Action Alert No. 08-14
April 3, 2008

NOTICE OF MEETINGS

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

Wednesday, April 9, 2008, 8:00 a.m.

The Board meeting will begin at 8:30 a.m. instead of 9:00 a.m.

  1. Revenue recognition (estimated 1.5-hour discussion). The Board will discuss the first three draft chapters of the discussion paper that is planned for issuance around June 30, 2008. Those chapters deal with initial recognition and subsequent accounting for contracts with customers. In particular, the Board will discuss the type of contract accounted for in the proposed revenue recognition model, the definition of a performance obligation, and how a performance obligation is satisfied.

  2. Measurement of liabilities (estimated 1-hour discussion). The Board will discuss issues raised by respondents to proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157, and whether to issue that FSP as final.

  3. Reconsideration of Interpretation 46(R) (estimated 1.5-hour discussion). The Board will discuss potential issues and recommendations related to FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of potential changes to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and recent market events.

  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 SESSION

Wednesday, April 9, 2008, following the Board meeting

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.

March 26, 2008 Board Meeting

FASB ratification of EITF consensuses and tentative conclusions. The Board considered and ratified the consensus reached at the March 12, 2008 EITF meeting on Issue No. 07-4, "Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships."

The Board considered and ratified three consensuses-for-exposure reached at the March 12, 2008 EITF meeting on Issues No. 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock," No. 08-3, "Accounting by Lessees for Nonrefundable Maintenance Deposits," and No. 08-4, "Transition Guidance for Conforming Changes to Issue No. 98-5." The Board also approved the exposure of a draft abstract for each Issue and decided on the length of the comment period.

GAAP hierarchy. The Board decided to include in the final Statement the grandfathering provisions related to EITF Issues and Statements of Position in AICPA Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Board also decided to refer to all SEC literature in one footnote rather than in two footnotes. Finally, the Board decided that the effective date of the final Statement should be the same as the effective date of auditing literature.

Convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The Board discussed comments received on proposed FSP APB 14-a, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). The Board reached the following decisions:

  1. The Board reaffirmed the scope of the proposed FSP.

  2. The Board reaffirmed the guidance in the proposed FSP on the following:

    1. Recognition and initial measurement, including the liability-first separation methodology

    2. Subsequent measurement

    3. Accounting for modifications and derecognition.

  3. Transaction costs should be allocated between the liability and equity components in proportion to the allocation of the proceeds.

  4. The final FSP will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.

  5. The final FSP should be applied retrospectively to all periods presented.

  6. The provisions of FASB Statement No. 34, Capitalization of Interest Cost, should be applied to all periods in which the instrument was outstanding; however, entities should not re-perform impairment tests for prior periods in connection with retrospective application.

  7. The guidance in the final FSP does not affect the determination of whether the liability component should be presented as a current liability or a long-term liability in the balance sheet under other applicable U.S. generally accepted accounting principles.

  8. The final FSP will contain explicit disclosure requirements.

The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.

Omnibus changes to consolidation and equity method guidance for not-for-profit organizations. The Board discussed comments received on proposed FSP SOP 94-3-a and AAG HCO-a, Omnibus Changes to Consolidation and Equity Method Guidance for Not-for-Profit Organizations, and made the following decisions:

  1. The Board reaffirmed that the scope of this project is to address conflicts or areas of uncertainty in the existing authoritative accounting literature concerning the consolidation and equity method guidance for not-for-profit organizations in conjunction with the Codification, not to comprehensively revisit or rewrite the guidance for accounting and reporting of interests in other entities by not-for-profit organizations.

  2. The Board will not expand the scope of the FSP to eliminate the optionality of consolidation when control over another not-for-profit organization exists by means other than majority voting interest in the board of that organization, such as by contract or affiliation agreement.

  3. The Board will not expand the scope of this project to consider consolidation principles for not-for-profit organizations when the usual characteristics of a controlling financial interest are absent.

  4. The FSP will require not-for-profit organizations to follow the consensus reached in EITF Issue No. 90-15, "Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions." The FSP will remain silent on whether not-for-profit organizations should apply the SEC staff views expressed in Issue 90-15 (Questions 1–9) and EITF Topic No. D-14, "Transactions involving Special-Purpose Entities." (The Codification will not include Questions 1–9 or Topic D-14.) However, the FSP will include language from Topic D-14 that, in order for a lessee not to be required to consolidate a special-purpose entity lessor, the majority owner(s) of record of the lessor must be an independent third party.

  5. The FSP will not provide an exception or substitute alternative disclosure requirements for the disclosure requirements in paragraph 20 of APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, for equity method investees that are not aligned with the operations or mission of the not-for-profit organization.

  6. The FSP will remain silent on the applicability of the guidance in EITF Topic D-46, "Accounting for Limited Partnership Investments" (which constitutes SEC staff views) for not-for-profit organizations.

  7. The scope of AICPA Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, should not be expanded to include non-real-estate partnership interests held by for-profit health care providers and other business entities.

  8. The FSP will require a cumulative change adjustment when an organization must change its accounting to comply with the provisions of the FSP, for its relationships, arrangements, or interests in existence as of the effective date of the FSP. (The proposed FSP would have generally required retrospective application of its provisions.)

  9. The Board agreed to extend to not-for-profit organizations a one-time opportunity to elect fair value for partnership and similar interests that are financial instruments and that exist as of the effective date of the FSP if the provisions of the FSP would require those interests to be accounted for under the equity method of accounting for the first time and if the organization’s deadline for electing the fair value option under FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, has already passed.

The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.

Open discussion: agenda decision—reconsideration of Interpretation 46(R). The FASB chairman announced that the Board has had discussions on FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. The discussions arose from the current project on FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to possibly eliminate qualifying special-purpose entities. The FASB chairman announced that the Board will be reconsidering certain provisions of Interpretation 46(R), including the factors to determine the primary beneficiary, implicit guarantees, expected losses, and disclosures.

FASB DOCUMENT AVAILABLE

FASB Invitation to Comment, Reducing Complexity in Reporting Financial Instruments, was issued on March 28, 2008, and is available on the FASB website. Comments are requested by September 19, 2008.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through May. 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, April 16, 2008—FASB Board Meeting
Wednesday, April 16, 2008—FASB Education Session
Monday, April 21, 2008—FASB/IASB Joint Board Meeting, London
Tuesday, April 22, 2008—FASB/IASB Joint Board Meeting, London
Thursday, April 24, 2008—FASB Education Session
Wednesday, April 30, 2008—FASB Board Meeting
Wednesday, April 30, 2008—FASB Education Session
Tuesday, May 6, 2008—FASB Insurance Forum
Wednesday, May 7, 2008—FASB Board Meeting
Wednesday, May 7, 2008—FASB Education Session
Wednesday, May 14, 2008—FASB Board Meeting
Wednesday, May 14, 2008—FASB Education Session
Wednesday, May 21, 2008—FASB Board Meeting
Wednesday, May 21, 2008—FASB Education Session
Thursday, May 22, 2008—Liaison Meeting with Healthcare Financial Management Association
Wednesday, May 28, 2008—FASB Education Session