Action Alert No. 06-03
January 19, 2006

NOTICE OF MEETINGS

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

Wednesday, January 25, 2006, 8:00 a.m.

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

  1. Life settlements (estimated 30-minute discussion). The Board will discuss the remaining two issues on the proposed FSP TB 85-4-a, “Accounting for Life Settlement Contracts by Investors.” The Board will focus on whether an entity should be required to disclose an actual versus expected mortality and whether an entity should be required to disclose the averaged expected remaining term of the life settlement contracts.

  2. Fair value measurement (estimated 1-hour discussion). The Board will discuss issues raised by external reviewers on the October 21, 2005 working draft of the fair value measurements final Statement, including issues relating to the fair value hierarchy, disclosures, and effective date and transition.

  3. Business combinations (estimated 2 1/2-hour discussion). The Board will discuss the comment letters received on its Exposure Drafts, Business Combinations, and Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries.

  4. Transfers of financial assets (estimated 15-minute discussion). The Board will discuss the disclosure requirements related to the election to subsequently measure a class of servicing rights at fair value.

  5. 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, January 25, 2006, 1:00 p.m.

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the February 1, 2006 Board meeting. 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.

January 11, 2006 Board Meeting

Uncertain tax positions. The Board decided:

  1. On subsequent recognition and measurement that:

    1. The best estimate of recognized tax benefits at each reporting date would represent management’s best estimate given the information available at the reporting date, even though the outcome of the tax position is not absolute or final.

    2. Subsequent recognition, derecognition, and measurement should be based on new information.

  2. The guidance in APB Opinion No. 28, Interim Financial Reporting, and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods, would apply in accounting for changes in judgments about the recognition and measurement of tax benefits during interim periods, unless other U.S. GAAP applies to the situation.

  3. Disclosure issues will be addressed at a future Board meeting.

  4. On interest and penalties:

    1. A liability for interest and/or penalties would be recognized as deemed to be incurred based on the provisions of the tax law, that is, the period for which the taxing authority would begin assessing interest and/or penalties.

    2. The amount of interest expense recognized will be based on the difference between the amount recognized in the financial statements and the benefit recognized in the tax return. That estimate will not consider examination risk.

    3. The final Interpretation will not provide guidance on the classification of interest or penalties in the income statement. Entities will be required to establish a policy for classification of such amounts, disclose that policy in the summary of significant accounting policies, and also disclose the amount of interest and penalties recognized in the financial statements.

  5. The liability recognized pursuant to the final Interpretation would be classified as a current liability to the extent that cash payment is expected to occur within 12 months or the operating cycle, if longer.

  6. The change in net assets as a result of applying the provisions of the final Interpretation will be considered a change in accounting principle with the cumulative effect of the change treated as an offsetting adjustment to the opening balance of retained earnings in the period of transition.

  7. The final Interpretation will be effective as of the beginning of the first annual period beginning after December 15, 2006. Early application is encouraged provided the entity has not publicly released financial statements for the period of initial application.

EITF Issue 04-6. The Board did not object to the proposed editorial change to clarify the definition of the production phase of a mine in paragraph 4 of EITF Issue No. 04-6, "Accounting for Stripping Costs Incurred during Production in the Mining Industry."

Liability classification. The Board decided to add a project to its agenda to address the classification guidance in paragraph 32 of FASB Statement No. 123 (revised 2004), Share-Based Payment, for options or similar instruments that require or permit cash settlement upon the occurrence of certain contingent events. The Board discussed two alternatives (a probability and a grandfathering approach) and directed the staff to develop a probability approach. That approach would amend the classification guidance in paragraph 32 of Statement 123(R) for options or similar instruments. The probability approach would require an entity to assess the probability of a contingent cash settlement event occurring. That is, an option or similar instrument would be classified as equity until the contingent cash settlement event was probable of occurring. That assessment would be consistent with the classification guidance provided in footnote 16 of Statement 123(R) for a repurchase feature on a puttable share that can be exercised only upon the occurrence of a contingent event outside the employee’s control.

The Board also decided:

  1. The guidance would be issued as an FASB Staff Position (FSP).

  2. The guidance in the proposed FSP would be applied upon the initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of this FSP would apply the guidance in this FSP in the first reporting period beginning after the date the FSP is posted to the FASB website. If in applying Statement 123(R) an entity treated options or similar instruments that allow for cash settlement upon the occurrence of a contingent event in a manner consistent with the guidance in the proposed FSP, then the entity would not be required to restate prior periods. However, if in applying Statement 123(R) an entity treated options or similar instruments that allow for cash settlement upon the occurrence of a contingent event in a manner inconsistent with the guidance in the proposed FSP, then the entity would be required to restate prior periods giving consideration to the guidance in the proposed FSP. Early application of this guidance would be permitted in periods for which financial statements have not yet been issued.

  3. The comment period would be 15 days.

The Board directed the staff to proceed to a draft of a proposed FSP for vote by written ballot. (Proposed FSP FAS 123(R)-d was posted to the FASB website on January 16, 2006.)

FASB DOCUMENT AVAILABLE

Proposed FSP FAS 123(R)-d, “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event,” was issued and posted to the FASB website on January 16, 2006. Comments are requested by January 31, 2006.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through February. 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, January 30, 2006—Liaison Meeting with American Bar Association
Wednesday, February 1, 2006—FASB Board Meeting
Wednesday, February 1, 2006—FASB Education Session
Wednesday, February 8, 2006—FASB Board Meeting
Wednesday, February 8, 2006—FASB Education Session
Wednesday, February 15, 2006—FASB Board Meeting
Wednesday, February 15, 2006—FASB Education Session
Wednesday, February 22, 2006—FASB Board Meeting
Wednesday, February 22, 2006—FASB Education Session