Action Alert No. 06-34
August 24, 2006

NOTICE OF MEETINGS

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

Wednesday, August 30, 2006, 9:00 a.m.

  1. Planned major maintenance activities (estimated 30-minute discussion). The Board will discuss comments received on proposed FSP AUG AIR-a, "Planned Major Maintenance Activities," and redeliberate certain issues in that proposed FSP.

  2. Measurement of nonfinancial assets and nonfinancial liabilities in business combinations and impairment evaluations (estimated 90-minute discussion). The Board will discuss (a) practice issues regarding the measurement of nonfinancial assets that are required to be measured at fair value and (b) the alternatives to address those issues.

  3. 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, August 30, 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 September 6, 2006 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.

OPEN MEETING WITH REPRESENTATIVES OF THE AMERICAN GAS ASSOCIATION AND THE EDISON ELECTRIC INSTITUTE

Monday, August 28, 2006, 2:30 p.m. - 5:00 p.m.

The Board will meet with representatives of the American Gas Association and the Edison Electric Institute to discuss matters of mutual interest.

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.

August 16, 2006 Board Meeting

Financial instruments: liabilities and equity. At the June 2006 education sessions, the Board discussed two alternatives for describing the narrow view of the equity approach. The Board directed the staff to further develop one of those alternatives—the ownership approach—for future comparison to the ownership-settlement approach and the reassessed expected outcomes approach. The ownership approach modifies the ownership-settlement approach by classifying all indirect ownership instruments as liabilities or assets. Other aspects of the ownership-settlement approach are retained.

At this Board meeting, the Board discussed further details of the ownership approach including the financial statement location and display for gains and losses arising from remeasurement of equity derivative instruments. The Board decided:

  1. Under the ownership approach, all fair value changes in equity derivative instruments (and any other instruments that are measured at fair value) should be recognized in net income. Equity derivative instruments include those that are freestanding or that are embedded (for example, convertible debt is considered an equity derivative instrument for this purpose).

  2. Although the Board believes display is important under the ownership approach, presentation issues arising from measuring instruments at fair value will not be addressed at this stage of the project. Rather, the Board will address those issues in the Exposure Draft process by considering (a) input from other projects addressing financial statement display and (b) constituent input from the proposed forthcoming Preliminary Views on liabilities and equity.

Fair value option. The Board redeliberated the scope of Phase 1 of the project. The Board decided that:

  1. Equity method investments will remain in the scope of Phase 1; no eligibility criteria will be imposed for those investments; an entity will be required to apply the fair value option, if elected, to all of its financial investments (equity and debt) in an investee, rather than on a contract-by-contract basis; and an entity may irrevocably elect the fair value option upon obtaining the ability to exercise significant influence.

  2. Investments in equity securities that do not have a readily determinable fair value will remain in the scope of Phase 1 and no eligibility criteria will be imposed for those investments.

  3. Insurance and reinsurance contracts that meet the definition of a financial instrument will remain in the scope of Phase 1, and the scope of Phase 1 will be expanded beyond insurance and reinsurance contracts that are financial instruments to also include insurance contracts that do not prohibit settlement of the insurer’s obligation by payment to a third-party provider of goods or services rather than by payment to the insured or other claimant.

  4. Warranty rights and obligations that meet the definition of a financial instrument will remain in the scope of Phase 1, and the scope of Phase 1 will be expanded beyond warranty rights and obligations that are financial instruments to also include warranty rights and obligations that do not prohibit settlement of the warranty obligation by payment to a third-party provider of goods or services rather than by payment to the claimant.

  5. Unconditional purchase obligations that are recorded as financial liabilities on the purchaser’s statement of financial position as discussed in paragraph 10 of FASB Statement No. 47, Disclosure of Long-Term Obligations, will remain in the scope of Phase 1.

  6. Otherwise unrecognized firm commitments that satisfy the definition of a firm commitment in FASB Statement No.133, Accounting for Derivative Instruments and Hedging Activities, and involve only financial instruments will remain in the scope of Phase 1.

  7. Written loan commitments not accounted for under Statement 133 will no longer be excluded from the scope of Phase 1.

  8. Demand deposit accounts will be considered in Phase 2 of the project and will be defined as financial liabilities of financial institutions with demand features in a manner consistent with the IASB.

  9. The following items, which are excluded from the scope of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, will also be excluded from the scope of Phase 1:

    1. Interests that would otherwise be consolidated

    2. Financial assets and financial liabilities recognized under lease contracts as defined in FASB Statement No. 13, Accounting for Leases

    3. Employers’ and plans’ financial obligations for pension benefits, other postretirement benefits (including health care and life insurance benefits), postemployment benefits, employee stock option and stock purchase plans, and other forms of deferred compensation arrangements as defined in FASB Statements No. 35, Accounting and Reporting by Defined Benefit Pension Plans, No. 87, Employers’ Accounting for Pensions, No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, No. 112, Employers’ Accounting for Postemployment Benefits, No. 123 (revised December 2004), Share-Based Payment, No. 43, Accounting for Compensated Absences, and No. 146, Accounting for Costs Associated with Exit or Disposal Activities, and APB Opinion No. 12, Omnibus Opinion—1967.

  10. No additional reference to the exclusion of income tax assets and liabilities will be made in the standards section of the final Statement.

Statement 133 implementation: hedging foreign exchange risk for a forecasted foreign-currency-denominated debt issuance. The Board discussed the issuance of proposed Statement 133 Implementation Issue, "Hedging Functional-Currency-Equivalent Proceeds to Be Received from a Forecasted Foreign-Currency-Denominated Debt Issuance." The Board deferred a decision on the issuance of that proposed Implementation Issue and requested that the staff perform further analysis including additional examples. That analysis will be presented to the Board at a future meeting.

Fair value measurements. The Board discussed the timing of a final Statement on fair value measurements. The Board authorized the staff to proceed to a revised draft of the Statement for vote by written ballot. The Board plans to issue the Statement in September 2006.

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.

Wednesday, September 6, 2006—FASB Board Meeting
Wednesday, September 6, 2006—FASB Education Session
Thursday, September 7, 2006—Emerging Issues Task Force Meeting
Tuesday, September 12, 2006—Liaison Meeting with the AICPA Accounting Standards Executive Committee
Wednesday, September 13, 2006—FASB Board Meeting
Wednesday, September 13, 2006—FASB Education Session
Tuesday, September 19, 2006—Liaison Meeting with Institute of Management Accountants
Wednesday, September 20, 2006—FASB Board Meeting
Wednesday, September 20, 2006—FASB Education Session
Thursday, September 21, 2006—Financial Accounting Standards Advisory Council Meeting
Wednesday, September 27, 2006—FASB Board Meeting
Wednesday, September 27, 2006—FASB Education Session
Friday, September 29, 2006—Liaison Meeting with the AICPA PCPS Technical Issues Committee
Tuesday, October 3, 2006—User Advisory Council Meeting, New York City
Wednesday, October 4, 2006—FASB Board Meeting
Wednesday, October 4, 2006—FASB Education Session
Wednesday, October 11, 2006—FASB Board Meeting
Wednesday, October 11, 2006—FASB Education Session
Tuesday, October 17, 2006—Liaison Meeting with CFA Institute
Wednesday, October 18, 2006—FASB Board Meeting
Wednesday, October 18, 2006—FASB Education Session
Monday, October 23, 2006—FASB/IASB Joint Board Meeting, Norwalk, CT
Tuesday, October 24, 2006—FASB/IASB Joint Board Meeting, Norwalk, CT