Action Alert No. 05-43
October 27, 2005

NOTICE OF MEETINGS

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

No Board meetings are planned for the week of October 31, 2005. The next Board meeting is scheduled for Thursday, November 10, 2005, and will be announced in next week’s issue of Action Alert.

OPEN EDUCATION SESSION

No education sessions are planned for the week of October 31, 2005. The next education session is scheduled for Wednesday, November 9, 2005, and will be announced in next week’s issue of Action Alert.

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, Interpretation, or FSP.

October 19, 2005 Board Meeting

Agenda decision—first time adoption of International Financial Reporting Standards (IFRS). The Board considered a constituent request that it undertake a project relating to the application of U.S. GAAP by foreign private issuers that have adopted IFRS. The objective of such a project would be to eliminate certain differences between net income and equity as reported under U.S. GAAP and the amounts as reported under IFRS that arise from differing adoption dates of certain otherwise similar standards. The Board decided not to add such a project to its agenda.

Fair value option. The Board discussed several approaches for possibly curtailing a debtor’s recognition of the portion of a liability’s changes in fair value that is attributable to changes in its own creditworthiness in conjunction with reporting liabilities at fair value. The Board rejected any such curtailment of the effect of changes in the debtor’s creditworthiness. That decision applies to derivative liabilities reported at fair value under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as well as any other liabilities reported at fair value, such as those for which the fair value option will have been elected.

The Board also discussed specific disclosures related to liabilities that are reported at fair value and the portion of the fair value change that is attributable to changes in the debtor’s creditworthiness. Although the Board indicated preliminary support for disclosing the difference between the carrying amount of a financial liability and the amount the entity would be contractually required to pay at maturity to the holder of the obligation, no decisions regarding disclosures were made at this time. Instead, disclosures will be addressed comprehensively later in the Board’s deliberations on this project.

Minimum revenue guarantees. The Board discussed the summary of comment letters received on the proposed FSP FIN 45-b, "Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners." The Board approved the issuance of a final FSP to be structured as an amendment to FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Minimum revenue guarantees will be cited as a fifth example under paragraph 3(a), thereby indicating clearly that minimum revenue guarantees are within the scope of Interpretation 45.

The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.

Life settlements. The Board decided, based on issues raised in constituent comment letters, to allow an investor to select either fair value or the investment method as the relevant measurement attribute for investments in life settlement contracts. The Board will redeliberate at a future meeting the remaining issues raised by constituents in the comment letter process and address how the fair value election would be applied. The Board also decided not to expand the scope of the final FSP at this time; however, it requested that the staff return to the Board after the redeliberations are completed on the current FSP with a formal agenda request to add a second phase to this project to consider expanding the scope to include all purchases of life insurance accounted for in accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. Finally, the Board decided that the decisions reached at the meeting would not require reexposure of the proposed FSP FTB 85-4-a, "Accounting for Life Settlement Contracts by Investors."

Transition for the tax effects of share-based payment awards. The Board discussed comments received from respondents to the proposed FSP FAS 123(R)-c, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards." Specifically, the Board addressed an alternative model for the APIC pool calculation, three modifications to the proposed calculation, the addition of guidance on blended statutory tax rates, and a modification to the proposed transition requirements. The Board decided:

  1. The model for the APIC pool calculation will remain the same as the model exposed in the proposed FSP.

  2. The simplified method will be revised to consider only the cumulative compensation cost disclosed under FASB Statement No. 123, Accounting for Stock-Based Compensation, as a deduction in arriving at the beginning balance of the APIC pool.

  3. The simplified method will be revised to exclude compensation cost associated with partially vested awards from the cumulative compensation cost that is deducted in arriving at the beginning balance of the APIC pool.

  4. The simplified method will be revised to exclude the compensation cost associated with awards that are not ordinarily deductible for tax purposes (for example, incentive stock options) from the cumulative compensation cost that is deducted in arriving at the beginning balance of the APIC pool, unless the award has resulted in a tax deduction prior to the adoption of FASB Statement No. 123 (revised 2004), Share-Based Payment, or unless information is not available to determine the compensation cost associated with such awards.

  5. No additional guidance for calculating the blended tax rate will be provided in the final FSP.

  6. The transition provisions in the final FSP will be clarified as follows:

    1. Prior to finalizing its one-time election, an entity should apply the transition guidance in paragraph 81 of Statement 123(R) and the guidance in paragraph 68 of Statement 123(R) on classification of amounts in the statement of cash flows.

    2. If an entity subsequently elects the simplified transition provisions of the FSP, it should account for any resulting impact on the income statement or statement of cash flows by retrospectively applying the guidance in the final FSP to periods subsequent to the adoption of Statement 123(R).

The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.

FASB DOCUMENT AVAILABLE

Proposed FSP FAS 133-a, "Accounting for Unrealized Gains (Losses) Relating to Derivative Instruments Measured at Fair Value under FASB Statement No. 133," was posted to the website on October 21, 2005. Comments are requested by November 21, 2005. That proposed FSP refers to certain aspects of the guidance in a final Statement on fair value measurements. A working draft of the standard and the basis for conclusions of that Statement also is available on the FASB website.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through November. 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.

Monday, November 7, 2005—Liaison Meeting with American Gas Association
Wednesday, November 9, 2005—No Board Meeting Scheduled
Wednesday, November 9, 2005—FASB Education Session
Wednesday, November 9, 2005—Business Combinations Roundtable Meetings, London
Thursday, November 10, 2005—FASB Board Meeting
Wednesday, November 16, 2005—FASB Board Meeting
Wednesday, November 16, 2005—FASB Education Session
Tuesday, November 22, 2005—FASB Board Meeting
Tuesday, November 22, 2005—FASB Education Session
Tuesday, November 29, 2005—FASB Board Meeting
Tuesday, November 29, 2005—FASB Education Session
Wednesday, November 30, 2005—Small Business Advisory Committee