Action Alert No. 05-16
April 21, 2005


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

Wednesday, April 27, 2005, 9:00 a.m.

  1. Business combinations: purchase method procedures. The Board will discuss the effective dates and comment periods for the forthcoming Exposure Drafts for business combinations and noncontrolling interests and any other matters identified in drafting. (Estimated 30-minute discussion.)

  2. Fair value measurement. The Board will continue redeliberations of the proposed Statement on fair value measurements. The Board will discuss issues raised by respondents on disclosures, measurement of blocks, and the scope of the standard. (Estimated 90-minute discussion.)

  3. 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, April 27, 2005, immediately following the Board meeting

The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the May 4, 2005 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.


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.

April 13, 2005 Board Meeting

Beneficial interests, qualifying special-purpose entities and isolation of transferred assets, and servicing rights.

The Board completed deliberations on the issues presented in the projects on servicing rights, beneficial interests, and qualifying special-purpose entities.

The Board decided for all three projects:

  1. To establish 60-day comment periods for the Exposure Drafts

  2. To require that application of the measurement provisions be effective at the earlier of fiscal years beginning after December 15, 2005, or fiscal years that begin during the quarter in which the final Statements are issued.

Separately, the Board decided the following for each project:

Beneficial interests

  1. To require no incremental disclosures in regard to the Board’s decision to allow a fair value option election for hybrid financial instruments with embedded derivatives that otherwise would require bifurcation

  2. To apply the decisions reached in the beneficial interests project prospectively to only new transactions.

Qualifying special-purpose entities and isolation of transferred assets

  1. To require that the derecognition provisions for a transfer of a portion of a financial asset be applied prospectively:

    • For public companies—all transfers of financial assets occurring after the end of the first fiscal quarter that begins after the issuance of the final Statement

    • For privately held companies—all transfers that occur in the first fiscal year that begins after the issuance of the final Statement.

  2. To require that (a) a participating interest be defined as proportionate ownership of the cash flows of the original financial asset that does not involve recourse or subordination by any party to the transaction and is an interest in a single, original financial asset and (b) each resulting participating interest meet all of the conditions of paragraph 9 of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (in particular, paragraph 9(b)).

Servicing rights

  1. To require that the initial measurement of all servicing rights at fair value be applied prospectively to new servicing rights recognized

  2. To require that the option to subsequently measure servicing rights at fair value be applied prospectively to all new servicing rights recognized after the election to subsequently measure at fair value is made and to all existing servicing rights on the date the election is made with a cumulative effect adjustment to reflect existing servicing rights at fair value upon election

  3. To include in the Exposure Draft’s notice to recipients a request that asks constituents whether they believe entities should be permitted, in conjunction with the adoption of the final Statement, to transfer all securities from the available-for-sale category to the trading category without calling into question an entity’s treatment of such securities under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities.

Financial instruments: derivatives implementation. The Board did not object to the staff’s posting of proposed Statement 133 Implementation Issues No. B38, "Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option," and No. B39, "Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor," to the FASB website for a comment period of 35 days.

The Board decided that the effective date of these Implementation Issues would be the first day of the first fiscal quarter beginning after September 15, 2005. The new implementation guidance would be applied prospectively for all existing contracts and future transactions as of the effective date.

The Board decided that the transition for both issues would follow the guidance in Section II (A) of Statement 133 Implementation Issue No. K5, "Transition Provisions for Applying the Guidance in Statement 133 Implementation Issues." Under that guidance, with respect to derivatives that are required to be bifurcated under the new guidance (as would be the case for instruments affected only by Implementation Issue B38), the effects of initially complying with the revised implementation guidance as of the effective date would be reported as a cumulative effect adjustment. If under the newly issued implementation guidance an entity may not account separately for an embedded derivative that has been separately accounted for previously (as would be the case for those instruments affected only by Implementation Issue B39), the carrying amount of the related hybrid instrument at the effective date should be the sum of the carrying amount of the host contract and the fair value of the embedded derivative, with no cumulative effect adjustment recorded. Subsequently, any premium or discount on the host contract would be amortized or accreted to par prospectively as an adjustment to the yield of the underlying debt host contract.

The Board also decided to issue a technical revision to Statement 133 Implementation Issue No. B16, "Calls and Puts in Debt Instruments." The revisions relate to certain examples in Implementation Issue B16. As revised, the examples will only comment on whether the embedded put or call is clearly and closely related, thereby requiring further analysis under paragraphs 12(b) and 12(c) to determine if the embedded put of call is required to be bifurcated and separately accounted for. These revisions would be posted at the time the Board gives final clearance for posting Implementation Issues B38 and B39.


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, May 4, 2005—FASB Board Meeting
Wednesday, May 4, 2005—FASB Education Session
Monday, May 9, 2005—American Accounting Association Liaison Meeting
Wednesday, May 11, 2005—FASB Board Meeting
Wednesday, May 11, 2005—FASB Education Session
Wednesday, May 18, 2005—FASB Board Meeting
Wednesday, May 18, 2005—FASB Education Session
Friday, May 20, 2005—American Petroleum Institute Risk Control and Accounting Committee Liaison Meeting
Tuesday, May 24, 2005—Equipment Leasing Association of America Liaison Meeting
Wednesday, May 25, 2005—FASB Board Meeting
Wednesday, May 25, 2005—FASB Education Session