The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the February 21,
2007 Board meeting. Those topics will be posted to the FASB calendar four
days prior to the education session.
Representative members of the FASB and the IASB will meet with members
of the Joint Working Group on Lease Accounting to discuss issues related
to the accounting for leases.
We request that those who plan to observe this meeting preregister.
Please complete and submit the Observer Registration Form on the IASB
website by noon on Wednesday, February 14, 2007. Observers will be
required to check in upon arrival at the meeting. The meeting will be
audio taped for later listening on the IASB website.
Financial
statement presentation. The Board discussed issues related to
disaggregating information on the statement of comprehensive income. In
September 2006, the Board expressed a leaning toward presenting
information in the statement of comprehensive income by function, with
certain information further broken down by nature. Consistent with that
leaning, the Board decided that an entity would be required to present (1)
information based on the primary activities (functions) in which it
engages and (2) for each of those functions, information about the
significant related expenses (by their nature) that would provide
information useful in predicting future cash flows. The Board indicated a
preference for the by-nature expense information to be presented on the
face of the statement of comprehensive income but decided that if that was
impractical an entity could elect to present that information in the
notes. The Board also decided that an entity would be required to report
separately any expense that is important in understanding its operating
results that may not relate to a functional line item (for example,
impairment of goodwill).
The Board decided that certain entities (for example, entities in a
service industry) would not be required to present information based on
functions at a more detailed level than is required by the functional
separation of operating, investing, and financing activities. Those
entities would present their significant expenses (by their nature) for
each of those higher-level activities.
Postretirement
benefit obligations, including pensions. The Board discussed
comments received on proposed FSP FAS 158-a, "Conforming Amendments to the
Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the
Related Staff Implementation Guides," and directed the staff to proceed to
a draft of a final FSP for vote by written ballot. The final FSP will
conform the illustrations contained in the following appendixes to reflect
the provisions of FASB Statement No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans:
- Appendix B of FASB Statement No. 87, Employers’ Accounting for
Pensions
- Appendix B of FASB Statement No. 88, Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits
- Appendix C of FASB Statement No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions.
The final FSP also will make conforming changes to the questions and
answers contained in the following FASB Special Reports and incorporate
them as new appendixes of Statements 87, 88, and 106, respectively:
- A Guide to Implementation of Statement 87 on Employers’
Accounting for Pensions
- A Guide to Implementation of Statement 88 on Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits
- A Guide to Implementation of Statement 106 on Employers’
Accounting for Postretirement Benefits Other Than Pensions.
Agenda decision: allowance for losses. The Board decided to add
a project to its technical agenda on allowance for credit losses related
to loans and finance leases (financing receivables). The Board directed
the staff to develop new disclosures and enhance current disclosures
related to the allowance for credit losses including, but not limited to,
information about credit quality in an entity’s portfolio, credit risk
exposures, and potentially more transparency within an entity’s accounting
policies.
Agenda decision: implementation of AICPA SOP 05-1. The Board
considered whether to add a project to its agenda to delay the effective
date of AICPA Statement of Position 05-1, Accounting by Insurance
Enterprises for Deferred Acquisition Costs in Connection With
Modifications or Exchanges of Insurance Contracts, based on
implementation issues raised by constituents, including those discussed at
the January 8, 2007 FASB roundtable meeting. The Board decided not to add
a project to its agenda to delay the effective date of SOP 05-1.
January 31, 2007 Board Meeting
Convergence—income
taxes. The Board decided to:
- Require that an asset acquired with a tax basis difference be
recorded at fair value rather than fair value (assuming full
deductibility for tax purposes). This decision clarifies the Board’s
previous decision from the April 2004 joint FASB/IASB meeting. In that
meeting, the Boards had tentatively concluded that when a temporary
difference is acquired in an asset acquisition, then (a) the asset
should be recognized at fair value (assuming full deductibility for tax
purposes), (b) the corresponding deferred tax asset or liability should
be recognized as the difference between the fair value of the asset and
its tax basis multiplied by the tax rate, and (c) any difference between
the consideration paid and the sum of the fair value of the asset and
the recognized deferred tax amount is recognized as a purchase discount
allowance on the deferred tax.
- Retain the guidance in FASB Statement No. 109, Accounting for
Income Taxes, by continuing to prohibit the recognition of a
deferred tax liability for the portion of goodwill for which
amortization is not deductible for tax purposes.
Business
combinations. The Board continued redeliberations of its June 2005
Exposure Draft, Business Combinations, focusing on the accounting
for income tax assets and liabilities in a business combination. The Board
decided that:
- An acquirer would measure income tax assets and liabilities acquired
in a business combination in accordance with Statement 109 and related
interpretive guidance, including FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes [affirming the
Exposure Draft proposal].
