
    Wednesday, February 16, 2005—FASB Board Meeting
    Wednesday, February 16, 2005—FASB Education Session
    Wednesday, February 23, 2005—FASB Board Meeting
    Wednesday, February 23, 2005—FASB Education Session
    Wednesday, March 2, 2005—FASB Board Meeting
    Wednesday, March 2, 2005—FASB Education Session
    Tuesday, March 8, 2005—User Advisory Council Meeting, New York City
    Wednesday, March 9, 2005—FASB Board Meeting
    Wednesday, March 9, 2005—FASB Education Session
    Wednesday, March 9, 2005—Liaison Meeting with the AICPA Accounting Standards Executive Committee, New York City
    Wednesday, March 16, 2005—FASB Board Meeting
    Wednesday, March 16, 2005—FASB Education Session
    Wednesday, March 16, 2005—Emerging Issues Task Force Meeting
    Thursday, March 17, 2005—Emerging Issues Task Force Meeting
    Tuesday, March 22, 2005—Financial Accounting Standards Advisory Council
    Wednesday, March 23, 2005—FASB Board Meeting
    Wednesday, March 23, 2005—FASB Education Session
    Wednesday, March 30, 2005—FASB Board Meeting
    Wednesday, March 30, 2005—FASB Education Session