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Action Alert No. 07-31
August 2, 2007
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
No Board meetings are planned for the week of August 6, 2007. The
next scheduled Board meeting is Wednesday, August 15, 2007, and will be
announced in next week’s issue of Action Alert.
OPEN EDUCATION SESSION
Wednesday, August 8, 2007, 9:00 a.m.
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.
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, FSP, or
Statement 133 Implementation Issue.
July 25, 2007 Board Meeting
Convertible
debt instruments that may be settled in cash upon conversion (including
partial cash settlement). The Board added a project to its agenda
with the objective of issuing a proposed FSP that would address the
accounting for convertible debt instruments that require or permit cash
settlement upon conversion (including partial cash settlement). The Board
decided that the proposed FSP should require that the liability and equity
components of those instruments be separately accounted for in a manner
that reflects the issuer’s nonconvertible debt borrowing rate. The
proposed FSP would be effective for financial statements issued for fiscal
years beginning after December 15, 2007, and interim periods within those
fiscal years. Earlier application would not be permitted. The guidance in
the proposed FSP would be applied retrospectively to all periods
presented.
The Board directed the staff to proceed to a draft of a proposed FSP
for vote by written ballot, with a 45-day comment period.
Earnings
per share. The Board discussed issues that arose in the drafting
of the revised Exposure Draft on the proposed amendments to FASB Statement
No. 128, Earnings per Share. The Board reached the following
decisions:
- No changes should be made to FASB Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, to achieve convergence with IAS 33,
Earnings per Share, because the earnings per share guidance in
Statement 150 on forward purchase contracts that require gross physical
settlement is consistent with the accounting treatment for those
instruments.
- The objective of the convergence project is to arrive at the same
denominator in the diluted earnings per share calculation. Therefore,
convergence will be achieved when both U.S. GAAP and IFRS result in the
same diluted earnings per share denominator, regardless of any
differences that may arise in the numerator (the control number used
in calculating earnings per share).
- “Fair value method” proposed at the March 2007 Board meeting should
be expanded to include compound instruments for which the embedded
derivative with a share settlement alternative is accounted for
separately as a liability and measured at fair value through earnings
for the reporting period.
- Actual distributions (as opposed to hypothetical distributions) to
outstanding common stock should be used in the computation of diluted
earnings per share under the two-class method. The Board agreed with the
staff recommendation to solicit feedback from constituents on this issue
in the Notice for Recipients.
- Amendments to Statement 128 should be effective for fiscal years
beginning after December 15, 2008, and should be applied retrospectively
to all prior periods presented. Early adoption will not be permitted.
- The revised Exposure Draft should be exposed for a 120-day comment
period to be consistent with the IASB’s comment period.
Insurance
risk transfer. The Board discussed the application of the
insurance risk transfer conditions of FASB Statement No. 113,
Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, to insurance contracts between noninsurance
enterprise policyholders and insurers. The Board also discussed other
elements of an Exposure Draft including amendments to FASB Statement No.
5, Accounting for Contingencies, and Statement 113, enhanced
disclosures, transition, effective date, and exposure period. The Board
reached the following decisions:
- The risk transfer conditions of Statement 113 should be applied to
insurance contracts between noninsurance enterprise policyholders and
insurers.
- The risk transfer conditions of Statement 113, as amended and
discussed at a prior Board meeting, should be amended to include a
qualitative screen prior to the quantitative test (paragraph 9(b) of
Statement 113) that would allow those insurance and reinsurance
contracts that transfer all but a trivial amount of insurance risk to
pass risk transfer. Further, if the qualitative screen is failed, a
quantitative test pursuant to paragraph 9(b) would be used to determine
if it is reasonably possible that a significant loss may be realized.
- Statement 5 should be amended to incorporate the amended guidance
for insurance risk transfer conditions in Statement 113 (modified for
insurance contracts).
- Disclosure requirements should be developed to enhance users’
understanding of an entity’s insurance and reinsurance activities and
the related accounting.
- The Exposure Draft would provide transition guidance on
retrospective application of the amended insurance risk transfer but
would include a question requesting commentary on an entity’s ability to
apply retrospective transition.
- The Exposure Draft should be effective for financial statements
issued for fiscal years beginning after December 15, 2008. Earlier
application would not be permitted.
- The exposure period of the Exposure Draft should be either 90 days
or 120 days based on its release date coinciding with an entity’s
year-end reporting requirements.
Derivative
disclosures. The Board began redeliberations of issues raised by
respondents to the Exposure Draft, Disclosures about Derivative
Instruments and Hedging Activities. The Board decided to retain the
project scope as proposed in the Exposure Draft; that is, the disclosures
will apply to all derivatives (and nonderivative instruments that are
designated and qualify as hedging instruments pursuant to paragraphs 37
and 42 of FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities) and related hedged items accounted for under
Statement 133 and its related interpretations.
The Board also directed the staff to further research a possible scope
exception for the trading activities of an entity.
FASB DOCUMENT AVAILABLE
Invitation to Comment, An FASB Agenda Proposal: Accounting for
Insurance Contracts by Insurers and Policyholders, Including the IASB
Discussion Paper, Preliminary Views on Insurance Contracts, is
expected to be issued on August 2, 2007, and will be available on the FASB
website. Comments are requested by November 16, 2007.
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 15, 2007—FASB Board Meeting
Wednesday, August 15,
2007—FASB Education Session
Wednesday, August 22, 2007—FASB Board
Meeting
Wednesday, August 22, 2007—FASB Education Session
Wednesday,
August 29, 2007—FASB Board Meeting
Wednesday, August 29, 2007—FASB
Education Session
Tuesday, September 4, 2007—Financial Guarantee
Insurance Roundtable
Wednesday, September 5, 2007—FASB Board
Meeting
Wednesday, September 5, 2007—FASB Education
Session
Wednesday, September 12, 2007—FASB Board Meeting
Wednesday,
September 12, 2007—FASB Education Session
Wednesday, September 19,
2007—FASB Board Meeting
Wednesday, September 19, 2007—FASB Education
Session
Thursday, September 20, 2007—Financial Accounting Standards
Advisory Council Meeting
Wednesday, September 26, 2007—FASB Board
Meeting
Wednesday, September 26, 2007—FASB Education
Session
Thursday, September 27, 2007—Liaison Meeting with the Institute
of Management Accountants
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