Action Alert No. 06-49
December 7, 2006

NOTICE OF MEETINGS

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

Wednesday, December 13, 2006, 8:00 a.m.

The Board meeting will begin at 8:00 a.m. instead of 9:00 a.m.

  1. Financial statement presentation (estimated 2-hour discussion). The Board will discuss:
    1. Issues related to the statement of cash flows (primarily whether the direct or indirect method should be used)
    2. Alternative formats for presenting other comprehensive income items in the statement of comprehensive income
    3. How the working format currently being developed might be applied by financial institutions and what modifications, if any, are necessary to address their financial statement presentation needs.

  2. Statement 133 Implementation Issue—cash flow hedges of variable-rate assets and liabilities that are not based on a benchmark interest rate (estimated 30-minute discussion). The Board will discuss comments received on proposed Statement 133 Implementation Issue No. G26, "Cash Flow Hedges: Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities That Are Not Based on a Benchmark Interest Rate," and will decide whether to issue that tentative guidance as final.

  3. Fair value measurements in business combinations and impairment tests (estimated 30-minute discussion). The Board will discuss whether to issue a final FSP that would amend FASB Statements No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets, and No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to clarify the existing guidance on fair value measurements that is presently contained in those Statements. Proposed FSP FAS 141-b, 142-e, and 144-b,"Fair Value Measurements in Business Combinations and Impairment Tests," would be effective until the reporting entity adopts FASB Statement No. 157, Fair Value Measurements.

  4. 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, December 13, 2006, following the Board Meeting Thursday, December 14, 2006, 9:00 a.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the December 19, 2006, and December 20, 2006 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, Interpretation, or FSP.

November 29, 2006 Board Meeting

Offsetting receivables or liabilities recognized upon payment or receipt of cash collateral in master netting arrangements. The Board decided to issue a proposed FSP on offsetting receivables or liabilities recognized upon payment or receipt of cash collateral in master netting arrangements. The proposed FSP will provide guidance on whether companies can offset a receivable recognized for the right to receive a return of cash collateral or a liability recognized for the obligation to return cash collateral against net derivative positions in master netting arrangements without considering the intent to offset criterion in paragraph 5(c) of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts. The proposed FSP will be exposed for a 45-day comment period and will be applicable to fiscal years beginning after December 15, 2006, with retrospective application required. Early adoption will not be permitted. The Board directed the staff to proceed to a draft of the proposed FSP for vote by written ballot.

Postretirement benefit obligations, including pensions. The Board decided to issue a proposed FSP on conforming amendments to the Illustrations in FASB Statements 87, 88, and 106 and to related Staff Implementation Guides, for exposure with a 30-day comment period. The proposed FSP will conform the illustrations contained in the following appendixes to reflect the provisions of FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans:

  1. Appendix B of FASB Statement No. 87, Employers' Accounting for Pensions

  2. Appendix B of FASB Statement No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits

  3. Appendix C of FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.

The proposed FSP also will make conforming changes to the question-and-answer implementation guidance contained in the following FASB Special Reports and incorporate them as new appendixes of Statements 87, 88, and 106:

  1. A Guide to Implementation of Statement 87 on Employers' Accounting for Pensions

  2. A Guide to Implementation of Statement 88 on Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits

  3. A Guide to Implementation of Statement 106 on Employers' Accounting for Postretirement Benefits Other Than Pensions.

Financial guarantee insurance. The Board discussed remaining issues identified during the drafting of the proposed Interpretation of FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, for financial guarantee insurance contracts as well disclosures, effective date, transition, and exposure period. Specifically, the Board decided the following:

  1. Not to define expected loss within the proposed Interpretation.

  2. Include guidance within the proposed Interpretation regarding (a) the accounting treatment for refundings and (b) refundings in which the same financial guarantor that insured the retired financial obligation insures the new financial obligation.

  3. Exclude mortgage guarantee insurance and credit insurance from the scope of the proposed Interpretation.

  4. Not include accounting guidance within the proposed Interpretation relating to purchases and subsequent sales of financial obligations guaranteed by the holder of the financial obligation.

  5. Include the following disclosures within the proposed Interpretation in addition to those required in Statement 60 and other related insurance accounting guidance:

    1. With regard to revenue recognition:

      (1)  Accounting policy

      (2)  Dollar amount of revenue generated from the acceleration of premium recognition due to early terminations for the period.

