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Action Alert No. 06-40
October 5, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
[Revised 10/09/06] Wednesday,
October 11, 2006, 9:00 a.m.
- [Revised 10/09/06] Fair value
option was removed from agenda.
- Accounting
for depreciable assets classified as held for sale when an equity method
investment is obtained (estimated 30-minute discussion).
The Board will discuss whether to issue a proposed FSP addressing the
accounting for depreciable assets classified as held for sale when an
equity method investment is obtained.
- Participating securities (estimated 15-minute
discussion). The Board will discuss whether to issue a proposed FSP
addressing whether instruments granted in share-based payment
transactions are participating securities prior to vesting and therefore
need to be included in basic earnings per share using the two-class
method described in paragraphs 60 and 61 of FASB Statement No. 128,
Earnings per Share.
- 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, October 11, 2006, following the Board
meeting
Thursday, October 12, 2006, 8:00 a.m.
The Board will hold educational, non-decision-making sessions to
discuss topics that are anticipated to be discussed at the October 18,
2006 Board meeting and other future Board meetings. Those topics will be
posted to the FASB calendar four
days prior to the education sessions.
OPEN MEETING WITH REPRESENTATIVES OF THE CFA INSTITUTE
Tuesday, October 17, 2006, 1:00 p.m.
The Board will meet with representatives of the Corporate Disclosure
Policy Committee of the CFA Institute 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.
September 27, 2006 Board Meeting
Conceptual
framework. The Board discussed (1) issues related to Phase D,
Reporting Entity, and (2) options over assets, which is related to
Phase B, Elements and Recognition. The Board planned to discuss the
Canadian staff analysis of the IASB Discussion Paper, Measurement Bases
for Financial Accounting—Measurement on Initial Recognition, but
rescheduled discussions to October 4, 2006, due to time constraints.
Reporting Entity
Concerning reporting entity, the Board discussed a range of issues
relating to (1) individual reporting entity, (2) group reporting entity,
and (3) control issues. The Board’s decisions are summarized below.
Individual reporting entity
The Board had previously agreed (December 2005) that the reporting
entity concept should not specify which entities should be required to
prepare general purpose external financial reports. Rather, an entity that
chooses to, or is required to, prepare general purpose external financial
reports would be a reporting entity. Also, the Board had previously agreed
(April 2006) that what constitutes an entity for financial reporting
purposes should not be limited to legal entities. Hence, legal existence
is a sufficient condition for determining that an entity exists, but is
not a necessary condition. Rather, an entity includes other types of
arrangements or organizational structures, which could be broadly
described as a circumscribed area of economic interest. Examples include a
company, trust, partnership, association, sole proprietorship, natural
person, and, in some circumstances, a branch or segment.
The Board agreed that the conceptual framework should describe what
constitutes an entity for the purposes of financial reporting, along the
lines set out above, but should not define it.
Group reporting entity
A majority of the Board agreed that the parent entity and the group
entity should be regarded as being one and the same entity. Under this
approach, the subsidiaries are regarded as being part of the parent for
purposes of the parent entity’s financial reporting. The consolidated
financial statements present information about a different set of assets
and liabilities than the set of assets and liabilities that appear in the
parent-only financial statements. Other members prefer a multiple entities
approach in which different combinations of entities within a controlled
group are, in concept, viewed as different reporting entities. For
example, if a group consists of a parent and one subsidiary, there are
potentially three reporting entities: the parent entity, the subsidiary
entity, and the group entity.
A majority of the Board also agreed that a revised controlling entity
model should be used to determine the composition of a group entity,
whereby the group comprises the controlling entity (the parent) and all
other entities under its control. Under this model, the largest possible
group consists of the ultimate parent and all entities under its control
(including both subsidiaries under its direct control and lower-level
subsidiaries under its indirect control). It also would be possible to
prepare general purpose external financial reports for a subgroup of
entities that are part of the larger group provided the lower-level parent
of the subgroup is included. For example, a subgroup might comprise an
intermediate parent and that entity’s subsidiaries. However, combinations
involving entities outside the larger group would be precluded. In other
words, control is the unifying factor, and therefore a group entity may
only consist of a parent entity and other entities under its control.
