Action Alert No. 07-25
June 21, 2007
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Wednesday, June 27, 2007, 9:00 a.m.
framework: objectives and qualitative characteristics
(estimated 75-minute discussion). The Board will redeliberate
issues raised by respondents to the July 2006 Preliminary Views,
Conceptual Framework for Financial Reporting: Objective of Financial
Reporting and Qualitative Characteristics of Decision-Useful Financial
Reporting Information, focusing on issues related to the objective
of financial reporting.
and equity (estimated 45-minute discussion). The Board
will discuss the classification of instruments in which an issuer may be
economically compelled to settle or choose a certain settlement
- Accounting for
leases (estimated 60-minute discussion). The Board will
discuss measurement of a lessee’s liability to the lessor, measurement
of a lessee’s right to use asset, and initial recognition of assets and
liabilities in lease contracts. The meeting will be informational and no
decisions are expected.
ratification of EITF consensuses and tentative conclusions
(estimated 15-minute discussion). The Board will consider the
ratification of the consensuses reached at the June 14, 2007 EITF
meeting. (See discussion under EITF ACTIONS.)
- 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.
OPEN EDUCATION SESSION
Wednesday, June 27, 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 a future 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, FSP, or
Statement 133 Implementation Issue.
June 13, 2007 Board Meeting
combinations. The Board reconsidered its decisions about the
initial and subsequent accounting for contingencies acquired or assumed in
a business combination.
- The Board affirmed its decision that, as of the acquisition date,
the acquirer should recognize at fair value (a) all contingencies that
arise from contractual rights and obligations and (b) those
contingencies that do not arise from contractual rights and obligations
(noncontractual contingencies) if it is more likely
than not that the contingency meets the definition of an asset or
- The Board changed its previous decision that any noncontractual
contingency acquired or assumed as part of a business combination that
does not meet the more likely than not recognition
threshold at the acquisition date should be initially recognized and
measured at fair value on the first date after the business combination
that it does meet the recognition threshold. The Board decided instead
that noncontractual contingencies that are not recognized at the
acquisition date should subsequently be accounted for in accordance with
FASB Statement No. 5, Accounting for Contingencies.
- The Board affirmed its decision that after the acquisition date,
contingencies in the scope of another standard should be accounted for
in accordance with that standard (for example, FASB Statement
No. 60, Accounting and Reporting by Insurance Enterprises).
The Board also affirmed its decision to remeasure at fair value
contingencies recognized at the acquisition date that otherwise would be
included in the scope of Statement 5. Changes in the fair value of those
contingencies after the acquisition date should be recognized in net
income in the period they occur.
discussion: Statement 140 implementation—repurchase financing
agreements. The Board discussed the proposed FSP on accounting for
transfers of financial assets and repurchase financing transactions. The
Board made the following decisions:
- The FSP should be effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
Earlier application should not be permitted.
- The guidance should be applied to existing repurchase financings as
of the beginning of the fiscal year in which the FSP is initially
applied as a cumulative-effect adjustment. The cumulative effect of the
change in accounting principle should be recognized as an adjustment to
the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial
position). The cumulative-effect adjustment is the difference between
the amounts (if any) recognized in the statement of financial position
before the initial application of the FSP and the amounts recognized in
the statement of financial position at initial application of the FSP.
- In the year of initial application of the FSP, an entity should
disclose the nature of the change and the cumulative effect of the
change on retained earnings or on other components of equity or net
assets in the statement of financial position. An entity also should
disclose the effect of the change on any other affected financial
statement line item in the statement of financial position.
- The comment period for the proposed FSP should end on the later of
30 days after issuance or August 31, 2007.
The Board directed the staff to proceed to a draft of the proposed FSP
for vote by written ballot. The Board expects that the proposed FSP will
be issued in July 2007.
June 14, 2007 EITF Meeting
The Task Force discussed the following issues:
- Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards." The Task Force affirmed as a consensus its
tentative conclusion that a realized income tax benefit from dividends
or dividend equivalents that are charged to retained earnings and paid
to employees for equity-classified nonvested equity shares, nonvested
equity share units, and outstanding equity share options should be
recognized as an increase to additional paid-in capital. The amount
recognized in additional paid-in capital for the realized income tax
benefit from dividends on those awards should be included in the pool of
excess tax benefits available to absorb tax deficiencies on share-based
payment awards. The Task Force also discussed how the consensus on this
Issue interacts with the guidance in footnote 61 of FASB Statement No.
123 (revised 2004), Share-Based Payment, which requires dividends
on equity-classified share-based payment awards to be reallocated
between retained earnings (for awards expected to vest) and compensation
cost (for awards not expected to vest) each reporting period to reflect
current forfeiture estimates. The Task Force reached a consensus that
adjustments to additional paid-in capital for reclassifications of the
tax benefits from dividends on those awards in subsequent periods (that
is, when the entity’s estimate of forfeitures changes and the related
dividends are reclassified between retained earnings and compensation
expense) would increase or decrease the entity’s pool of excess tax
benefits available to absorb tax deficiencies by a corresponding amount.
Additionally, the amount of tax benefits from dividends that are
reclassified from additional paid-in capital to the income statement
(that is, as a reduction of income tax expense or an increase of income
tax benefit) when an entity’s estimate of forfeitures increases (or
actual forfeitures exceed the entity’s estimates) should be limited to
the entity’s pool of excess tax benefits available to absorb tax
deficiencies on the date of the reclassification.
