Action Alert No. 06-30
July 27, 2006

NOTICE OF MEETINGS

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

Wednesday, August 2, 2006, 9:00 a.m.

1. Postretirement benefit obligations, including pensions (estimated 60-minute discussion). The Board will continue redeliberation of its March 2006 Exposure Draft, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. Specifically, the Board will discuss whether to retain or modify the proposed disclosure requirements and other various matters raised by respondents to the Exposure Draft.

2. Texas franchise tax (estimated 15-minute discussion). The Board will consider whether there is a need to issue an FSP on whether the recently enacted Texas Franchise Tax is an income tax that should be accounted for in accordance with FASB Statement No. 109, Accounting for Income Taxes.

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 2, 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 August 9, 2006 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, Interpretation, or FSP.

July 19, 2006 Board Meeting

Business combinations: applying the acquisition method. The Board continued redeliberations of its June 2005 Exposure Draft, Business Combinations. The Board discussed the principles and related guidance for identifying the components of a business combination, the accounting for restructuring costs in a business combination, and the measurement date for equity instruments issued as consideration.

1. The Board supported the following general principles and related guidance for assessing whether a business combination includes any transactions that are separate from the acquisition of assets and assumption of liabilities that make up the acquiree:
   1. The acquirer should assess whether a business combination includes any transactions that are substantively separate from the acquisition of assets and assumption of liabilities that make up the acquiree. Only the consideration transferred and the assets acquired or liabilities assumed that make up the acquiree should be accounted for using the acquisition method. Other transactions should be accounted for separately in accordance with other IFRS/U.S. GAAP.

   2. A transaction is substantively separate from a business combination if it was arranged by or on behalf of the acquirer and/or initiated primarily for the economic benefit of the acquirer or the combined entity (rather than for the benefit of the acquiree or its former owners prior to the business combination).

   3. The acquirer should consider the following factors, which are neither mutually exclusive nor individually conclusive, to determine whether a transaction or event was initiated primarily for the economic benefit of the acquirer or combined entity, rather than for the acquiree or its former owners prior to the business combination.

      (1) The reasons for the transaction or event

      (2) Who initiated the transaction or event

      (3) The timing of the transaction or event.

   The Board instructed the staff to continue to clarify and improve those principles and related guidance as it drafts the final Statement.

2. The Board affirmed that an acquirer should recognize restructuring or exit costs as liabilities assumed in a business combination only if those costs meet the recognition criteria in FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, and those liabilities are deemed a liability of the acquiree assumed as part of the business combination. Restructuring or exit costs that do not meet the criteria for recognition in Statement 146 or that arise from transaction or events substantively separate from the business combination should be recognized as separate transactions when the costs are incurred in the postcombination period.

3. The Board affirmed that the fair value of equity instruments issued as consideration in a business combination should be measured at the acquisition date.

Financial statement presentation. The Board discussed the overall format for presenting financial information within the basic financial statements—namely, the statement of financial position, the statement of earnings and comprehensive income, and the statement of cash flows. The Board agreed that financial information should be presented in two broad sections—business and financing—and that the business section should be further disaggregated into operating and treasury categories. Based on its discussion, the financial statements are likely to be presented as follows:

The Board agreed that:

1. Cohesiveness should be the overall governing principle. This means that changes in assets and liabilities should be categorized in the statement of earnings and comprehensive income and the statement of cash flows consistently with their categorization in the statement of financial position.

2. An asset not classified as a treasury asset or a liability not classified as a financing liability should be classified as an operating asset or liability.

3. Classification of assets and liabilities within the operating category should be based on the notion of a one-year cash conversion cycle rather than the “one-year or operating cycle, if longer” principle that exists in current GAAP.

4. The notes to financial statements should include supplementary information about liquidity, if deemed necessary.

5. Cash and cash equivalents should be included as a separate line item in the treasury category. The definition of cash and cash equivalents should be revisited.

The Board discussed but did not reach a conclusion on how financing liabilities and treasury assets should be defined. The Board considered whether the definition of financing should be broad and consider all liabilities, whether it should be narrow and consider only those liabilities that result in interest expense, or whether it should have some other defining characteristic(s). The Board directed the staff to undertake more research on user information needs to further develop approaches to defining or describing those terms that are principle based. The Board also discussed the possibility of including treasury assets (and thus the treasury category) in the financing section rather than the business section. The Board will revisit its decision on that issue when it discusses the definition of treasury assets at a future meeting.

Leases agenda decision. The Board added to its agenda a project to comprehensively reconsider the existing accounting for leases. The project will be a joint project with the IASB. The initial due process document issued will be a discussion paper that expresses the Boards’ preliminary views. In addition, a joint international working group will be formed to provide input to both the IASB and the FASB.

Postretirement benefit obligations, including pensions. The Board continued redeliberations of its March 2006 Exposure Draft, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. The Board discussed the classification of a net postretirement asset or liability as current or noncurrent and considered reporting issues related to not-for-profit organizations.