    2. For installment premium financial guarantee insurance contracts:

      (1) The amount recognized in the balance sheet for the current period as premium receivable and unearned revenue (if not separately discernible)

      (2) The amount of accretion on the premium receivable recorded as a component of investment income for the period (if not separately discernible)

      (3) The assumptions used in calculating the balance sheet amounts (receivable only) including the range of discount rates used

      (4) A schedule of the expected installment premiums to be earned as follows:

      (a) The remaining quarters for the current annual period

      (b) The four quarters of the subsequent annual period

      (c) The next three annual periods

      (d) The remaining periods aggregated in five-year increments.

    3. For the claims and expected claims liabilities, a description of the internal surveillance list used to accrue the expected claim liability (and a description of each category within that list), the criteria used to place an insured financial obligation in each category, and management's process for monitoring and moving a financial obligation between categories. In addition, the following information should be disclosed in tabular form separated in a manner consistent with how management tracks its portfolio:

      (1) Par outstanding by category

      (2) Debt service outstanding by category

      (3) Number of policies by category

      (4) Remaining average contractual policy term by category

      (5) Current pre-guarantee average rating by category

      (6) Gross claim liability (discounted) by category (gross of reinsurance)

      (7) Expected subrogation (discounted) by category (gross of reinsurance)

      (8) Net claim liability (discounted) by category (gross of reinsurance).

      The total net claim liability (discounted) should be reconciled to the amount reported in the balance sheet. The amount of transfers between categories should be disclosed and described.

    4. For claim adjustment liability and remediation liabilities, the amounts and nature of these liabilities recorded in the balance sheet and the income statement including assumptions used in calculating these amounts.

  6. Require application of the proposed Interpretation to the first fiscal year beginning after December 15, 2007 (but include a question within the proposed Interpretation about whether the effective date allows sufficient time for implementation).

  7. Implement transition guidance that permits a cumulative-effect adjustment (using current information) to retained earnings or to other components of equity or net assets as of the beginning of the year of adoption (but include a question within the proposed Interpretation about whether constituents would have the necessary information for retrospective application). Early adoption would not be permitted.

  8. Expose the proposed Interpretation for public comment for a period of 90 days, ending no later than April 15, 2007.

The Board agreed to hold an open roundtable discussion subsequent to the issuance of the Exposure Draft of the proposed Interpretation. The Board also discussed the use of interest rates in discounting the future installment premiums (both the asset and the liability), pre-claims liabilities, and claims liabilities but did not make a decision on this issue. The Board agreed to discuss interest rates used in discounting at a future meeting.

FASB ratification of EITF consensuses and tentative conclusions. The Board considered and ratified the consensuses reached at the November 16, 2006 EITF meeting on the following four Issues.

  1. Issue No. 06-6, "Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments"

  2. Issue No. 06-7, "Issuer's Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities"

  3. Issue No. 06-8, "Applicability of the Assessment of a Buyer's Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums"

  4. Issue No. 06-9, "Reporting a Change in (or the Elimination of) a Previously Existing Difference between the Fiscal Year-End of a Parent Company and That of a Consolidated Entity or between the Reporting Period of an Investor and That of an Equity Method Investee."

The Board also considered and ratified the tentative conclusions reached at the November 16, 2006 EITF meeting on the following two Issues. Additionally, the Board approved the exposure of a draft abstract for each of the Issues for a comment period that will end on January 22, 2007. The draft abstracts are expected to be posted to the FASB website after November 29, 2006.

  1. Issue No. 06-10, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements"

  2. Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards."

FASB DOCUMENT AVAILABLE

Proposed FSP FAS 158-a, "Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to Related Staff Implementation Guides," was issued and posted to the FASB website on December 7, 2006. Comments are requested by January 8, 2007.

FUTURE OPEN MEETINGS

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

Tuesday, December 19, 2006—FASB Board Meeting
Wednesday, December 20, 2006—FASB Board Meeting
Wednesday, December 20, 2006—FASB Education Session
Wednesday, December 27, 2006—No FASB Board Meeting or Education Session scheduled
Wednesday, January 3, 2007—No FASB Board Meeting scheduled
Wednesday, January 3, 2007—FASB Education Session
Tuesday, January 9, 2007—Liaison Meeting with the National Association of College and University Business Officers
Wednesday, January 10, 2007—FASB Board Meeting
Wednesday, January 10, 2007—FASB Education Session
Wednesday, January 17, 2007—FASB Board Meeting
Wednesday, January 17, 2007—FASB Education Session
Wednesday, January 24, 2007—FASB Board Meeting
Wednesday, January 24, 2007—FASB Education Session
Wednesday, January 31, 2007—FASB Board Meeting
Wednesday, January 31, 2007—FASB Education Session