Action Alert No. 07-14
April 5, 2007


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

Wednesday, April 11, 2007, 9:00 a.m.

  1. Conceptual framework: elements and recognition (estimated 15-minute discussion). The Board will consider whether, as part of the joint conceptual framework project, to explore replacing the liabilities and equity element with a single element, and the planning implications for other issues of the liability and equity milestone of the elements and recognition phase of the project.

  2. Implementation guidance for Interpretation 48 (estimated 30-minute discussion). The Board will discuss the comment letters received on proposed FSP FIN 48-a, "Definition of Settlement in FASB Interpretation No. 48," and whether to approve that FSP for final issuance.

  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 11, 2007, 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 18, 2007 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, Interpretation, or FSP.

March 28, 2007 Board Meeting

Earnings per share. The Board discussed the remaining issues that need to be addressed to achieve convergence between FASB Statement No. 128, Earnings per Share, and IAS 33, Earnings per Share. The Board decided the following:

  1. Instruments that can be settled in cash or shares, are classified as a liability, and are marked-to-market (in their entirety) each reporting period with gains and losses recognized in earnings should no longer be subject to (a) the treasury stock method (including fully and partially vested share-based payment awards), (b) the if-converted method, or (c) the two-class method. That is, the Board decided that the change in fair value recognized in earnings captures the dilutive effect of those instruments, eliminating the need to include such instruments in the determination of diluted earnings per share (EPS).

  2. The treasury stock method should be modified for all instruments subject to that method that are not remeasured at fair value each reporting period. The modified treasury stock method would (a) include the end-of-period value of the liability as an assumed proceed (if applicable) and (b) use the end-of-period market price in computing the number of incremental shares to be included in the determination of diluted EPS.

  3. As a result of the modifications to the treasury stock method, instruments classified as a liability (but are not remeasured fair value) that will be settled by issuing an equal value of equity instruments for the carrying value of the liability will have no effect on the diluted EPS calculation.

  4. Questions in practice about the (a) clarification of the definition of participating securities to forward contracts and (b) application of the two-class method to master limited partnerships will not be addressed in the convergence project. The Board will consider the need to provide application guidance at a later date.

  5. The guidance in proposed FSP FAS 128-a, "Computational Guidance for Computing Diluted EPS under the Two-Class Method," will be codified into Statement 128 through the EPS convergence project rather than being issued in the form of an FSP.

  6. Statement 128 will be amended to clarify that convertible participating securities are included in basic EPS using the two-class method—essentially codifying the requirement in Issue 7 of EITF Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128."

  7. The Board refined its past decision regarding mandatorily convertible instruments that should be included in basic EPS using the two-class method. The Board decided that only those instruments that could participate in current-period earnings with common shareholders should be reflected in basic EPS using the two-class method. That is, if the mandatorily convertible instrument holders would receive additional consideration (above their otherwise contractual return) solely as a result of distributions made to common shareholders, then and only then would the instrument be considered a participating security and, therefore, included in basic EPS using the two-class method.

  8. Options and warrants with nominal exercise prices should be included in the computation of basic EPS if either of the following conditions is met: (a) the instrument is currently exercisable or convertible into common shares for little or no cost to the holder of the instrument, or (b) the instrument can presently participate in earnings with common shareholders. If the latter condition is met, the instrument would be included in basic EPS using the two-class method.

Conceptual framework. The Board discussed a draft paper summarizing the comments of participants at the roundtable meetings on measurement that were held in January and February 2007. The paper will be distributed to the participants and posted on the FASB website after it is finalized. The Board also reviewed and approved changes to the plan for the measurement phase of the project arising from input from the roundtable meeting. The IASB reached similar conclusions at its March 22, 2007 meeting.

FASB ratification of EITF consensuses and tentative conclusions. The Board considered and ratified the consensus reached at the March 15, 2007 EITF meeting on Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements."

The Board also considered and ratified the tentative conclusions reached at the March 15, 2007 EITF meeting on Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities." The Board approved the exposure of a draft abstract for Issue 07-3 for a comment period that will end on May 3, 2007. The draft abstract is expected to be posted to the FASB website after April 3, 2007.


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 18, 2007—FASB Board Meeting
Wednesday, April 18, 2007—FASB Education Session
Monday, April 23, 2007—FASB/IASB Joint Board Meeting, London
Tuesday, April 24, 2007—FASB/IASB Joint Board Meeting, London
Thursday, April 26, 2007—FASB Education Session
Monday, April 30, 2007—Valuation Guidance for Financial Reporting Roundtable
Tuesday, May 1, 2007—User Advisory Council Meeting, New York City
Wednesday, May 2, 2007—FASB Board Meeting
Wednesday, May 2, 2007—FASB Education Session
Tuesday, May 8, 2007—FASB Board Meeting
Tuesday, May 8, 2007—FASB Education Session
Wednesday, May 16, 2007—FASB Board Meeting
Wednesday, May 16, 2007—FASB Education Session
Wednesday, May 23, 2007—FASB Board Meeting
Wednesday, May 23, 2007—FASB Education Session
Wednesday, May 30, 2007—FASB Board Meeting
Wednesday, May 30, 2007—FASB Education Session