Action Alert No. 05-24
June 16, 2005

NOTICE OF MEETINGS

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

Wednesday, June 22, 2005, 3:30 p.m.

Conceptual Framework. The Board will continue its discussion of the qualitative characteristics of accounting information. The Board will discuss certain characteristics identified in the current framework, including comparability, understandability, and materiality. The Board also will discuss whether to add other possible qualitative characteristics to the framework, such as transparency and ‘true and fair.’ (Estimated 60-minute discussion.)

OPEN EDUCATION SESSIONS

Wednesday, June 22, 2005, 8:00 a.m.
Thursday, June 23, 2005, 9:00 a.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the June 29 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education sessions.

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

Tuesday, June 21, 2005, 9:00 a.m.

The Advisory Council will meet to discuss:

  1. International convergence

  2. The Board’s project on derivative disclosures

  3. The Board’s project on financial performance reporting

  4. The Board’s project on the Conceptual Framework

  5. The Board’s project on revenue recognition.

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

Closed to Public Observation

The Advisory Council will hold a closed session with members of the XBRL Consortium to discuss XBRL and its benefits. The closed session, which will be the last item on the agenda, is expected to begin at approximately 2:45 p.m.

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

Wednesday, June 22, 2005, 9:00 a.m.

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

  1. Private company financial reporting

  2. The Board’s project on financial performance reporting

  3. The Board’s project on the Conceptual Framework

  4. The Board’s codification and retrieval project.

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

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.

June 8, 2005 Board Meeting

Liability extinguishment. The Board discussed the legal rights and obligations associated with firm offers (that is, unilateral offers to sell goods that are enforceable and irrevocable) and whether, at a conceptual level, those rights and obligations meet the definitions of assets and liabilities set forth in FASB Concepts Statement No. 6, Elements of Financial Statements. The Board decided that a firm offer does not convey rights to the offerer that meet the definition of assets.

The Board also discussed, but did not decide, whether (1) a firm offer imposes on the offeror a stand-ready obligation to enter into a bilateral contract that meets the definition of a liability and (2) fair value is conceptually the most relevant measurement attribute for the stand-ready obligation to enter into a bilateral contract.

Stable value investments. The Board approved a change to the scope of the proposed FASB Staff Position (FSP) to remove the requirement that the employee has the primary responsibility for directing his or her own investment allocations with respect to the associated defined-contribution plan.

The Board approved a revised definition of fully benefit-responsive that differentiates between traditional guarantee investment contracts (GICs) (for which the issuer of the investment contract bears all of the interest rate risk) and synthetic GICs, which utilize a wrapper contract (for which the fund itself bears the majority of the interest rate risk though adjustments to future crediting rates). The Board also decided that the high credit quality criterion be removed from the definition of fully benefit-responsive and instead would impose a requirement that an investment contract should no longer be considered fully benefit-responsive if an event has occurred that may affect the realization of full contract value due to a decline in creditworthiness of the contract issuer or wrapper provider.

The Board approved a change in disclosure requirements so that the proposed FSP would require that (1) all investments and wrapper contracts should be reported on the balance sheet at fair value, (2) a subtotal for net assets at fair value should be reported on the balance sheet, and (3) the “difference between net assets at fair value and net assets” should be presented on the balance sheet and calculated as the sum of the amounts necessary to adjust the portion of net assets attributable to all fully benefit-responsive investment contracts in aggregate from fair value to contract value.

The proposed FSP also would require a detailed disclosure that supports amounts presented on the balance sheet for the fair value of all investments and the adjustment from fair value to contract value for each investment contract, including the major credit ratings for each investment contract.

The Board approved that the guidance in the proposed FSP would be effective for financial statements for annual periods ending after December 15, 2005. Earlier application would be permitted. Retroactive application to prior period financial statements (if presented) would be required.

The proposed FSP would explicitly amend the guidance in AICPA Statement of Position (SOP) 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans, with respect to the definition of fully benefit-responsive and the presentation and disclosure of fully benefit-responsive investment contracts. Amendments to SOP 94-4 will eventually be reflected in the revised AICPA Accounting and Auditing Guide, Employee Benefit Plans.

The Board also agreed to amend paragraph 10(h) of FASB Statement No.133, Accounting for Derivative Instruments and Hedging Activities, to effectively remove the scope exception provided for fully benefit-responsive investment contracts reported for at contract value in accordance with SOP 94-4.

The Board directed the staff to proceed to a draft of a proposed FSP for vote by written ballot and approved the posting of the proposed FSP to the FASB website for a 45-day comment period.

Financial guarantee insurance. The Board decided to add a project to its agenda to consider the accounting by insurers for financial guarantee insurance. The Board decided to limit the scope of the project to contracts issued by insurance companies that indemnify the holder against losses from payment default on a financial obligation that are not considered derivative contracts because they meet the exception in paragraph 10(d) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Thus, the project would be confined to contracts currently within the scope of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. However, consideration of the accounting model will not be limited to the short- and long-duration models described in Statement 60. The project will not be limited to claims liability recognition—the Board will consider other aspects of the accounting model including premium recognition and the related amortization of deferred policy acquisition costs.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through July. 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 29, 2005—FASB Board Meeting
Wednesday, June 29, 2005—FASB Education Session
Wednesday, July 6, 2005—FASB Board Meeting
Wednesday, July 6, 2005—FASB Education Session
Wednesday, July 13, 2005—FASB Board Meeting
Wednesday, July 13, 2005—FASB Education Session
Wednesday, July 20, 2005—FASB Board Meeting
Wednesday, July 20, 2005—FASB Education Session
Monday, July 25, 2005—Liaison Meeting with the Edison Electric Institute
Wednesday, July 27, 2005—FASB Board Meeting
Wednesday, July 27, 2005—FASB Board Meeting