The Board made the following decisions related to the presentation of the funded status of a postretirement benefit plan in a classified balance sheet:

1. No portion of a net postretirement asset represents a current asset. The excess of the fair value of plan assets over the benefit obligation should be classified as a noncurrent asset. Any refunds expected from the postretirement plan, including the expected timing of such refunds, should be disclosed in the notes to financial statements. That disclosure applies to all sponsors, even those that do not present a classified balance sheet.

2. The current portion of a net postretirement liability represents the amount of benefit payments expected to be paid in the next 12 months (or operating cycle, if longer) that cannot be funded from existing plan assets (measured as the excess benefit payments expected to be paid in the next 12 months, or operating cycle if longer, over the fair value of plan assets).

The Board made the following decisions related to reporting by not-for-profit organizations:

1. The Board affirmed that not-for-profit organizations should remain within the scope of the final Statement.

2. The Board affirmed the proposed requirement to report net actuarial gains or losses and prior service costs or credits in separate line items apart from expenses. That requirement would apply whether expenses are reported by functional category or by natural category.

3. The Board decided to eliminate the proposed reporting guidance for a not-for-profit organization that presents an intermediate measure of operations that is functionally equivalent to income from continuing operations of a business entity. The Board instead decided to:
   1. Refer organizations other than health care organizations to FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations, for guidance in determining the presentation of net actuarial gains and losses and prior service costs and credits in relation to any intermediate measure of operations or other classifications within the statement of activities.

   2. Refer health care organizations to the performance indicator guidance contained in the AICPA Audit and Accounting Guide, Health Care Organizations, which specifies that a not-for-profit health care provider must report outside of the indicator all items that a for-profit provider would report in other comprehensive income.

4. The Board considered but decided not to provide additional guidance concerning permissible display within the statement of financial position of the cumulative effect on unrestricted net assets of adopting the provisions of the Exposure Draft.

5. The Board considered but decided not to eliminate recycling for not-for-profit organizations, as suggested by some respondents.

Derivatives disclosures. The Board discussed the objectives for derivatives disclosures and several proposed enhanced disclosures. Specifically, the Board decided that the disclosure objectives are to provide:

1. An understanding of how and why an entity uses derivatives

2. An understanding of how derivatives and related hedged items are accounted for

3. Transparency into the overall impact of derivatives on an entity’s financial position, results of operations, and cash flows.

The Board also decided to require the following disclosures about derivatives:

1. Modify the requirements of paragraph 44 of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to include a discussion of objectives and strategies for using derivatives, at a minimum, by primary underlying (for example, interest rate, foreign currency, commodity, etc.).

2. Disclose the existence and nature of contingent features in derivative agreements (that is, payment acceleration clauses) and the aggregate fair value of derivative agreements that contain those features. Additionally, disclose the aggregate amount of additional collateral that would be required to be posted assuming the contingent features were triggered at each reporting period.

3. Include within Statement 133 specific disclosures related to counterparty credit risk that are similar to those included in paragraph 15A of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments. Additionally, require disclosure of the aggregate fair value of uncollateralized derivative exposure.

4. Disclose where and in what amount derivatives and related gains and losses are reported in the balance sheet and income statement, respectively. Disclosure should be by major underlying, accounting designation, and purpose.

5. Disclose the notional amount and fair value of derivatives by underlying, accounting designation, and purpose. Disclose instances in which derivative agreements contain leverage factors and the estimated magnitude of those factors.

6. To the extent that information is disclosed in more than a single footnote, require cross referencing to other footnotes in which derivative information is disclosed. Additionally, require a summary table that includes the fair value and notional amounts aggregated by major underlying, accounting designation, and purpose.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through September. 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, August 9, 2006—FASB Board Meeting
Wednesday, August 9, 2006—FASB Education Session
Wednesday, August 16, 2006—FASB Board Meeting
Wednesday, August 16, 2006—FASB Education Session
Wednesday, August 23, 2006—FASB Board Meeting
Wednesday, August 23, 2006—FASB Education Session
Monday, August 28, 2006—Liaison Meeting with Edison Electric Institute and American Gas Association
Wednesday, August 30, 2006—FASB Board Meeting
Wednesday, August 30, 2006—FASB Education Session
Wednesday, September 6, 2006—FASB Board Meeting
Wednesday, September 6, 2006—FASB Education Session
Wednesday, September 6, 2006—p.m., Emerging Issues Task Force Meeting
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

^†FASB Meetings Available by Audio Webcast and Telephone

To monitor available live meetings free of charge by audio webcast, access the link http://www.trz.cc/fasb/live.html. To monitor by telephone, call 1-800-846-4717. You will be charged $.45 per minute, and VISA, MasterCard, American Express, or Discover Card is required. To listen to a recording of the most recent Board meeting via webcast free of charge, access the link http://www.trz.cc/fasb/archive.html. To listen to a recording by telephone, for a charge of $.45 per minute, call 1-800-462-0393. Questions can be directed to 1-800-846-4630.

Handouts distributed to the audience at Board meetings are posted to our website one-half hour before the start of the meeting. A synopsis of each issue to be discussed at EITF meetings also is posted to this website.

Education sessions are not available by audio webcast or telephone, and no handouts are distributed to the audience.