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Action Alert No. 06-18 May 4, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING (Board
meetings are available by audio webcast and telephone.)
Wednesday, May 10, 2006, 9:00 a.m.
- Uncertain
tax positions (estimated 1-hour discussion). The Board
will discuss disclosures and tax positions not taken, as well as other
issues identified during drafting of the final Interpretation.
- 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, May 10, 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 a future Board
meeting. Those topics will be posted to the FASB calendar four
days prior to the education session.
OPEN MEETING WITH REPRESENTATIVES OF THE HEALTHCARE FINANCIAL
MANAGEMENT ASSOCIATION
Tuesday, May 9, 2006, 1:00 p.m.
The Board will meet with representatives of the Principles &
Practices Board of the Healthcare Financial Management Association 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.
April 27, 2006 IASB/FASB Joint Board Meeting
Financial
instruments. The Boards agreed to a goal of issuing a due process
document on financial instruments (as envisioned in the Memorandum of
Understanding between the FASB and IASB) before January 1, 2008. The
Boards directed the staff to prepare a paper outlining the possible
contents of the document, including whether it should contain any
preliminary Board decisions, and proposing a draft timetable.
Business
combinations: applying the acquisition method. The Boards
discussed three matters as part of their redeliberations of their business
combinations and noncontrolling interests Exposure Drafts:
- The Boards affirmed that acquisition-related costs, such as legal
and due diligence costs, should be accounted for separately from the
business combination.
- The Boards discussed the presentation and disclosure proposals in
their separate noncontrolling interests Exposure Drafts and decided to
affirm or converge the proposals as follows:
- The Boards affirmed the proposal in their separate noncontrolling
interests Exposure Drafts that a parent with one or more partially
owned subsidiaries should disclose, either in the notes or on the face
of the financial statements, amounts attributable to the
controlling interest for the following, if reported in the
financial statements:
(1) Income from continuing operations
(2) Discontinued operations
(3) Extraordinary items (FASB only).
- The FASB converged with the IASB's proposal and decided to require
entities to present, either on the face of the statement of changes in
equity or in the notes, separately for total equity, equity
attributable to equity holders of the parent and noncontrolling
interest, a reconciliation of the carrying amount at the beginning and
the end of the period, separately disclosing changes resulting
from:
(1) Net income
(2) Transactions with equity holders acting in their capacity as
equity holders, showing separately distributions to equity holders
(3) Components of other comprehensive income.
- The IASB converged with the FASB's proposal and decided to require
entities to disclose, in the notes to the consolidated financial
statements, a separate schedule that shows the effects of any
transactions with noncontrolling interests on the equity attributable
to the controlling interest.
- The IASB converged with the FASB's proposal and decided that if
control of a subsidiary is lost, the amount of gain or loss related to
the remeasurement to fair value of any retained noncontrolling equity
investment in the former subsidiary and the line item in the income
statement where the gain or loss is recognized should be disclosed.
- The Boards discussed whether the proposal that the transaction price
in a business combination is presumptive evidence of the fair value of
the acquiree should be modified as a result of decisions reached in the
FASB's fair value measurement project. No decisions were reached.
Revenue
recognition. Before the joint meeting, each Board had discussed
two revenue recognition methods. Under the first method, revenue would be
recognized when the obligation to provide goods, services, or other rights
is extinguished. This is deemed to be when the customer obtains the right
to use or benefit from the goods, services, or other rights.
Under the second method, revenue would be recognized as the entity's
production process creates or enhances assets for customers. This is
deemed to be when the entity carries out acts to fulfill its contractual
obligations to provide goods, services, or other rights to the
customer.
At this meeting, the Boards considered some alternatives that could
bridge these two methods. The Boards decided that the notion of customer
acceptance was important in determining when revenue should be recognized.
They further decided that acceptance should mean that the entity has
obtained an unconditional right to consideration (and, correspondingly,
that the customer has incurred an unconditional obligation). That right
might arise under the contract terms or the operation of the relevant
contract law.
The Boards noted that determining revenue recognition by reference to
customer acceptance could be viewed as a modification of the first method
above. This is because customer acceptance would indicate that the entity
has been released from part of its obligation. It also could be viewed as
modification of the second method because customer acceptance would be an
external validation of the entity's performance to date.
Accordingly, the Boards instructed the staff to explore revenue
recognition based on the following criterion: Revenue should be recognized
if the customer must accept performance to date. That is, the contract's
legal remedy for breach is, or is like, specific performance or in the
event of customer cancellation, the customer is obligated to pay damages
reflecting performance to date.
