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Action Alert No. 06-15
April 13, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
Wednesday, April 19, 2006, 8:30 a.m.
The Board meeting will begin at 8:30 a.m. instead of 9:00
a.m.
- Planned
major maintenance activities (estimated 30-minute
discussion). The Board will discuss the transition guidance that
will be included in the proposed FSP on accounting for planned major
maintenance activities.
- 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, April 19, 2006, 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 April 27 and
April 28, 2006 FASB/IASB joint Board meetings. 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, Interpretation, or
FSP.
April 5, 2006 Board Meeting
Conceptual
framework. The Board continued its deliberations on this joint
FASB/IASB project and discussed the reporting entity concept and the
comments received on the FASB Invitation to Comment, Selected Issues
Relating to Assets and Liabilities with Uncertainties.
Reporting Entity—The Board discussed (1) the meaning of the term
entity, (2) whether a parent-only entity may be the subject of
general purpose financial reporting, and (3) the meaning of control,
in the context of one entity having control over another entity.
The Meaning of Entity—The Board agreed that an entity for
financial reporting purposes should not be limited to legal entities, such
as companies, trusts, and partnerships. Rather, an entity should be
defined more broadly to include other types of organizational structures,
including a natural person, a sole proprietorship, and, in some
circumstances, a branch or segment of a legal entity.
Parent-Only Entity—The Board agreed that a parent-only entity
could be a reporting entity. Most Board members reached that conclusion by
viewing the parent-only entity and a group entity as different entities.
Those Board members regard the (1) separate (parent-only) financial
statements of the parent as a standalone entity (for example, a parent
with its investments in subsidiaries but excluding the assets,
liabilities, and activities of its subsidiaries) as relating to the
parent-only entity and (2) consolidated financial statements of the parent
and its subsidiaries as relating to a group entity that combines the
parent with one or more other entities, as if they were a single entity.
Some Board members reached the conclusion that a parent-only entity could
be a reporting entity but view the parent-only financial statements and
the consolidated financial statements as different forms of presentation
for the same entity.
The Meaning of Control—Board members generally agreed that
control should be defined in the conceptual framework. They agreed with
the definition of control proposed by the staff, which includes the
notions of power and benefits, and offered suggestions for
improving the definition.
Invitation to Comment—The staff presented an analysis of the
comments received on the Invitation to Comment. The comments will be used
during deliberations relating to the effects of uncertainty on the
definition, recognition, and measurement of assets and liabilities in the
conceptual framework project.
Financial
statement presentation (formerly financial performance reporting by
business entities). The Board discussed the scope and objective of
the project. The Board also discussed the working principles for Phase B
of the project; Phase B issues relate to how information should be
presented in the financial statements (including classification, display,
and aggregation into subtotals and totals).
- The Board affirmed the following points related to the project
scope:
- The project will address the organization and presentation of
financial information on the face of the financial statements; it will
not address recognition or measurement guidance provided in
other standards for individual assets, liabilities, or transactions.
- The project will address all the financial statements that
constitute a complete set of financial statements. The project will
address annual financial statements; Phase C of the project will
address interim financial information.
- The project will address the necessity for totals and subtotals
within the financial statements including the net income subtotal. The
project will assess whether to change the mechanism of recycling as
used today.
- The project will not include a comprehensive review
of the notes to the financial statements. However, it may result in
amendments to existing disclosure requirements as a consequence of
changes made to the face of the financial statements. In addition, the
project may result in new disclosure requirements when the project
objective cannot be achieved on the face of the financial statements.
- The resulting standard will apply to all business entities.
However, the Board will consider whether there should be different
presentation provisions for financial institutions.
- The project will not address:
(1) Management’s discussion and analysis.
(2) Pro forma measures.
(3) A comprehensive review of segment reporting requirements.
However, the project may result in amendments to the current segment
reporting requirements as a consequence of changes made to the
financial statements. (The IASB is addressing IAS 14, Segment
Reporting, in a separate short-term convergence project.)
(4) Financial ratios (except earnings per share and other
per-share amounts).
(5) Forecasts of information.
(6) Nonfinancial ratios or other nonfinancial
information.
(7) Financial statements for specific industries (except for
how the decisions in the project may affect the financial statements
of financial institutions).
- The Board agreed to change the project name to financial
statement presentation to reflect that the project scope encompasses
all of the financial statements, not just the income statement.
- The Board agreed to the following proposed project objective and
provided the staff with suggested clarifying language:
- To improve how information is presented in the individual
financial statements (and in the financial statements as a whole) to
help investors, creditors, and others fully understand an entity’s
financial position and changes in that position and use that
information to assess the amounts, timing, and uncertainty of an
entity’s future cash flows
- To meet that objective, the Board will address the classification
and display of line items in the financial statements, including their
aggregation into subtotals and totals. In addition, the Board will
address how to best present information in the financial statements so
that those statements are complementary.
- The Board agreed to the substance of the following proposed working
principles it would use to develop the standards for presentation and
display in the financial statements and provided the staff with
suggested clarifying language:
- Financial statements should present information in a manner that
portrays a cohesive financial picture of an entity and is comparative
and consistent from one period to another.
