Action Alert No. 05-25
June 23, 2005

NOTICE OF MEETINGS

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

Wednesday, June 29, 2005, 9:00 a.m.

  1. Fair value measurements. The Board will continue redeliberations of the Exposure Draft, Fair Value Measurements. The Board will clarify certain aspects of the guidance developed to date relating to the fair value definition and the fair value hierarchy. (Estimated 30-minute discussion.)

  2. Measuring fair value of certain derivative contracts under Statement 133. The Board will discuss issues relating to initial and subsequent estimates of fair value of derivative instruments under EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." (Estimated 60-minute discussion.)

  3. Financial instruments: liabilities and equity. The Board will discuss the definition of a multiple component instrument and possible separation approaches. (Estimated 60-minute discussion.)

  4. Financial instruments: derivative implementation. The Board will discuss comments received on proposed Statement 133 Implementation Issues No. B39, "Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor," and No. B38, "Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option." (Estimated 30-minute discussion.)

  5. Other-than-temporary impairment. The Board will discuss comment letters received on proposed FASB Staff Position (FSP) EITF 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1," and whether to proceed with a project to provide guidance on the meaning of other-than-temporary impairment. (Estimated 60-minute discussion.)

  6. Accounting for rental costs incurred during the construction period. The Board will discuss whether to add a project to its agenda that will address whether an entity may capitalize rental costs that are incurred during the construction period and, if so, the types of rental costs that can be capitalized. The Board will discuss whether the guidance should be in the form of an FSP. (Estimated 60-minute discussion.)

  7. FASB ratification of EITF consensuses. The Board will consider the ratification of the consensuses reached at the June 15–16, 2005 Emerging Issues Task Force meeting (see discussion under EITF ACTIONS). In addition, the Board will consider whether to finalize proposed FSP SOP 78-9-a, "Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5." A decision on that proposed FSP was postponed pending the consensus on Issue 04-5. (Estimated 30-minute discussion.)

  8. 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 SESSIONS

Wednesday, June 29, 2005, following the Board meeting
Thursday, June 30, 2005, 8:30 a.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the July 6 and July 13, 2005 Board meetings. Those topics will be posted to the FASB calendar four days prior to the education sessions.

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 15, 2005 Board Meeting

Short-term international convergence: income taxes. The Board considered certain differences between the disclosure requirements in FASB Statement No. 109, Accounting for Income Taxes, and IAS 12, Income Taxes.

The Board decided to amend the disclosure requirements in Statement 109 to:

  1. Add "any adjustments recognized in the period for current tax of prior periods" to the list of examples of significant components of income tax expense in paragraph 45 of Statement 109.

  2. Add to and expand upon the disclosure requirements in Statement 109 for the tax effects of intercompany asset transfers. The Board will consider alternative disclosure requirements at a future meeting.

  3. Include the guidance in paragraphs 82A and 87A–87C of IAS 12 regarding disclosure of the potential income tax consequences of dividend payments.

  4. Add to Statement 109 a required disclosure of the tax effects of dividends, if any, whenever entities voluntarily disclose dividends declared subsequent to the balance sheet date in the notes to financial statements.

The Board also considered but decided not to require additional disclosures regarding the nature and amount of undistributed earnings of foreign subsidiaries.

Warrants for redeemable shares. The Board discussed comments received on proposed FSP FAS 150-e, "Issuer’s Accounting under Statement 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable," and directed the staff to proceed to a draft of the final FSP for vote by written ballot.

Interpretation of paragraph 40(b) and 40(c) of Statement 140. The Board decided to add to its agenda a project to clarify, through the guidance of an FSP, that the accounting guidance provided in paragraphs 40(b) and 40(c) of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, relative to the notional amount of passive derivative instruments held by a qualifying special-purpose entity (SPE) is required to be met upon initial establishment of the qualifying SPE only.