April 28, 2006 IASB/FASB Joint Board Meeting
Leases. The Boards discussed various alternatives for
conducting a potential project to reconsider existing accounting for
leases. The Boards decided that if a lease accounting project is added to
their agendas, such a project should be undertaken as a comprehensive
joint project. The Boards directed the staff to work on a detailed project
plan for consideration by both Boards. An agenda decision will be made
after the IASB completes its consultative process with its Standards
Advisory Council and trustees in June 2006.
Conceptual
framework. The Boards continued their deliberations to develop a
common conceptual framework.
Definitions of Assets and Liabilities
The Boards considered working definitions of assets and liabilities and
their three essential characteristics. Those definitions are as
follows:
An asset is a present economic resource of an entity and its
characteristics include:
- There is an underlying economic resource.
- The entity has rights or other privileged access to the economic
resource.
- The rights or other privileged access exists at the financial
statement date.
A liability is a present economic obligation of an entity and its
characteristics include:
- The entity is obligated to act or perform in a certain way (or
refrain from acting or performing).
- The obligation exists at the financial statement date.
- The obligation is economic—it is an obligation to provide economic
resources to others, or to stand ready to do so.
The Boards gave the staff directions to assist in further developing
the definitions, characteristics, and amplifying text that can be used for
testing them against examples.
Planning for the Measurement Phase
The Boards agreed that they will consider all aspects of the
measurement portion of the conceptual framework in a single phase rather
than considering some aspects as part of Phase B, as previously agreed.
They noted that the measurement phase (Phase C) will be conducted in three
milestones. The Boards expressed concern in regard to the estimated time
to complete the measurement phase. However, they acknowledged that, given
the difficulties of the subject, the plan proposed by the staff is
reasonable. They agreed to the need to conduct public consultations and
for discussion documents for the milestones.
Objectives and Qualitative Characteristics
The Boards also agreed that the upcoming due process document that
discusses the objectives and qualitative characteristics of the framework
will be issued as a Preliminary Views, with a 120-day comment period.
POSTRETIREMENT BENEFIT EXAMPLES FOR NOT-FOR-PROFIT ORGANIZATIONS
AVAILABLE
FASB-staff-prepared
examples that illustrate the application by not-for-profit
organizations of the March 31, 2006 FASB Exposure Draft, Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans,
were posted to the FASB website on May 2, 2006. Those examples were
prepared to assist not-for-profit organizations in their consideration of
the proposed standard by showing how a not-for-profit organization would
apply the retrospective application provisions of the Exposure Draft at
initial implementation and how such an entity would report actuarial gains
or losses and prior service costs or credits in a statement of activities.
Examples have been provided for:
- A not-for-profit organization that presents, either by requirement
or by choice, an intermediate measure of operations (performance
indicator) that is functionally equivalent to income from continuing
operations of a for-profit entity
- A not-for-profit organization that chooses to present an
intermediate measure of operations that is not functionally
equivalent to income from continuing operations of a for-profit entity
- A not-for-profit organization that chooses not to present an
intermediate measure of operations.
Other entities that do not report other comprehensive income under FASB
Statement No. 130, Reporting Comprehensive Income, also may find
these examples useful in evaluating and commenting on the Exposure Draft.
While the examples are not part of the Exposure Draft, readers of the
Exposure Draft are encouraged to consider them in connection with their
written responses to Issue 5 of the Notice for Recipients.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
June. 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, 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 Wednesday, June 7, 2006—FASB
Board Meeting Wednesday, June 7, 2006—FASB Education
Session Wednesday, June 14, 2006—No FASB Board Meeting Wednesday,
June 14, 2006—FASB Education Session Wednesday, June 14, 2006—p.m.,
Emerging Issues Task Force Meeting Thursday, June 15, 2006—Emerging
Issues Task Force Meeting Monday, June 19, 2006—Liaison Meeting with
Financial Executives International, Stamford, CT Tuesday, June 20,
2006—FASB Board Meeting Tuesday, June 20, 2006—FASB Education
Session Wednesday, June 21, 2006—Small Business Advisory Council
Meeting Thursday, June 22, 2006—Financial Accounting Standards Advisory
Council Meeting Tuesday, June 27, 2006—Postretirement Benefit
Obligations including Pensions Roundtable Meeting Wednesday, June 28,
2006—FASB Board Meeting Wednesday, June 28, 2006—FASB Education
Session
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