- Financial statements should present information in a manner that
helps a user assess the liquidity of an entity’s assets and
liabilities (nearness to cash or time to maturity).
- Financial statements should present information in a manner that
separates an entity’s value-creating activities from its capital
activities.
- Financial statements should present information in a manner that
helps a user understand:
(1) The different methods used to measure assets and
liabilities
(2) The relative precision of those measurements
(3) What caused a change in reported amounts of individual
assets or liabilities (such as a transaction or a change in value or
measurement method).
- Information in the financial statements should be disaggregated
and categorized into groups that respond similarly to changes in the
same economic condition.
- The Board discussed the staff’s plans for making progress toward
issuance of a Preliminary Views in the first quarter of 2007. The Board
made the following decisions related to the scope of that work:
- The required financial statements (as decided in Phase A of the
project) should be the starting point for the resolution of issues in
Phase B. However, if it becomes apparent that the project objective
cannot be achieved within the confines of those financial statements,
development of a new financial statement or elimination of an existing
financial statement is appropriate.
- The staff should not spend time defining the purpose of the
individual financial statements unless the existing accounting
literature on that topic is not sufficient for resolving the financial
statement presentation issues within the project scope.
- The Boards will not deliberate whether earnings per share or other
per-share amounts should be presented in the financial statements or
the notes to those financial statements prior to issuing a Preliminary
Views. That issue will be addressed by the Board after it has had the
benefit of constituent input on the principles and application
guidance for financial statement presentation that will be described
in the Preliminary Views. The Board agreed to discuss at a later date
whether the Preliminary Views should include a question related to
earnings per share.
- The staff’s work and Board’s decisions on Phase B issues should be
sensitive to the IASB’s progress on Phase A issues but should not be
constrained by the Phase A proposals in the IASB’s March 2006 Exposure
Draft amending IAS 1, Presentation of Financial Statements.
- Input from the Joint International Group (JIG) will be sought
informally on a regular basis as the staff and Board apply the working
principles in developing the Board’s Preliminary Views on the various
financial statement presentation issues. A formal public meeting with
the JIG will be held after the Board has had a chance to discuss
application of the working principles.
Short-term
international convergence: earnings per share. The Board made the
following decisions after considering (1) comments received from
respondents on the FASB Exposure Draft, Earnings per Share, and (2)
tentative conclusions of the IASB regarding proposed amendments to IAS 33,
Earnings per Share:
- The application of the treasury stock method to options, warrants,
and their equivalents would be modified as follows:
- The carrying amount of an option or warrant classified as a
liability would be considered an assumed proceed (an affirmation of a
decision proposed in the Exposure Draft). In a change from the
Exposure Draft, the Board decided that the amount of the assumed
proceeds should be the average carrying amount of the liability during
the period rather than the period end amount.
- The carrying amount of an instrument classified as equity would
not be considered an assumed proceed in the treasury stock
calculation.
- Mandatorily convertible instruments should be reflected in basic
earnings per share using the two-class method rather than using the
if-converted method as proposed in the Exposure Draft.
- The application of the reverse treasury stock method to options,
warrants, and their equivalents would be modified as follows:
- The average carrying amount of an instrument classified as a
liability would be considered an assumed proceed.
- The average carrying amount of an instrument classified as an
asset would be considered a negative assumed proceed.
- The Board was unable to agree on whether the treasury stock method
should replace the if-converted method for convertible instruments
classified as liabilities (that is, convertible debt instruments).
The Board noted that their views on the earnings per share treatment of
(1) options, warrants, and their equivalents classified as equity (Issue
1(b)), (2) mandatorily convertible instruments (Issue 2), and (3)
convertible debt (Issue 4) differ from the IASB. The Board directed the
staff to further analyze those differences for discussion at a future
meeting.
FASB DOCUMENT AVAILABLE
Final FSP
FIN 46(R)-6, “Determining the Variability to Be Considered in
Applying FASB Interpretation No. 46(R),” was issued on April 13, 2006, and
is available on the FASB website.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
May. 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.
Thursday, April 27, 2006—FASB/IASB Joint Board Meeting,
London
Friday, April 28, 2006—FASB/IASB Joint Board Meeting,
London
Wednesday, May 3, 2006—FASB Board Meeting
Wednesday, May 3,
2006—FASB Education Session
Tuesday, May 9, 2006—Liaison Meeting with
Healthcare Financial Management Association
Wednesday, May 10,
2006—FASB Board Meeting
Wednesday, May 10, 2006—FASB Education
Session
Wednesday, May 17, 2006—No FASB Board Meeting
Wednesday, May
17, 2006—FASB Education Session
Wednesday, May 24, 2006—FASB Board
Meeting
Wednesday, May 24, 2006—FASB Education Session
Thursday, May
25, 2006—Liaison Meeting with American Accounting
Association
Wednesday, May 31, 2006—FASB Board Meeting
Wednesday,
May 31, 2006—FASB Education Session
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