Action Alert No. 05-11
March 17, 2005


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

Wednesday, March 23, 2005, 9:00 a.m.

  1. Short-term convergence: income taxes. The Board will consider certain differences between the provisions of FASB Statement No. 109, Accounting for Income Taxes, and IAS 12, Income Taxes, related to the tax rate to be used in measuring deferred tax assets and liabilities. The Board also will be briefed on the decisions reached by the IASB at its March 2005 meeting. (Estimated 60-minute discussion.)

  2. FASB Staff Positions (FSPs): The Board will discuss the following:

    1. Stable value investments. The Board will discuss whether to direct the staff to post a proposed FSP to the website that describes the limited circumstances in which contract value accounting is appropriate for certain traditional and synthetic guaranteed investment contracts held by an investment company. (Estimated 60-minute discussion.)

    2. Suspended well costs. The Board will consider comment letters received on proposed FSP FAS 19-a, "Accounting for Suspended Well Costs," and whether to direct the staff to post that FSP to the website as final. (Estimated 45-minute discussion.)

    3. Employee share options. The Board will consider whether to direct the staff to post a proposed FSP to the website that amends the guidance in EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock," as it relates to share options issued as employee compensation. (Estimated 30-minute discussion.)

  3. Qualifying special-purpose entities with isolation of transferred assets. The Board will continue its discussion of the accounting for transfers of financial assets under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, from the March 9, 2005 Board meeting. The discussion is expected to focus on two issues, whether a transferor’s interests should be initially measured at fair value if the transfer does not involve the transfer of the original asset to a qualifying special-purpose entity and whether a transferor must agree to pass through any setoff benefits it receives related to a transferred financial asset to other interest holders. The Board is also expected to discuss whether a pass through of setoff benefits should be required for all transactions and whether this issue is an effective control issue that impacts how other dilutive risks are treated. (Estimated 45-minute 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.


Wednesday, March 23, 2005, immediately following the Board meeting

Thursday, March 24, 2005, 1:00 p.m.

The Board will hold educational, non-decision-making sessions to discuss topics that are anticipated to be discussed at the March 30, 2005 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education sessions.

(This meeting is available by audio webcast and telephone.)

Tuesday, March 22, 2005, 9:00 a.m.

The Advisory Council will meet to discuss:

  1. Current accounting and financial reporting issues

  2. The Board’s project on the conceptual framework

  3. The Board’s projects on fair value measurement and fair value option

  4. The AICPA’s Private Company Financial Reporting Task Force Report

  5. Managing changes to financial reporting.

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.


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.

March 9, 2005 Board Meeting

Qualifying special-purpose entities and isolation of transferred assets. The Board focused on two issues: (1) whether a transferor’s participating interest that results from a transfer of a portion of a financial asset that does not utilize a qualifying special-purpose entity (QSPE) should be remeasured at fair value and (2) whether its decision to require that a transferor pass through a share of any benefits it receives from a setoff event to transferees to achieve sale accounting should be reconsidered.

The Board discussed four alternatives to address the issue of whether a transferor’s participating interest in a financial asset should be considered a new asset that would be initially measured at fair value. A participating interest conveys pro rata but equal ownership rights to the cash flows and other assets generated by an original financial asset to each participating interest holder, including the transferor to the extent the transferor has retained a participating interest, and does not involve any recourse to or subordination by any participating interest holder. The Board had tentatively decided that all transferors’ interests should be initially measured at fair value in conjunction with the projects that address the measurement of beneficial interests and servicing rights.

The Board did not reach a decision at this meeting; however, it narrowed down the alternatives to two. Both alternatives require that a transferor’s participating interest be initially measured at allocated carry-over basis, but one alternative would only allow a transferor’s interest to be measured at allocated carry-over basis if a QSPE had not been used. The Board asked the staff to provide additional analysis of the characteristics of those two alternatives.

In addition, the Board reconsidered its decision to require that in all circumstances, a transferor agree to pass through to transferees-investors a share of any benefits received from exercising setoff involving transferred financial assets in order to achieve sale accounting. The Board did not reach a decision on this issue. The Board deferred consideration of this issue until it has time to consider additional materials. The Board expects to discuss both issues at the March 23, 2005 Board meeting.

Agenda decisions. The Board discussed adding the following projects to its agenda:

Contingent environmental liabilities. The Board discussed a request to add a project to its technical agenda to reconsider the accounting and reporting for contingent environmental liabilities. Specifically, the Board considered whether contingent environmental liabilities that meet the recognition criteria in paragraph 8 of FASB Statement No. 5, Accounting for Contingencies, should be recognized at expected value and whether contingent environmental liabilities of a similar nature should be aggregated for purposes of assessing materiality. The Board decided not to add a project that addresses these issues to its agenda for the following reasons:

  1. The Board does not intend to reconsider Statement 5 and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss, solely in the context of environmental liabilities.

  2. The current project to reconsider the conceptual framework may result in changes to the accounting and reporting of contingent liabilities. The Board does not intend to reconsider the guidance in Statement 5 prior to substantial completion of the conceptual framework project.

  3. The Board believes that the current accounting literature addresses the concerns raised in the agenda request regarding disclosures and questions whether problems identified are related to compliance with the literature, rather than deficiencies in the literature.

  4. The staff is currently considering a separate project to address the broader issue of disclosures of risks and uncertainties in financial statements, and it plans to bring a proposal for that separate project to the Board at a later date.

Derivative disclosures. The Board decided to add a project to its technical agenda to reconsider the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In response to criticism that Statement 133 lacks transparent disclosures that allow a user of financial statements to assess the overall risk of derivatives on a reporting entity from both a quantitative and qualitative perspective, this project will consider enhanced disclosures, which will include a reconsideration of the usefulness of the existing disclosure requirements. The Board instructed the staff to consider whether the scope of the project should be expanded to include financial instruments that are not within the scope of Statement 133.


The following is a list of open meetings tentatively scheduled through April. All meetings are held in Norwalk, Connecticut, unless otherwise noted. 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, March 30, 2005—FASB Board Meeting
Wednesday, March 30, 2005—FASB Education Session
Wednesday, April 6, 2005—FASB Board Meeting
Wednesday, April 6, 2005—FASB Education Session
Wednesday, April 13, 2005—FASB Board Meeting
Wednesday, April 13, 2005—FASB Education Session
Thursday, April 21, 2005—IASB/FASB Joint Board Meeting, London
Friday, April 22, 2005—IASB/FASB Joint Board Meeting, London
Wednesday, April 27, 2005—No FASB Board Meeting
Wednesday, April 27, 2005—FASB Education Session