Action Alert No. 04-36
September 16, 2004

NOTICE OF MEETINGS

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

Wednesday, September 22, 2004, 9:00 a.m.

  1. Equity-based compensation. The Board will continue redeliberations of its Exposure Draft, Share-Based Payment, an amendment of FASB Statements No. 123 and 95. The Board plans to address issues related to income taxes and cash flows. (Estimated 1.5-hour discussion.)

  2. Qualifying special-purpose entities with isolation of transferred assets. The Board will continue its discussion on the impact of setoff rights on the isolation requirement in FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The Board will consider a proposal that would define the isolation requirement in paragraphs 9(a) and 27 in a manner consistent with a legal true sale opinion and provide implementation guidance that would describe the characteristics of a true sale for portions of financial assets, for example, loan participations. In addition, the Board will consider whether that guidance should be provided as an example or whether it should be articulated as a requirement that could be applied to all transactions. The Board also will consider whether to add specific guidance on setoff rights that would require that a transferor pass through the benefits of setoff to holders of transferred interests in the related assets. (Estimated 1-hour discussion.)

  3. Servicing rights. The Board will continue its deliberations of the disclosure requirements for servicing rights. (Estimated 1-hour discussion.)

  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, September 22, 2004, immediately following the Board meeting
Friday, September 24, 2004, 11:00 a.m.

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the October 6, 2004 Board meeting and other future Board meetings. Those topics will be posted to the FASB calendar four days prior to the education session.


OPEN MEETING WITH THE AMERICAN GAS ASSOCIATION

Monday, September 20, 2004, 2:00 p.m.

The Board will meet with members of the Accounting Advisory Council of the American Gas Association to discuss matters of mutual interest.


OPEN ROUNDTABLE DISCUSSIONS WITH RESPONDENTS TO THE FASB EXPOSURE DRAFT, FAIR VALUE MEASUREMENTS
(This meeting is available by audio webcast and telephone.)†

Tuesday, September 21, 2004, 9:00 a.m. - 12:00 p.m. and 1:00 p.m. - 4:00 p.m.

The Board will hold public roundtable discussions to listen to the views of and obtain information from respondents to the June 23, 2004 FASB Exposure Draft, Fair Value Measurements.


OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS ADVISORY COUNCIL
(This meeting is available by audio webcast and telephone.)†

Thursday, September 23, 2004, 9:00 a.m.

The Advisory Council will meet to discuss:

  1. Current accounting and financial reporting issues
  2. The preliminary results of the 2004 annual FASAC survey
  3. The conceptual framework and issues involving relevance and reliability
  4. The Board's project on fair value measurement
  5. The Board's project on uncertain tax positions
  6. The Board's project on short-term international convergence—income taxes
  7. The Board's project on liability extinguishments
  8. The Board's codification and retrieval initiative.

The Advisory Council will hear reports from the chairman of the FASB on other Board activities and the senior associate chief accountant of the SEC on current accounting-related developments. The Advisory Council also will hear a report from the chief auditor of the Public Company Accounting Oversight Board.

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 or Interpretation.

September 8, 2004 Board Meeting

Equity-based compensation (EBC). The Board continued its redeliberations of its March 2004 FASB Exposure Draft, Share-Based Payment, an amendment of FASB Statements No. 123 and 95, and made the following decisions:

Employee Share Purchase Plans (ESPPs)

The Board decided that an ESPP is not compensatory and does not give rise to recognizable compensation cost if all of the following conditions are met:

  1. The ESPP satisfies one of the following criteria:
    1. The terms of the ESPP are no more favorable than those available to all holders of the same class of shares.
    2. Any discount for the purchase of shares provided under the plan results in proceeds to the employer that are not less than the proceeds it would receive in an offering of shares if the shares had been issued to third parties by other means, for example, through an underwriter. A discount of 5 percent or less from the market price should be considered to comply with this criterion without further justification.
  2. Substantially all eligible employees that meet limited employment qualifications may participate on an equitable basis.
  3. The ESPP does not incorporate option features. For example, a plan in which the purchase price is based on the share price at date of grant and that permits a participating employee to cancel participation before the purchase date and obtain a refund of amounts previously paid is a compensatory plan.