Qualifying special-purpose entities and isolation of transferred assets. The Board discussed a proposal to amend Statement 140 to allow qualifying SPEs to hold passive derivative financial instruments that do not initially exceed the amount of beneficial interests issued (including those that are held by or subsequently purchased by the transferor, its affiliates, or its agents) and that are not expected to exceed them subsequently. Currently, Statement 140 limits the amount of derivatives a qualifying SPE can hold to an amount that does not initially exceed the amount of beneficial interests issued or sold to parties other than the transferor, its affiliates, and its agents, and that is not expected to exceed them subsequently. The Board concluded that the original limit would no longer be necessary given the Board’s decisions on the measurement of hybrid financial instruments that are included in the soon-to-be-issued Exposure Draft on accounting for hybrid financial instruments.

EITF ACTIONS

June 15–16, 2005 EITF Meeting

The task force discussed the following issues:

  1. Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." The Task Force agreed to make certain changes to Exhibit 01-9F and to add a footnote to Issue 4 to clarify the interaction between this Issue's scope and the consensus in Issue 4 (which was reached at the November 14–15, 2001 EITF meeting). The Board will consider the ratification of these changes at its June 29, 2005 meeting.

  2. Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights." A consensus was reached. Based on that consensus, the Task Force also agreed to amend the consensus in EITF Issue No. 96-16, "Investor's Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholders Have Certain Approval or Veto Rights." The Board will consider the ratification of the consensus and the amendment at its June 29, 2005 meeting and will also consider whether to finalize proposed FSP SOP 78-9-a, "Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5."

  3. Issue No. 04-6, "Accounting for Stripping Costs Incurred during Production in the Mining Industry." The Task Force agreed to change the transition provisions of this Issue to require entities that adopt the consensus through a cumulative-effect adjustment to recognize any adjustment in retained earnings (or other appropriate component of equity or net assets). The Task Force also agreed to clarify that "inventory produced" means "inventory extracted" in the previously reached consensus for this Issue. The Board will consider the ratification of these changes at its June 29, 2005 meeting.

  4. Issue No. 04-10, "Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds." The Task Force agreed to change the effective date of this Issue and that the consensus should be effective for fiscal years ending after September 15, 2005. Additionally, the corresponding information for earlier periods, including interim periods, should be restated unless it is impractical to do so. The Board will consider the ratification of this change at its June 29, 2005 meeting.

  5. Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty." The Task Force reached several tentative conclusions at the March 17 and June 15–16, 2005 EITF meetings and asked the staff to prepare a draft abstract reflecting those tentative conclusions and to post that draft abstract to the FASB website for public comment. This Issue will be discussed further at a future meeting.

  6. Issue No. 05-1, "Accounting for the Conversion of an Instrument That Becomes Convertible upon the Issuer's Exercise of a Call Option." The Task Force discussed the previously reached tentative conclusion and asked the FASB staff to research various alternatives for future consideration. This Issue will be discussed further at a future meeting.

  7. Issue No. 05-2, "The Meaning of 'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.'" A consensus was reached. The Board will consider the ratification of that consensus at its June 29, 2005 meeting.

  8. Issue No. 05-3, "Accounting for Rental Costs Incurred during the Construction Period." The Task Force was unable to reach a consensus and agreed to remove this Issue from its agenda.

  9. Issue No. 05-4, "The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.'" The Task Force asked the FASB staff to obtain additional information on how entities currently account for registration rights agreements in practice and to analyze the comparison between registration rights penalties and other penalties that do not meet the definition of a derivative. This Issue will be discussed further at a future meeting.

  10. Issue No. 05-5, "Accounting for the Altersteilzeit Early Retirement Programs." A consensus was reached. The Board will consider the ratification of that consensus at its June 29, 2005 meeting.

  11. Issue No. 05-6, "Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination." A consensus was reached. The Board will consider the ratification of that consensus at its June 29, 2005 meeting. The Task Force directed the FASB staff to further develop a separate issue for EITF Agenda Committee consideration that would address whether the amortization period for a leasehold improvement should be reevaluated after the initial determination of the amortization period.

FASB DOCUMENT AVAILABLE

Proposed FSP TB 85-4-a, "Accounting of Life Settlement Contracts by Investors," was issued on June 17, 2005, and is available on the FASB website. Comments are requested by August 1, 2005.

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, 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 Education Session