Action Alert No. 07-26
June 28, 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 July 2, 2007. The next scheduled Board meeting is Wednesday, July 11, 2007, and will be announced in next week’s issue of Action Alert.

OPEN EDUCATION SESSION

Thursday, July 5, 2007, if needed

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.

June 21, 2007 Board Meeting

Business combinations. The Board reconsidered a few of its earlier decisions that were made as part of the redeliberations of its June 2005 Exposure Drafts, Business Combinations, and Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries (NCI Statement):

1. The Board previously decided that if a parent controls a subsidiary when the NCI Statement is applied, the parent should recast consolidated net income in prior periods to attribute losses in excess of the noncontrolling interest’s equity balance that were attributed to the parent to the noncontrolling interest. Accounting Research Bulletin No. 51, Consolidated Financial Statements, currently requires that if losses applicable to the noncontrolling interest exceed the noncontrolling interest equity balance, that excess and any further losses applicable to the noncontrolling interest are charged against the majority interest. The Board changed that decision and decided that instead of recasting the net income of prior periods, the amounts of net income attributable to the parent and the noncontrolling interest should not change. However, the NCI Statement will require that consolidated net income be recast to combine the amount of net income attributable to the parent and noncontrolling interest.

2. Instead of recasting prior periods, the Board decided that, in the year it adopts the NCI Statement, an entity should provide a pro forma disclosure presenting what current year net income and earnings per share would have been had the entity still been applying ARB 51, before the amendments made by the NCI Statement, with respect to the attribution of losses in excess of the noncontrolling interest’s equity balance.

3. The Board previously decided that for a replacement award that is classified as equity and attributable to past services (and therefore represents consideration transferred in the business combination), the acquirer should recognize any difference between the deferred taxes recognized at the acquisition date and the tax deduction the acquirer ultimately receives as an adjustment to equity resulting from a transaction with shareholders. That amount would not be considered remaining additional paid-in capital from excess tax benefits from previous share-based payment awards as discussed in FASB Statement No. 123 (revised 2004), Share-Based Payment, often referred to as the “APIC pool.” The Board changed that decision and instead decided that such replacement share-based payment awards that represent consideration transferred in the business combination should be treated similarly to share-based payment awards under Statement 123(R) with respect to income tax effects. Any difference between the eventual tax benefit received and the amount of deferred tax assets recognized in the business combination should be recognized as additional paid-in capital similar to the accounting under such circumstances for the tax effects of share-based payment awards issued as compensation within the scope of Statement 123(R).

4. The Board retained its previous decision that the accounting for replacement awards in the NCI Statement will be limited to situations in which the acquirer is obligated to issue those replacement awards.

Financial statement presentation. The Board continued its discussion of how the financial statements could present information about what caused a change in reported amounts of assets and liabilities, including the basis for disaggregating amounts recognized as income or expense and alternative formats for presenting that disaggregated information.

While the Board did not agree with the staff that the disaggregation of changes in assets and liabilities should be based on an entity’s view of whether or not the change has predictive value, the Board did agree that the principle of predictive value should underlie the disaggregation. The Board tentatively decided that disaggregation based on the following accounting notions would be more understandable and operational, and would be consistent with the underlying principle of providing information that has predictive value.

1. Cash

2. Contractual accruals

3. Other accruals, systematic allocations, and other non-remeasurements

4. Recurring fair value changes

5. Remeasurements other than recurring fair value changes

The Board tentatively decided that the above disaggregated information should be presented in the notes to financial statements in the format of a reconciliation of the statement of cash flows to the statement of comprehensive income. The Board noted that amounts presented in categories (1)–(5) would be sufficiently dissimilar in the context of predicting future cash flows to warrant separate presentation in the financial statements.

The Board tentatively decided that, in addition to the reconciliation schedule including the reconciliation described above, an entity should present information about amounts related to an unusual or infrequent event or transaction (as those concepts are used in APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions). The Board noted that this would provide users of financial statements with a sense for non-recurring items in the financial statements from the entity’s perspective.

The Board did not object to including in the initial discussion document the other two formats it discussed for disaggregating changes in assets and liabilities (that is, a reconciliation of the statement of financial position and a statement of comprehensive income matrix).

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through August. 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, July 11, 2007—FASB Board Meeting
Wednesday, July 11, 2007—FASB Education Session
Wednesday, July 18, 2007—FASB Board Meeting
Wednesday, July 18, 2007—FASB Education Session
Wednesday, July 25, 2007—FASB Board Meeting
Wednesday, July 25, 2007—FASB Education Session
Wednesday, August 1, 2007—FASB Board Meeting
Wednesday, August 1, 2007—FASB Education Session
Wednesday, August 8, 2007—FASB Board Meeting
Wednesday, August 8, 2007—FASB Education Session
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