The Board also made the following decisions on implementation issues regarding ESPPs:

  1. If an entity justifies a purchase discount in excess of 5 percent, it would be required to reassess that discount at least annually and no later than the first share purchase during that fiscal year. If upon reassessment that discount is not deemed justifiable, subsequent grants using that discount would be compensatory.
  2. If an ESPP provides for a discount in excess of that specified in criterion 1(b) above, the entire discount associated with the grant, not just the portion in excess of that specified in criterion 1(b), is considered compensatory.
  3. Compensation cost related to grants made under ESPPs should be recognized over the requisite service period. The Board agreed that the requisite service period generally would be the period over which cash is accumulated for the purchase of shares or the purchase date if there is no required cash accumulation period.

Disclosures

The Board reaffirmed its support for the disclosure objectives in paragraph 46 of the proposed Statement. Those objectives are as follows:

   An entity with one or more share-based payment arrangements with employees shall disclose information that enables users of the financial statements to understand:
  1. The nature and general terms of such arrangements that existed during the period and the potential effects of those arrangements on shareholders (for example, the transfer of value from existing shareholders to option holders upon exercise)
  2. The effect of compensation cost arising from share-based employee payment arrangements on the income statement
  3. The method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period
  4. The cash flow effects resulting from share-based payment arrangements.

Minimum Disclosure Requirements

With one exception, the Board reaffirmed its support for the minimum disclosure requirements described in paragraph B191 of the proposed Statement. The Board decided to modify the disclosure in paragraph B191(i) to require disclosure of the actual tax benefits realized from stock options exercised during the annual period. The Board also decided that the final Statement's basis for conclusions should explain that disclosures are subject to the Statement's general materiality provision, which states that the provisions of the Statement need not be applied to immaterial items. The Board considered whether to add any additional disclosure requirements beyond those described in paragraph B191 and decided against adding any such disclosures.

Sensitivity Analysis

The Board considered whether sensitivity analysis relating to certain parameters used for pricing stock options should be a required minimum disclosure and decided not to require it. The Board emphasized the guidance provided on this matter in paragraph B193 of the proposed Statement, which states that an entity may provide such analysis in the form of a supplemental disclosure if the entity believes that the analysis would be useful to investors and creditors.

Interim Disclosures

The Board agreed that the minimum disclosure requirements relate to annual periods and decided not to amend APB Opinion No. 28, Interim Financial Reporting, to require any interim disclosure for share-based payment awards. The Board agreed that the basis for conclusions of the final Statement should explain that entities should refer to Opinion 28 in assessing whether any quarterly disclosures would be necessary for users of financial information to understand the impact of share-based payment transactions during a quarterly period.

Other Disclosures

The Board considered a variety of additional proposed disclosures and decided that none of them should be required.

FASB Staff Positions (FSPs). The Board considered whether to direct the staff to issue the following FSPs and made the following decisions:

  1. After discussing comments received, the Board disagreed with the proposed FSP FAS 142-c, "Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Exchange Memberships," and directed the staff not to post it to the FASB website as final. The Board directed the staff to work with the AICPA staff to modify existing language about exchange memberships in the AICPA Audit and Accounting Guide for brokers and dealers.
  2. Directed the staff to post to the FASB website proposed FSP EITF Issue 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,'" for a 45-day comment period, after certain revisions are made. The Board also directed the staff to post to the FASB website proposed FSP EITF Issue 03-1-b, "Effective Date of Paragraph 16 of EITF Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,'" for a 15-day comment period, after certain revisions are made. (Proposed FSP EITF Issue 03-1-a was subsequently posted to the website on September 15, 2004, and comments are requested by October 29, 2004. Also, proposed FSP EITF Issue 03-1-b was subsequently posted to the website on September 15, 2004, and comments are requested by September 29, 2004.)

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through October. 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, September 29, 2004—FASB Board Meeting
Wednesday, September 29, 2004—Education Session
Wednesday, September 29, 2004—Emerging Issues Task Force Meeting
Thursday, September 30, 2004—Emerging Issues Task Force Meeting
Wednesday, October 6, 2004—FASB Board Meeting
Friday, October 8, 2004—Liaison Meeting with the AICPA Private Companies Practice Section Technical Issues Committee
Wednesday, October 13, 2004—FASB Board Meeting
Wednesday, October 13, 2004—FASB Education Session
Thursday, October 14, 2004—User Advisory Council Meeting, New York City
Friday, October 15, 2004—FASB Insurance Industry Forum
Tuesday, October 19, 2004—Joint FASB/IASB Board Meeting
Wednesday, October 20, 2004—Joint FASB/IASB Board Meeting
Thursday, October 21, 2004—FASB Education Session (tentative)
Wednesday, October 27, 2004—FASB Board Meeting (tentative)
Wednesday, October 27, 2004—FASB Education Session