The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the November 15,
2006 Board meeting and other future Board meetings. Those topics will be
posted to the FASB calendar four
days prior to the education session.
Conceptual
framework. The Boards discussed:
- Procedures for finalizing the common conceptual framework
- Project status and near-term plans, with a focus on the elements and
recognition phase (Phase B)
- Measurement bases in an introduction to Milestone I of the measurement phase (Phase C).
The Boards agreed that each Board, within the context of its current
GAAP hierarchy, will finalize the common framework as parts (chapters) are
completed and noted that later parts may include consequential amendments
to earlier parts. The Boards noted that the decision of how to finalize
the joint framework may need to be readdressed when the Boards discuss the
placement of the framework within the IASB and FASB hierarchies.
Regarding the elements and recognition phase (Phase B), the Boards
supported the staff’s plan to consult with selected informal technical
experts, as well as their Advisory Committees, concerning the definition
of an asset while at the same time continuing work on remaining milestones
within Phase B. The Boards were also updated on the status and near-term
plans for the framework project.
The Boards discussed an inventory of current and proposed measurement
bases for assets and liabilities, including new or revised terminology and
definitions that might alleviate problems of communicating about
measurement bases during the conceptual framework project. The Boards
generally supported the staff’s work, but made no decisions about the
inventory or terminology. The staff will continue to work on the inventory
and terminology. Those items also will be included in the measurement
roundtable discussions scheduled for January and February 2007. After the
roundtables and further refinement by the staff, the material discussed at
the joint meeting will be taken to the Boards again for their
decisions.
Insurance
contracts. The purpose of the meeting was informational. The IASB
staff provided an overview of decisions reached by the IASB in its project
on insurance contracts. The staff described the IASB’s plan to issue a
discussion paper for public comment in the first quarter of 2007. The FASB
affirmed its plans to issue an Invitation to Comment containing the IASB’s
discussion paper for comment by its constituents.
October 24, 2006 FASB/IASB Joint Board Meeting
Memorandum of
understanding. The Boards discussed progress toward achieving the
milestones described in the February 2006 "Memorandum of Understanding
between the FASB and the IASB." The meeting was informational; no
decisions were reached.
Business
combinations. As part of their redeliberations of their June 2005
Exposure Draft, Business Combinations, the Boards discussed the
measurement attribute for assets acquired and liabilities assumed in a
business combination and how noncontrolling interests should be measured
in a less than 100 percent acquisition. No decisions were reached.
Instead, the Boards directed the staff to further explore directly
measuring the fair value of noncontrolling interests in a business
combination. The Boards also asked the staff to further explore the
measurement differences that might arise if the assets acquired and
liabilities assumed in a business combination are measured using the
guidance in FASB Statement No. 157, Fair Value Measurements, versus
using the definition of fair value in IFRS 3, Business
Combinations.
Financial
statement presentation. The Boards continued their discussion of
the application of the working principles to the statements of financial
position, comprehensive income, and cash flows of a nonfinancial
institution.
Financing Section and Investing Category
The Boards decided that in addition to equity, the financing section
should include financial assets and financial liabilities (as defined in
the literature) that management views as part of the financing of the
entity’s business activities; those items are referred to as financing
assets and liabilities. Financing assets and related changes would be
classified in the financing asset category in each of the financial
statements. Financing liabilities and related changes would be classified
in the financing liability category in each of the financial
statements.
The Boards decided that the investing category in the business section
should include assets and liabilities not classified in the financing
section that management views as not integral to the entity’s main
business activities (referred to as investing assets and
liabilities). Investing assets and liabilities and related changes
would be classified in the investing category in each of the financial
statements.
The Boards directed the staff to develop similarly broad guidelines for
classifying assets and liabilities in the operating category in the
business section and decided that an entity should be required to explain,
as a matter of accounting policy, its basis (or bases) for classifying
assets and liabilities in the financing categories, the investing
category, and the operating category. Any change in the basis for
classification would be viewed as a change in accounting policy and would
be implemented through retrospective application to prior periods.
