Revised 03/08/07—See below

Action Alert No. 07-10
March 8, 2007

NOTICE OF MEETINGS

OPEN BOARD MEETING
(Board meetings are available by audio webcast and telephone.)

Wednesday, March 14, 2007, 9:00 a.m.

  1. Transfers of financial assets (estimated 75-minute discussion). The Board will discuss possible guidance dealing with practice issues related to the accounting for transfers of financial assets that involve simultaneous repurchase agreements under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

  2. Agenda decision: valuation of commodity inventory (estimated 60-minute discussion). The Board will consider a request to add a short-term project to its agenda to determine the applicability of fair value accounting for commodity trading inventory.

  3. Statement 133 Implementation Issue—convertible debt with elements of foreign exchange risk (estimated 30-minute discussion). The Board will consider a recommendation to provide implementation guidance on determining whether convertible debt with elements of foreign exchange risk qualifies for the scope exception provided in paragraph 11(a) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.

  4. 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, March 14, 2007, following the Board meeting
Friday, March 16, 2007, 2:00 p.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the March 21, 2007 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education sessions.

OPEN MEETING OF THE EMERGING ISSUES TASK FORCE
(This meeting is available by audio webcast and telephone.)

Thursday, March 15, 2007, 8:30 a.m. – 3:15 p.m.

The Task Force plans to discuss all of the following issues in the order shown:

  1. Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements"

  2. Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards"

  3. Issue No. 07-1, "Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property"

  4. Issue No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities"

  5. Issue No. 07-2, "Accounting for Convertible Debt Instruments That Require or Permit Partial Cash Settlement upon Conversion."

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.

February 28, 2007 Board Meeting

Conceptual framework. The Board approved the staff’s plans for redeliberations of the Preliminary Views, Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. Respondents to that Preliminary Views raised the following significant issues that will be considered by the Board in its redeliberations:

  1. Whether stewardship should be an explicit part of the objective of financial reporting

  2. Whether the list of potential users is exhaustive

  3. What the primary user group of financial reports should be

  4. Whether the objective should relate to financial reporting or financial statements

  5. Whether financial reports should reflect the entity or proprietary perspective

  6. Whether the qualitative characteristic of relevance should be described as "capable of making a difference"

  7. Whether faithful representation should replace reliability as a qualitative characteristic

  8. Whether verifiability should be a component of faithful representation or a separate qualitative characteristic

  9. Whether other suggested qualitative characteristics of accounting information should be included in the framework

  10. Whether the qualitative characteristics should be presented in the form of a hierarchy

  11. Whether materiality should be a constraint or a component of a qualitative characteristic.

The Board plans to redeliberate Chapter 2, "Qualitative Characteristics of Decision-Useful Financial Reporting Information," in the second quarter of 2007, beginning in April. Redeliberations of Chapter 1, "The Objective of Financial Reporting," will begin in June 2007. Other issues raised by constituents not specifically dealt with in Chapters 1 and 2 will be discussed at the FASB and IASB joint meeting in April 2007. The FASB agreed to not hold roundtables at this time to discuss issues related to stewardship. Rather, the Board will consider other forms of constituent outreach to discuss the stewardship issue. The Board affirmed its goal of issuing an Exposure Draft on Chapters 1 and 2 in the third quarter of 2007, though the Board will reconsider that timetable once redeliberations are under way. The IASB arrived at similar conclusions at its February 20, 2007 meeting.

Business combinations: applying the acquisition method. The Board continued redeliberations of its June 2005 Exposure Drafts, Business Combinations, and Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries. The Board made the following decisions.

Contingencies

The Board discussed the accounting for contingencies (other than those arising from contingent consideration arrangements). The Exposure Draft proposed that contingencies that meet the conceptual definitions of assets and liabilities be recognized and measured at their fair value at the acquisition date. After the business combination, contingencies would be accounted for at fair value or in accordance with other applicable generally accepted accounting principles. As described below, the Board decided to affirm some aspects of that proposal and change others.

  1. The Board affirmed that contingencies should be measured at their fair value when initially recognized.

  2. The Board decided to replace the proposal to recognize all contingencies meeting the conceptual elements definitions with the following recognition criteria.

    1. The acquirer should recognize all contingencies that arise from contractual rights or obligations at the acquisition date, measuring them at their fair value at that date.

    2. The acquirer should recognize contingencies that do not arise from contractual rights and obligations on the first date that it is more likely than not the contingency meets the definition of an asset or a liability. Those contingencies should be measured at their fair value as of the initial recognition date. Contingencies meeting that recognition criterion at the acquisition date should be included in the initial accounting for the business combination. Contingencies meeting that recognition criterion after the acquisition date should be recognized at that date through a corresponding gain or loss. Those contingencies should be measured at fair value as of the date they are initially recognized.