Hence, if an entity was combined with another entity that was not
controlled by the first entity, the resulting combined financial
statements could not be described as general purpose external financial
reports prepared in accordance with U.S. GAAP. Other Board members prefer
a common control model, whereby control is the unifying factor that
determines when two or more entities may be combined together into a group
reporting entity. Under this approach, two sister entities may be combined
as a group reporting entity without their parent as long as they have a
unifying parent.
Control issues
The Board previously agreed (April 2006) that control should be defined
at the concepts level, and that it should contain both (1) a power element
and (2) a benefits element, with a link between the two. At this meeting,
the Board also agreed that:
- Control over another is based on an assessment of all the present
facts and circumstances. Therefore, the concept of control does not
exclude situations in which control exists but it might be temporary.
- The control concept should not be limited to circumstances in which
the entity has sufficient voting rights or other legal rights to direct
the financing and operating policies of another entity, but it should be
a broad concept that encompasses economically similar circumstances.
- Control cannot be shared, that is, control involves one entity (not
multiple entities) having control over another entity.
The Board also discussed the relationship between the control concept
and situations in which (1) two or more entities collectively have joint
control of a joint venture and (2) an entity has significant influence
over another entity. The Board agreed that because control involves one
entity (not multiple entities) having control over another entity, an
individual venturer does not have control over the joint venture.
Similarly, the fact that an entity has significant influence over another
entity does not mean it has control over that other entity.
It was noted that the views of individual FASB members on the package
of reporting entity issues are similar in many but not all respects and
that at present the FASB and IASB have not reached a common set of
preliminary views on all of the reporting entity decisions reached. Thus,
the staff was asked to consider the implications of differences in Board
member views on an initial discussion document, in particular, whether
common preliminary views might be achieved or whether the Boards might
instead seek constituent input on alternative approaches.
Options over Assets
Concerning an option over an asset, the Board decided that the asset is
the entity's present right to the contractual promise to deliver the
subject matter of the contract if the option is exercised. The IASB Board
reached a similar conclusion at its September 2006 meeting.
Amendment
of FSP FAS 123(R)-1. The Board discussed the comments received on
proposed FSP FAS 123(R)-e, "Amendment of FASB Staff Position FAS
123(R)-1," and approved that FSP for final issuance. The FSP will clarify
the classification guidance in FSP FAS 123(R)-1, "Classification and
Measurement of Freestanding Financial Instruments Originally Issued in
Exchange for Employee Services under FASB Statement No. 123(R)." The Board
directed the staff to proceed to a draft of a final FSP for vote by
written ballot.
FASB EXPOSURE DRAFTS EXPECTED
On or about October 9, 2006, the Board expects to post the following
two Exposure Drafts of proposed Statements to its website. The deadline
for comments is expected to be January 29, 2007.
- Exposure Draft, Not-for-Profit Organizations: Mergers and
Acquisitions
- Exposure Draft, Not-for-Profit Organizations: Goodwill and Other
Intangible Assets Acquired in a Merger or Acquisition.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
November. 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, October 18, 2006—FASB Board Meeting
Wednesday, October
18, 2006—FASB Education Session
Monday, October 23, 2006—FASB/IASB
Joint Board Meeting, Norwalk, CT
Tuesday, October 24, 2006—FASB/IASB
Joint Board Meeting, Norwalk, CT
Wednesday, October 25, 2006—FASB
Board Meeting
Wednesday, November 1, 2006—FASB Board
Meeting
Wednesday, November 1, 2006—FASB Education Session
Tuesday,
November 7, 2006—Liaison Meeting with National Investors Relations
Institute
Wednesday, November 8, 2006—FASB Board Meeting
Wednesday,
November 8, 2006—FASB Education Session
Wednesday, November 15,
2006—FASB Board Meeting
Wednesday, November 15, 2006—FASB Education
Session
Wednesday, November 15, 2006—p.m., Emerging Issues Task Force
Meeting
Thursday, November 16, 2006—Emerging Issues Task Force
Meeting
Tuesday, November 21, 2006—FASB Board Meeting
Tuesday,
November 21, 2006—FASB Education Session
Wednesday, November 29,
2006—FASB Board Meeting
Wednesday, November 29, 2006—FASB Education
Session
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