The Boards decided that the financial statement presentation project
should address presentation issues related to postretirement benefits,
including pensions, based on the current net reporting requirements for
those benefits in both the statement of financial position and the
statement of comprehensive income. Thus, an entity’s net pension
obligation (or asset) would be classified in a single category in the
statement of financial position (presumably the operating category) and
the related net pension cost and cash flows would be classified in that
same category in the statements of comprehensive income and cash flows,
respectively.
Presenting Information about the Short- and Long-Term Nature of
Assets and Liabilities
The Boards decided that an entity should be required to present short-
and long-term subcategories in each of the categories or sections on the
face of the statement of financial position. An asset or liability would
be classified as short term if the shorter of its (a) contractual maturity
or (b) expected realization or settlement is within one year. An entity
with an operating cycle longer than one year would be encouraged to
describe its operating cycle in the notes to financial statements.
Given that decision, the Boards decided that no other information about
liquidity should be required to be presented in the notes to the financial
statements except for details of the maturities of long-term assets and
liabilities that have a contractual term (such as contractual receivables
and lease obligations). Total short-term assets, total long-term assets,
total assets, and similar totals for liabilities also would be disclosed
in the notes to financial statements.
The Boards confirmed that deferred taxes would be classified as short-
or long-term based on the classification of the related asset or liability
(the approach used in FASB Statement No. 109, Accounting for Income
Taxes).
Measurement
The Boards agreed to proposed modifications to the project working
principle related to measurement. In applying that working principle, the
Boards decided that an entity should disclose in the summary of
significant accounting policies information about the measurement bases of
the assets and liabilities presented on the statement of financial
position. The Boards also decided that a line item in the statement of
financial position should not include assets or liabilities that are
measured differently.
The Boards decided that the financial presentation standard should
include a general requirement that the notes to financial statements
describe any significant uncertainty in the current measure of assets and
liabilities and explain why the measured amount was selected.
The Boards decided that the financial statements should provide
information that will allow a user to distinguish between the various
changes in assets and liabilities, noting that some are due to fair value
changes and changes in estimates (that is, remeasurements) while other
changes in assets and liabilities are not due to remeasurements, but are
due to cash transactions or accruals. The Boards directed the staff to
consider which types of changes should be presented separately, which
should be aggregated, and the manner in which that information should be
presented.
Other Comprehensive Income and the Mechanism of Recycling
The Boards decided that the project should develop a financial
statement presentation format that would accommodate their long-term goal
of other comprehensive income items being classified in the same manner as
all other changes in assets and liabilities. However, in the short term,
it may be necessary to keep other comprehensive income items in a separate
section of the statement of comprehensive income.
The Boards decided that none of the subtotals in the statement of
comprehensive income should have a "timing" difference; that is, the
subtotals should be based on changes in assets and liabilities that have
occurred in the current period and, thus, the mechanism of recycling
should be eliminated. However, in the short term, the changes in assets
and liabilities that are currently reclassified (recycled) between other
comprehensive income and net income may need to be shown separately from
the current-period changes. The Boards acknowledged that given those
decisions and the proposed working format, there would not be a net
income subtotal in the statement of comprehensive income.
Recognizing that changes to current standards that give rise to other
comprehensive income items will need to be made to achieve those long-term
goals, the Boards directed the staff to develop a presentation format that
can be used in the interim (until the long-term goal can be achieved). The
Boards also directed the staff to develop a plan for achieving that
long-term goal, such as whether those issues would be addressed in
separate projects or as part of the financial statement presentation
project.
Revenue
recognition. The Boards affirmed their goal of issuing a due
process document on revenue recognition by the end of 2007. The Boards
decided that the due process document should explain, illustrate, and
compare both the customer consideration model and the fair value model.
They also agreed that the staff (in consultation with a small group of
Board members) should further develop both models before bringing them to
the Boards for evaluation, discussion, and possible additional
development.
