|
Action Alert No. 05-39
September 29, 2005
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
Wednesday, October 5, 2005, 9:00 a.m.
- Financial
instruments: liabilities and equity. The Board will discuss
possible approaches to accounting for multiple component instruments,
including the application of an approach the staff describes as the
"obligation-first" approach. (Estimated 60-minute discussion.)
- Auction rate securities. The Board will consider whether to
add a project to its agenda on the definition of cash equivalents under
FASB Statement No. 95, Statement of Cash Flows, in relation to
auction rate securities. (Estimated 60-minute discussion.)
- Interpretation
of paragraphs 40(b) and 40(c) of Statement 140. The Board will
discuss comments received from constituents on proposed FSP FAS 140-c,
"Clarification of the Application of Paragraphs 40(b) and 40(c) of FASB
Statement No. 140." The Board will consider whether to (a) proceed to
draft a final FSP, (b) revise the proposed FSP prior to issuance as
final, or (c) take no further action. (Estimated 45-minute
discussion.)
- 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, October 5, 2005, 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 12,
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.
September 21, 2005 Board Meeting
Rental
costs. The Board decided to clarify in proposed FSP FAS 13-b,
"Accounting for Rental Costs Incurred during a Construction Period," that
(1) the scope of the proposed FSP does not include land and building
rental costs incurred during a construction period for a real estate
project accounted for under FASB Statement No. 67, Accounting for Costs
and Initial Rental Operations of Real Estate Projects, and (2) lessees
should continue to include ground rentals incurred during a construction
period as part of the total project costs in the maximum guarantee test of
EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset
Construction."
The Board instructed the staff to proceed to a draft of a final FSP for
vote by written ballot.
Nontraditional
loan products. The Board added a project to its agenda to provide
disclosure guidance for entities that originate, hold, guarantee, or
service nontraditional loan products (for example, option adjustable rate
mortgages). The Board decided that the guidance should be in the form of
an FSP, and directed the staff to proceed to a draft of a proposed FSP for
vote by written ballot, with a comment period of 30 days.
Alternative
transition option related to accounting for the tax effects of share-based
payment awards. The Board added this project to its agenda and
discussed issues related to a draft of a proposed FSP that would provide
guidance on a transition alternative for determining the APIC pool from
the date of adoption of FASB Statement No. 123 (revised 2004),
Share-Based Payment, back to the effective date of the original
FASB Statement No. 123, Accounting for Stock-Based
Compensation.
The Board decided the following:
- Practical guidance should be provided in the form of a proposed FSP
that establishes an elective transition alternative related to the
accounting for the tax effects of share-based payment awards.
- An entity will be allowed to elect to follow the transition guidance
in paragraph 81 of Statement 123(R) or the following elective transition
alternative:
- The beginning balance of an entity’s APIC pool should be
calculated as follows:
(1) All increases of additional paid-in capital recognized in an
entity’s financial statements related to tax benefits from stock-based
compensation during fiscal periods subsequent to the adoption of
Statement 123 but prior to the adoption of Statement 123(R), less
(2) The product of the cumulative gross compensation cost either
(a) recognized in the entity’s financial statements pursuant to
Statement 123 or (b) disclosed in the entity’s financial statements
pursuant to the provisions of Statement 123, multiplied by the
entity’s current blended statutory tax rate, inclusive of federal,
state, local, and foreign taxes.
- Tax benefits realized in accordance with Statement 123(R) and
recognized in equity subsequent to the adoption of Statement 123(R)
that relate to an award that was fully vested prior to the adoption of
Statement 123(R) should increase the APIC pool.
- The impact on the APIC pool of an award that is partially vested
upon or granted after the adoption of Statement 123(R) should be
determined in accordance with the principles of Statement 123(R). That
is, the tax deduction realized for a partially vested award should be
compared with the sum of compensation cost recognized or disclosed for
that award under Statement 123 and Statement 123(R). Any resulting
excess tax deduction should increase the APIC pool; any deficiency
should be deducted from the APIC pool.
- In determining the appropriate classification in the statement of
cash flows, the Board agreed on the following guidance for an entity
that elects the transition alternative prescribed in the proposed FSP:
- Tax benefits realized in accordance with Statement 123(R) and
recognized in equity subsequent to the adoption of Statement 123(R)
that relate to an award that was fully vested prior to the adoption of
Statement 123(R) should be included as a cash inflow from financing
activities and a cash outflow from operating activities within the
statement of cash flows.
- The impact on cash flows of an award that is partially vested upon
or granted after the adoption of Statement 123(R) should be determined
in accordance with the principles of Statement 123(R). That is, any
tax excess should be determined as if the entity has always followed a
fair value based method of recognizing compensation cost in its
financial statements and included as a cash inflow from financing
activities and a cash outflow from operating activities within the
statement of cash flows.
- With respect to effective date, transition, and comment period of
the proposed FSP, the Board decided the following:
- The guidance should be effective upon the later of an entity’s
initial adoption of Statement 123(R) or the date the final FSP is
issued.
- An entity may make a one-time policy election to adopt either (1)
the elective transition alternative or (2) the transition method
described in paragraph 81 of Statement 123(R).
- The elective transition alternative is available to an entity
regardless of the transition method used to adopt Statement 123(R).
- An entity may take up to one year from the later of its initial
adoption of Statement 123(R) or the effective date of the final FSP to
evaluate its available transition alternatives and finalize its
election.
- An entity would be required to disclose the method of transition
related to the accounting for the tax effect of share-based payment
awards; that is, whether an entity has elected to follow the
transition guidance in paragraph 81 of Statement 123(R) or the
elective transition alternative described in the proposed FSP.