  3. The Board discussed the accounting for contingencies after the acquisition date, largely affirming the Exposure Draft proposals. The Board decided an acquirer should:

    1. Subsequently remeasure a contingency acquired or assumed as part of a business combination at fair value if that contingency otherwise would be included in the scope of FASB Statement No. 5, Accounting for Contingencies. Changes in the fair value would be recognized in net income in the period they occur (affirming the Exposure Draft proposal).

    2. Subsequently account for a contingency that is in the scope of another standard, such as FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, in accordance with that standard (affirming the Exposure Draft proposal).

  4. The Board decided an acquirer should disclose the following information about acquired contingencies:

    1. The acquirer should disclose the nature of each acquired contingency, the amount recognized as of the acquisition date, if any, and an estimate of the range of outcomes (undiscounted) or a statement that an estimate of the range cannot be made.

    2. After the business combination, the acquirer should disclose changes in the amounts recognized, changes in the range of outcomes (undiscounted) for both recognized and unrecognized contingencies, and the reasons for the changes.

    3. Those disclosure requirements apply even if the acquirer believes that making them might provide information that might adversely affect its ability to settle or litigate a legal claim. An acquirer would, however, be permitted to provide aggregate disclosures for contingencies that are similar in nature.

    4. The disclosure requirements in paragraph 32 of FASB Statement No. 157, Fair Value Measurements, would apply to those contingencies that are subsequently measured at fair value.

Operating Leases

  1. The Board affirmed that an acquirer should measure and recognize an asset leased to others through an operating lease at its acquisition date fair value without considering the terms of the operating lease. That is, the acquirer should recognize the favorable (unfavorable) portion of an operating lease separately as an intangible asset (liability).

Noncontrolling Interests

  1. The Board discussed issues relating to the attribution of comprehensive income to controlling and noncontrolling shareholders, affirming the Exposure Draft proposals. The Board affirmed that:

    1. An acquirer should attribute net income or loss and each component of other comprehensive income between the controlling and noncontrolling interests based on the terms of any contractual arrangements between the parties and, absent any arrangements, based on relative ownership interests.

    2. An acquirer should continue to attribute losses to the noncontrolling interest even after the accumulated losses exceed the carrying amount of that interest.

  2. The Board affirmed, with a few clarifications, the guidance that was in the noncontrolling interests Exposure Draft for determining when multiple arrangements that result in a loss of control of a subsidiary should be accounted for as a single arrangement.

Transition Provisions

Although the Board has not yet discussed the effective date of the final Statements, it discussed how acquirers would transition to the new requirements, largely affirming the Exposure Draft proposals.

  1. For the final business combinations Statement, the Board affirmed that:

    1. The Statement should be applied prospectively to business combinations for which the acquisition date is on or after the effective date.

    2. Retrospective application of the Statement to acquisitions completed before the Statement is applied should not be permitted.

    3. The Statement should be applied at the same time the final noncontrolling interests Statement is applied.

  2. In transitioning to the final noncontrolling interests Statement, the Board affirmed that an entity should:

    1. Reclassify noncontrolling interests to equity from the liability or mezzanine section and present them separately from the parent’s shareholders’ equity.

    2. Recast consolidated net income so that consolidated net income attributable to the noncontrolling interest would be included in the amount reported for consolidated net income.

    3. Reattribute consolidated net income and consolidated other comprehensive income in accordance with the requirements of the Statement.

    4. Disclose the information required by the Statement for all periods presented.

  3. The Board agreed that an entity should not change its previous accounting for acquisitions or dispositions of noncontrolling interests that did not result in a change of control that occurred before the final noncontrolling interests Statement is applied (a slight change from the Exposure Draft, which proposed that the previous accounting for acquisitions of noncontrolling interests would be accounted for as equity transactions).

  4. The Board affirmed that the assets, liabilities, and noncontrolling interests of subsidiaries that are less than wholly owned would not be remeasured upon application of the noncontrolling interests Statement. Acquisitions or dispositions of noncontrolling interests after the final noncontrolling interest Statement is applied would be accounted for as equity transactions.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through April. 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.

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
Wednesday, April 4, 2007—FASB Board Meeting
Wednesday, April 4, 2007—FASB Education Session
Wednesday, April 11, 2007—FASB Board Meeting
Wednesday, April 11, 2007—FASB Education Session
Wednesday, April 18, 2007—FASB Board Meeting
Wednesday, April 18, 2007—FASB Education Session
Monday, April 23, 2007—FASB/IASB Joint Board Meeting, London
Tuesday, April 24, 2007—FASB/IASB Joint Board Meeting, London
Thursday, April 26, 2007—FASB Education Session
Monday, April 30, 2007—Valuation Guidance for Financial Reporting Roundtable