October 25, 2006 FASB Board Meeting
Agenda
decision: Statement 155 implementation issues. The Board decided
to add a project to its agenda. The Board decided to:
- Include a narrow scope exception for securitized interests that
contain only an embedded derivative that is tied to the prepayment risk
of the underlying prepayable financial assets. If a securitized interest
contains any other terms that affect some or all of the cash flows or
the value of other exchanges required by the contract in a manner
similar to a derivative instrument and if those terms create an embedded
derivative that requires bifurcation (ignoring the effects of the
embedded call options in the underlying financial assets), that
securitized interest would not meet the narrow scope exception and would
therefore be evaluated pursuant to FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities.
- Have the guidance’s effective date prior to the reporting deadline
of periods ending December 31, 2006.
- Address early adoption of FASB Statement No. 155, Accounting for
Certain Hybrid Financial Instruments, in the following ways:
- For entities that early adopted Statement 155 and did not
bifurcate embedded prepayment derivatives (consistent with the
tentative decisions), no transition provisions are required. However,
the Board’s guidance will specifically address this scenario to ensure
that there is no confusion over the possibility of restating prior
financial statements.
- For entities that early adopted Statement 155, identified embedded
derivatives that would otherwise be included in the proposed scope
exception, and that elected to measure the entire hybrid instrument at
fair value, the Board’s guidance should be applied retrospectively.
The company will be provided with the opportunity to elect any
appropriate FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, classification as part
of that retrospective application. If the company elects a trading
classification under Statement 115, no adjustment to the changes in
fair value previously recorded in the income statement is required.
However, if the company elected a classification of
available-for-sale, the retrospective application would result in a
reclassification from the income statement to accumulated other
comprehensive income.
- For entities that early adopted Statement 155 and identified and
bifurcated embedded derivatives that would otherwise be included in
the proposed scope exception, the Board’s guidance should be applied
retrospectively. This would result in the reversal of any changes in
the fair value of the embedded derivative that were recorded in income
during the prior interim period(s). The combined instrument should be
recorded, both initially and subsequently, based on the Statement 115
classification previously elected for the host instrument.
- Issue the tentative guidance as a Statement 133 Implementation Issue
with a 30-day public comment period.
CONCEPTUAL FRAMEWORK—MEASUREMENT
ROUNDTABLE DISCUSSIONS
The FASB and IASB will hold roundtable discussions on measurement in
conjunction with their joint conceptual framework project in three
locations during January and February 2007, as follows:
January 16–17, 2007—Hong Kong, PRC
January 29, 2007—London,
UK
February 1, 2007—Norwalk, Connecticut, USA
Objective
The objective of these roundtables is threefold:
- To hear the views of representative IASB and FASB constituents on
measurement early in the measurement phase of the conceptual framework
project. The discussion around this objective will be unstructured. Any
views on measurement that constituents wish to express are welcome.
- To discuss whether the list of measurement issues identified in the
plan for the measurement phase of the conceptual framework project is
appropriate and substantially complete.
- To discuss whether the initial inventory of potential measurement
bases prepared by the project staff and the terminology associated with
that inventory is substantially complete and understandable.
Participation
In contrast to roundtables previously held by the Boards, these
roundtables are not based on a due process document for which public
comment has been invited and comment letters have been received. Those who
would like to participate in one of the measurement roundtable discussions
are asked to register by clicking on this registration link. Participants will be selected
from those who register so as to provide as broad a representation of
constituent groups as possible. Prospective participants are asked to
register no later than November 17, 2006. Those selected to participate
will be notified by email by November 27, 2006.
Observers
The roundtables will be open to observation by the press and public and
will be audio taped for later listening on the IASB and FASB websites. As
space for observers may be limited, those who would like to observe a
roundtable session are asked to register by clicking on this observer link.
Background material
No background material will be provided to participants in relation to
the first objective of the roundtables. The expression of any view about
measurement as it relates to the joint conceptual framework project (in
contrast to measurement issues in particular standards or standards
projects) will be welcomed. Limited background material will be prepared
to support the second and third objectives of the roundtables. These
materials will be distributed to participants and made available on the
IASB and FASB websites by the end of November 2006.
Date and location details
Hong Kong, PRC
The following is a list of open meetings tentatively scheduled through
December. 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.