- The proposed FSP should be exposed for a 15-day comment period.
The Board directed the staff to proceed to draft a proposed FSP for
vote by written ballot. Subsequently, proposed FSP
FAS 123(R)-c, "Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards," was posted to the FASB website
on September 23, 2005.
Short-term
convergence: earnings per share. The Board decided that the
revised Exposure Draft of the FASB proposed Statement, Earnings per
Share, should be effective for periods ending after June 15, 2006. It
also decided that the comment period for the Exposure Draft should be 60
days.
Conceptual
framework. The Board continued its deliberations on this joint
FASB/IASB project. The Board discussed issues relating to:
- The process for assessing qualitative characteristics of financial
information
- Planning issues for the reporting entity phase
- Whether to issue an Invitation to Comment (ITC) relating to assets
and liabilities with uncertainties as prepared by the staff
- Planning issues for discussion of prospective financial information.
The Board concluded the following:
- Process for assessing qualitative characteristics of financial
information. The Board agreed that the refined process chart for
assessing the qualitative characteristics of financial information is an
improvement over the process chart discussed at the July 28, 2005 Board
meeting. The Board raised some concerns about the staff’s depiction and
discussion of timeliness and the consequences of what happens when a
faithful representation of a relevant phenomenon cannot be achieved. The
Board instructed the staff to continue work on refining the depiction
and description of those characteristics. The Board agreed that
materiality is a factor that should be taken into account in considering
qualitative characteristics, but is not a qualitative characteristic
itself. Thus, it should not be treated as a separate step in the
process. Finally, the Board suggested that the accompanying language
make clear that the chart is intended to depict the process of using
qualitative characteristics in setting standards, rather than in
preparing financial reports, and that the staff also consider the
implications of that for the chart as well.
- Planning issue for reporting entity phase. The Board agreed
that it should proceed, as planned, to develop a due process document on
objectives and qualitative characteristics (Phase A) before concluding
(or substantially beginning) work on the reporting entity phase of the
project. The Board also agreed with the project plan for the reporting
entity phase.
- Invitation to Comment on asset and liabilities with
uncertainties. The Board agreed with the staff’s proposal to issue
an Invitation to Comment that would seek constituent input on certain
issues related to assets and liabilities with uncertainties that the
Board will be considering in the next phase (Phase B) of the project.
The Board also agreed to a 90-day comment period, which is expected to
begin on or about September 30, 2005.
- Planning issues for discussion of prospective financial
information. The Board agreed that it should continue with the
original plan to issue a due process document on objectives and
qualitative characteristics (Phase A) before consideration of
prospective financial information. That due process document should
indicate that the Board will consider the topic of prospective financial
information in the later phase on presentation and disclosure, including
the boundaries of financial reporting (Phase E).
Revenue
recognition. The Board considered certain issues relating to the
initial identification and measurement of performance obligations in the
context of an approach that would measure performance obligations based on
an allocation of the customer consideration amount.
The Board made the following decisions:
- Revenues arise when each contract deliverable (or performance
obligation) is delivered (or extinguished). All legal rights conveyed to
a customer in a revenue contract give rise to an element of revenue.
- Performance obligations in revenue contracts should be disaggregated
from the customer’s perspective, based on whether the deliverable has
utility to the customer, that is, whether the customer perceives
the product (the good, service, or other right) underlying the
performance obligation is, in and of itself, fit for some purpose or is
serviceable for some end. The deliverable has utility to a customer if
either (a) it is sold separately by any vendor (or as an optional extra)
or it could be resold separately by the customer in the customer’s
reference market, or (b) it obligates the reporting entity to stand
ready to provide goods, services, or other consideration to the customer
if specified events occur.
- The measurement of performance obligations should be based on the
amount at which the product is sold or could be sold unless other GAAP
requires that they be measured at fair value.
- The amount at which the product is sold or could be sold should be
measured by the most reliable available evidence (from most reliable to
least reliable): (a) current prices charged by the reporting entity in
an active market; (b) current prices charged by another entity (that is,
a competitor) in an active market; (c) current prices charged by an
entity in an inactive market; (d) entity inputs that reflect the
reporting entity’s own internal assumptions and data.
- The difference between the customer consideration amount and the sum
of the amounts at which the products are sold or could be sold should be
allocated to those performance obligations on a pro rata basis. However,
no part of that difference should be allocated to performance
obligations that other GAAP requires to be measured at fair value.
The Board also decided not to explore an alternative approach in which
performance obligations would be either permitted or required to be
measured at fair value if active layoff markets for those obligations
exist.
FASB DOCUMENT AVAILABLE
Proposed
FSP FIN 46(R)-c, "Determining the Variability to Be Considered In
Applying FASB Interpretation No. 46(R)," was posted to the FASB website on
September 29, 2005. Comments are requested by November 30, 2005.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
October. 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, October 10, 2005—Uncertain Tax Positions Roundtable
Meeting
Wednesday, October 12, 2005—FASB Board Meeting
Wednesday,
October 12, 2005—FASB Education Session
Friday, October 14,
2005—Liaison Meeting with the National Investor Relations
Institute
Monday, October 17, 2005—Securitization Industry Forum on
Transfers of Financial Assets
Tuesday, October 18, 2005—FASB
Education Session
Wednesday, October 19, 2005—FASB Board
Meeting
Monday, October 24, 2005—Joint IASB/FASB Meeting
Tuesday,
October 25, 2005—Joint IASB/FASB Meeting
Wednesday, October 26,
2005—FASB Insurance Forum
Thursday, October 27, 2005—Business
Combinations Roundtable Meetings
|
|