- An acquirer would recognize any changes in its
deferred tax assets that result from a business combination in profit
and loss or equity as of the acquisition date [affirming the Exposure
Draft proposal].
- An acquirer would apply the measurement period guidance in
accounting for changes to acquired deferred tax assets after the
acquisition. That is,
- A change to a deferred tax asset valuation allowance within the
measurement period that results from new information about facts and
circumstances that existed as of the acquisition date would be
recognized through a corresponding adjustment to goodwill. However,
once goodwill is reduced to zero, an acquirer would recognize any
additional decreases of the valuation allowance as a reduction of
income tax expense.
- An acquirer would recognize all other changes in a deferred tax
asset valuation allowance through a corresponding adjustment to income
tax expense [affirming the Exposure Draft proposal, with slight
modifications].
- An acquirer would recognize changes to acquired income tax
uncertainties after the acquisition similarly to the accounting for
changes in acquired deferred tax assets. That is,
- A change to an acquired income tax uncertainty within the
measurement period that results from new information about facts and
circumstances that existed as of the acquisition date would be
recognized through a corresponding adjustment to goodwill. However,
once goodwill is reduced to zero, an acquirer would recognize any
additional increases of the recognized income tax uncertainty as a
reduction of income tax expense.
- All other changes in the acquired income tax uncertainties would
be accounted for in accordance with Interpretation 48.
The Board also considered but rejected a suggestion made by some
respondents to the Exposure Draft that it make an exception to the
comprehensive recognition of deferred taxes for indefinite-lived
intangible assets [affirming the Exposure Draft proposal].
The staff reported that the IASB had reached the same conclusions when
it discussed these issues at its January 2007 meeting, with the exception
of acquired income tax uncertainties. Because the IASB is developing
proposals for the treatment of tax uncertainties in the short-term
convergence project on income taxes, the IASB decided that, pending those
proposals, no changes should be made to IAS 12, Income Taxes,
relating to tax uncertainties.
Statement 133
Implementation Issue—clarification of the application of the shortcut
method. The Board decided to proceed with the exposure of a
proposed Statement 133 Implementation Issue on the application of the
shortcut method. The proposed Implementation Issue will provide guidance
on the following practice issues on the application of the shortcut method
in paragraph 68 of FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.
- Amortizing debt—This hedge relationship meets the requirement in
paragraph 68(a) provided that the notional amount of the swap matches
the principal amount of the debt throughout the hedging relationship.
- Zero coupon debt—This hedge relationship violates paragraphs 68(a)
and 68(e) and, thus, does not qualify for the shortcut method.
- Trade date/settlement date—Changes in value of the swap between the
trade date of the swap (commitment date of the debt) and the settlement
date of the debt would not disqualify the hedging relationship from
applying the shortcut method, provided the timing difference was no more
than the typical settlement period seen in the market.
- Market convention rounding—In instances where the fair value of debt
at issuance differs slightly from its par amount due to a rounding down
of the coupon rate due to normal market conventions, the shortcut method
would be allowed.
- Paragraph 68(e)—The application of paragraph 68(e) will be clarified
to indicate that terms must neither be atypical nor invalidate the
assumption of no ineffectiveness to meet the paragraph’s criteria.
- Late hedging—Hedging relationships entered into subsequent to the
issuance of debt would fail the criteria in paragraph 68(e).
Transition guidance will resemble the approach found in Statement 133
Implementation Issue K5, "Transition Provisions for Applying the Guidance
in Statement 133 Implementation Issues." The Board directed the staff to
proceed to a draft of a proposed Implementation Issue for vote by written
ballot. The Board also directed the staff to research additional practice
issues in hedge accounting outside the scope of the shortcut method to be
discussed at a future Board meeting.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
March. 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, February 21, 2007—FASB Board Meeting
Wednesday, February
21, 2007—FASB Education Session
Wednesday, February 28, 2007—FASB Board
Meeting
Wednesday, February 28, 2007—FASB Education
Session
Wednesday, March 7, 2007—FASB Board Meeting
Wednesday, March
7, 2007—FASB Education Session
Wednesday, March 14, 2007—FASB Board
Meeting
Wednesday, March 14, 2007—FASB Education Session
Thursday,
March 15, 2007—Emerging Issues Task Force Meeting
Tuesday, March 20,
2007—Financial Accounting Standards Advisory Council Meeting
Wednesday,
March 21, 2007—FASB Board Meeting
Wednesday, March 21, 2007—FASB
Education Session
Tuesday, March 27, 2007—Not-for-Profit Roundtable
Meeting
Wednesday, March 28, 2007—FASB Board Meeting
Wednesday,
March 28, 2007—FASB Education Session