Action Alert No. 08-16
April 17, 2008


(This joint meeting is available by audio webcast through the IASB. Visit the IASB website for more information on webcasting. The audio playback file will be available to listeners via the IASB website.)

Painters’ Hall
9 Little Trinity Lane
London EC4V 2AD
United Kingdom

Monday, April 21, 2008, 6:45 a.m. EDT (11:45 a.m. BST)

The FASB and the IASB will meet in London to discuss the following:

  1. Memorandum of Understanding. The Boards will discuss the Memorandum of Understanding between the FASB and IASB, including current priorities. (Scheduled for 6:45 a.m. – 7:45 a.m. and 8:45 a.m. – 9:30 a.m. EDT)

  2. Revenue recognition. Representatives of the European Financial Reporting Advisory Group (EFRAG) will present to the Boards an overview of the PAAinE (Pro-active Accounting Activities in Europe) Discussion Paper, Revenue Recognition—A European Contribution. (Scheduled for 9:30 a.m. – 10:45 a.m. EDT)

  3. Conceptual framework: objectives and qualitative characteristics and reporting entity. The Boards will discuss the implications of adopting the entity perspective—that is, the entity itself is the subject matter of financial reporting. This issue was discussed in the objectives and qualitative characteristics phase (Phase A) and the reporting entity phase (Phase D) of the framework project. The Boards also will consider whether and, if so, how they might invite comments on potential implications of decisions reached on those phases for matters that are being or are yet to be considered in other phases of the project. In addition, the Boards will discuss a sweep issue arising from Board members’ comments on a draft discussion paper for Phase D, relating to parent-only financial statements. (Scheduled for 11:00 a.m. – 1:00 p.m. EDT)

Tuesday, April 22, 2008, 4:00 a.m. EDT (9:00 a.m. BST)

  1. Meeting of IASB, FASB, and CRUF (Corporate Reporting Users’ Forum). (Scheduled for 4:00 a.m. – 5:00 a.m. EDT)

  2. FASB and IASB—standard setters' responses to credit crisis. The Boards will outline and discuss their responses to the current credit crisis, including identifying how the crisis has affected their current project plans and priorities. (Scheduled for 5:00 a.m. – 6:30 a.m. EDT)


No education sessions are planned for the week of April 21, 2008.


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.

April 9, 2008 Board Meeting

Revenue recognition. The Board discussed drafts of Chapters 2, 3, and 4 for the upcoming discussion paper on revenue recognition. These chapters cover accounting for contracts with customers and the identification and satisfaction of performance obligations. The Board was not asked to make any decisions. Instead, the Board offered suggestions for improving the draft chapters of the discussion paper.

In particular, the Board asked the staff to consider how the proposed revenue recognition model could be articulated based on the existing definition of an asset, rather than the Boards' working definition from the conceptual framework project. The Board also asked the staff to explain the alternative view held by some Board members that revenue cannot arise at contract inception. In general, the Board agreed with the staff's approach in the upcoming revenue recognition discussion paper.

Measurement of liabilities. The Board discussed comments received on proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157, and directed the staff to make the following changes to the proposed FSP and its related amendments to clarify the Board’s intent:

  1. Modify paragraph 6 of the proposed FSP to clarify that the exceptions to the use of Level 1 inputs in paragraphs 25 and 26 of FASB Statement No. 157, Fair Value Measurements, continue to be available under the guidance in the proposed FSP

  2. Clarify that when using a quoted price in an active market, an entity should ensure that the item for which the quote pertains is identical to the unit of account for the liability being measured

  3. Modify paragraph 6 of the proposed FSP to clarify that the best measurement of fair value for an entity’s liability is the price at which that liability is traded as an asset

  4. Clarify that the intent of the measurement guidance in paragraph 7 of the proposed FSP is to be a starting point for the fair value measurement of a liability and that any amounts calculated under that guidance may need to be adjusted further to remain consistent with the principles of Statement 157

  5. Clarify that the effect of initially applying the guidance in the proposed FSP should be included as a change in fair value in the period of adoption

  6. Specify that the final FSP will be effective at the later of (a) the beginning of the first reporting period ending after the issuance date of the FSP or (b) the beginning of the period in which an entity initially applies Statement 157.

The Board directed the staff to present a memorandum to the Board to ensure that the staff has captured the Board’s views on the FSP. The Board may decide to readdress issues related to this FSP at a future meeting. The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot after it has reviewed the staff memorandum.

Reconsideration of Interpretation 46(R). The Board discussed amending certain key provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, primarily as a result of the potential elimination of the qualifying special-purpose entity concept in FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and in Interpretation 46(R) along with the recent activities in the credit markets. The Board supported requiring an enterprise (including its related party and de facto agents) to determine whether it is the enterprise that must consolidate a variable interest entity (the primary beneficiary) primarily through a thorough qualitative assessment. If an enterprise is unable to determine if a primary beneficiary exists (or does not exist) through the qualitative assessment, the enterprise would perform the current quantitative analysis described in Interpretation 46(R) (that is, determining the primary beneficiary based on which enterprise quantitatively absorbs the majority of the expected losses, receives the majority of the residual returns, or both).

The Board also approved the addition of the “passive interest” concept. A passive interest is an interest in a variable interest entity:

  1. That has a maximum exposure that is capped (it cannot exceed an amount determinable at the date of the enterprise’s involvement with the entity)

  2. In which the enterprise (including related parties and de facto agents) with the interest has no involvement with the design or redesign of the variable interest entity

  3. In which the enterprise has no additional involvement or interests with the variable interest entity

  4. In which the interest does not give the entity significant control rights (guidance and factors are within the qualitative assessment guidance)

  5. In which the interest is insignificant. (The Board agreed that the guidance for insignificant interests would be established at a later date.)

The Board agreed that an enterprise with a passive interest would not be considered the primary beneficiary in any circumstance when the interest is passive.

In supporting the addition and the emphasis on a qualitative assessment, the Board requested that the staff establish an overall objective of the qualitative analysis and suggested criteria supporting that objective that can be easily understood and applied by constituents. The Board agreed that the criteria would not be considered all-inclusive and that constituents would have to apply professional judgment.

The Board agreed to rescind the current guidance for reconsidering when an entity is a variable interest entity and which enterprise, if any, with a variable interest in a variable interest entity should consolidate the entity as provided in paragraphs 7 and 15 of Interpretation 46(R). The Board agreed that the reconsideration of the status of an entity and the primary beneficiary should be made during each reporting period using the amended guidance requiring that the primary assessment be based on a qualitative analysis.

Finally, the Board agreed to rescind the exemption from reconsideration of an entity in a variable interest entity in paragraph 7 of Interpretation 46(R) for troubled debt restructurings.


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 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