Action Alert No. 05-13
March 31, 2005


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

Wednesday, April 6, 2005, 9:00 a.m.

  1. Financial instruments: liabilities and equity. The Board will discuss how financial instruments issued by a consolidated subsidiary that are indexed to or settled by issuing parent company shares should be classified in the separate financial statements of that subsidiary. (Estimated 30-minute discussion.)

  2. Useful life and amortization of intangible assets. The Board will reconsider certain aspects of FASB Statement No. 142, Goodwill and Other Intangible Assets, as they relate to the determination of the useful life and amortization of intangible assets. Specifically, the Board will discuss alternative models that reconsider (a) certain aspects of Statement 142 relating to the determination of the useful life relative to the anticipated cash flows used to initially value the asset, (b) an amortization methodology that reflects the pattern in which the economic benefits of an intangible asset are consumed or otherwise used up, (c) the requirements for recording a residual value for intangible assets, and (d) the impairment model for renewable intangible assets. (Estimated 45-minute discussion.)

  3. Agenda decision: risk transfer in insurance and reinsurance contracts. The Board will discuss whether to add a project to its agenda to consider issues relating to risk transfer in insurance and reinsurance contracts. The Board will also discuss the approach to such a project. (Estimated 60-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, April 6, 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 April 13, 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.

March 23, 2005 Board Meeting

Short-term convergence: income taxes. The Board considered 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 decided that:

  1. If income is taxed at different rates depending on whether that income is distributed to shareholders:

    1. Deferred tax assets or liabilities should be measured based on the undistributed rate.

    2. To the extent that there is an obligation to distribute a portion of that income, any deferred tax assets or liabilities related to that portion should be remeasured using the distributed rate.

  2. In determining the point at which deferred tax assets and liabilities should be adjusted for the effect of a change in tax laws or rates:

    1. For operations within U.S. taxing jurisdictions, to retain the Statement 109 guidance that requires that the effect of the change in tax laws or rates be recognized in the period of enactment.

    2. For operations other than U.S. taxing jurisdictions, to amend Statement 109 to require use of an approach that is consistent with International Accounting Standards (IAS). The IAS approach requires that deferred tax assets and liabilities be measured based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

The Board requested that the IASB consider whether similar wording could be added to IAS 12. That is, that operations (including subsidiaries) within U.S. taxing jurisdictions that apply IAS should reflect changes in the U.S. tax laws or tax rates when they are enacted.

FASB Staff Positions (FSPs). The Board discussed the following FSPs:

  1. Stable value investments. The Board made several decisions regarding accounting for fully benefit-responsive investment contracts by certain investment companies. The Board was unable to finalize a definition of "fully benefit-responsive" and has directed the staff to propose some revised wording to more accurately describe the role of the contract issuer.

    The Board decided that a fully benefit-responsive investment contract should be accounted for at contract value if held by an investment company established under a trust whereby (a) the trust itself must be adopted as part of one or more qualified employer sponsored defined-contribution plans (including both health and welfare benefit plans or pension plans) and (b) the employee has the primary responsibility for directing his or her own investment allocations within the plan.

    Additionally, the Board decided the following:

    1. Investments that underlie the wrapper agreement should be combined with the wrapper contract on the balance sheet and reported at an amount equal to the contract value.

    2. The combined fair value of the wrapper and the investment should be disclosed parenthetically on the face of the balance sheet.

    3. The wrapper contract only should be reported in the footnotes at its fair value.

    Finally, the Board agreed with the staff’s proposed enhanced quantitative and qualitative disclosures but had some minor suggestions and revisions.

    The Board will discuss a proposed FSP at a future meeting that addresses the remaining questions about the definition of "fully benefit-responsive" and certain disclosures.

  2. Suspended well costs. The Board considered comments received on proposed FSP FAS 19-a, "Accounting for Suspended Well Costs," and directed the staff to post that FSP to the FASB website as final subject to the following changes being made:

    The Board decided to:

    1. Include footnotes to clarify that (1) an enterprise is not required to complete an exploratory well as a producing well to meet the criteria for continued capitalization and (2) a project may include more than one exploratory well if the reserves are intended to be extracted in a single integrated producing operation.

    2. Require an entity to provide the required disclosures in the notes to the annual financial statements and to disclose significant changes from the information included in the most recent financial statements in interim financial statements. Any impairment of capitalized exploratory well costs that were capitalized for a period of greater than one year after the completion of drilling at the most recent annual balance sheet date should be considered significant for purposes of determining whether the change should be disclosed in interim financial statements.

    3. Require an entity to provide (1) an annual reconciliation of the period-to-period changes in the amount of capitalized exploratory well costs and (2) an aging of suspended well costs and the number of projects for which those costs relate.

    4. Not require an entity to disclose an estimate of timing for completing the evaluation of reserves.

    5. Require an entity to apply the guidance in the FSP in the first reporting period beginning after the date the FSP is finalized. The guidance should be applied prospectively to existing and newly capitalized exploratory well costs. Any capitalized exploratory well costs that are expensed upon application of the FSP should be recognized in income from continuing operations and either should be presented as a separate component of operations or should be disclosed in the notes to the financial statements. All required disclosures should be provided in the period of adoption.

  3. Employee share options. The Board discussed a proposed FSP that will amend 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. The Board made the following decisions:

    1. A freestanding financial instrument originally issued as employee compensation should not be classified as a liability based solely on the notion that delivery of registered shares is outside the control of the issuer.

    2. The proposed FSP should be posted to the FASB website for public comment for 15 days.

Qualifying special-purpose entities with isolation of transferred assets. The Board discussed a proposed approach for applying the derecognition criteria of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to portions of financial assets. That approach would address three key issues: (1) the circumstances in which a qualifying special-purpose entity (QSPE) would be required to achieve sale accounting, (2) the measurement of a transferor’s interest in a transferred financial asset (whether the transferor’s interest in a financial asset should be initially measured at fair value if the transfer does not involve the transfer of the original asset to a QSPE), and (3) whether to require that the transferor explicitly contract with the transferee to pass through any benefits it may realize from future setoff.

The Board decided to adopt an approach that would allow the derecognition criteria in paragraph 9 of Statement 140 to be met for a portion of a financial asset if that portion represents a proportionate share of an original asset and there is no recourse to the transferor or subordination. The resulting portions would be called participating interests. The Board agreed that under this approach, a participating interest retained by the transferor would not be considered a new financial asset and should be initially measured at allocated carry-over basis. The Board also agreed that if a portion of a financial asset does not meet the criteria of a participating interest, the whole asset must be transferred to a QSPE. The resulting interests from a QSPE would be called beneficial interests and the derecognition criteria in paragraph 9 would be applied to the entire original asset. Beneficial interests held by the transferor would be considered new financial assets that should be initially measured at fair value.

In addition, the Board agreed not to require that a transferor pass through benefits of setoff or other dilutive rights to transferees in order to achieve sale accounting.

At a future meeting, the Board will discuss whether to expand the definition of a participating interest that can be derecognized to include certain interest-only and principal-only strips that could be divided into participating interests.


In March 2005, the Board issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations.

That document is available on the FASB website. Copies also will be available from the FASB Order Department by calling 1-800-748-0659.


The following is a list of open meetings tentatively scheduled through May. 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, April 13, 2005—FASB Board Meeting
Thursday, April 14, 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—FASB Board Meeting
Wednesday, April 27, 2005—FASB Education Session
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