The Task Force reached a consensus that this Issue should be applied
prospectively to the income tax benefits of dividends on
equity-classified employee share-based payment awards that are declared
in fiscal years beginning after December 15, 2007, and interim periods
within those fiscal years. Early application is permitted as of the
beginning of a fiscal year for which interim or annual financial
statements have not yet been issued. Retrospective application to
previously issued financial statements is prohibited. Entities should
disclose the nature of any change in their accounting policy for income
tax benefits of dividends on share-based payment awards resulting from
the adoption of this guidance. The Board will consider the ratification
of the consensuses in this Issue at its June 27, 2007 meeting.
- Issue No. 07-1, "Accounting for Collaborative Arrangements." The
Task Force reached a tentative conclusion that a collaborative
arrangement is a contractual arrangement in which the participants are
active participants to the arrangement and are exposed to significant
risks and rewards that are dependent on the ultimate commercial success
of the endeavor (for example, an endeavor would be a drug candidate in
the biotechnology and pharmaceutical industries or a motion picture in
the entertainment industry).
The Task Force reached a tentative conclusion that the income
statement characterization of payments between participants pursuant to
a collaborative arrangement should be evaluated based on the nature of
the arrangement, the nature of the entity's business operations, and
whether these payments are within the scope of other authoritative
literature regarding income statement characterization. If these
payments are within the scope of existing literature, then the entity
should apply the relevant provisions of that literature. To the extent
that these payments are not within the scope of other authoritative
literature, the income statement characterization for these payments
should be based on analogy to authoritative literature or a reasonable,
rational, and consistently applied accounting policy election.
The Task Force reached a tentative conclusion that the resulting
presentation of amounts related to the collaborative arrangement
represents an accounting policy that should be disclosed in accordance
with APB Opinion No. 22, Disclosure of Accounting Policies. In
the footnotes to its annual financial statements, an entity should
disclose (a) information about the nature and purpose of an entity's
collaborative arrangements, (b) an entity's rights and obligations under
the collaborative arrangements, (c) the life cycle stage of the
underlying endeavor, (d) the income statement classification and amounts
attributable to amounts due to or from other participants to the
collaborative arrangement, and (e) cash payments and receipts under the
collaborative arrangements in the period. Information related to
individually significant collaborative arrangements should be disclosed
The Task Force reached a tentative conclusion that this Issue will be
effective for annual periods beginning after December 15, 2007.
Entities should report the effects of applying this Issue as a change in
accounting principle through retrospective application to all periods.
If it is impracticable to apply the effects of a change in accounting
principle retrospectively, disclosure should be made of both the reasons
why reclassification was not made and the effect of the reclassification
on the current period pursuant to the guidelines in paragraph 9 of FASB
Statement No. 154, Accounting Changes and Error Corrections. Upon
application, required disclosures include: (a) a description of the
prior-period information that has been retrospectively adjusted, if any,
and (b) the effect of the change on revenue and operating expenses (or
other appropriate captions of changes in the applicable net assets or
performance indicator), and on any other affected financial statement
The Board will consider the ratification of the tentative conclusions
at a meeting in July. If ratified, a draft abstract will be posted to
the FASB website for public comment. This Issue will be discussed
further at a future meeting.
- Issue No. 07-2, "Accounting for Convertible Debt Instruments That
Are Not Subject to the Guidance in Paragraph 12 of APB Opinion No. 14."
The Task Force discussed this Issue but was unable to reach a consensus.
The Task Force agreed to discontinue discussion of this Issue and,
accordingly, to remove it from the EITF’s agenda. The FASB Board members
in attendance indicated that they would consider adding a project to the
Board’s agenda to address the issue. No further EITF discussion is
- Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for
Goods or Services Received for Use in Future Research and Development
Activities." The Task Force affirmed as a consensus the tentative
conclusion that nonrefundable advance payments for future research and
development activities should be deferred and capitalized. Those amounts
should be recognized as an expense as the goods are delivered or the
related services are performed. Entities should continue to evaluate
whether they expect the goods to be delivered or services to be
rendered. If an entity does not expect the goods to be delivered or
services to be rendered, the capitalized advance payment should be
charged to expense.
The Task Force also reached a consensus that this Issue will be
effective for financial statements issued for fiscal years beginning
after December 15, 2007, and interim periods within those fiscal years.
Earlier application is not permitted. Entities should report the effects
of applying the consensus in this Issue prospectively for new contracts
entered into after the effective date of this Issue. The Board will
consider the ratification of the consensuses in this Issue at its June
27, 2007 meeting.
- Issue No. 07-4, "Application of the Two-Class Method under FASB
Statement No. 128 to Master Limited Partnerships." The Task Force
discussed this Issue and requested that the FASB staff provide
additional examples illustrating the application of the various
alternatives for discussion at a future EITF meeting. In addition, the
Task Force requested that the staff obtain additional information about
incentive distribution rights and the nature of the general partner’s
involvement with the master limited partnership. This Issue will be
discussed further at a future meeting.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
August. 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.
Thursday, July 5, 2007—FASB Education Session
Wednesday, July 11,
2007—FASB Board Meeting
Wednesday, July 11, 2007—FASB Education
Wednesday, July 18, 2007—FASB Board Meeting
18, 2007—FASB Education Session
Wednesday, July 25, 2007—FASB Board
Wednesday, July 25, 2007—FASB Education Session
August 1, 2007—FASB Board Meeting
Wednesday, August 1, 2007—FASB
Wednesday, August 8, 2007—FASB Board
Wednesday, August 8, 2007—FASB Education Session
August 15, 2007—FASB Board Meeting
Wednesday, August 15, 2007—FASB
Wednesday, August 22, 2007—FASB Board
Wednesday, August 22, 2007—FASB Education Session
August 29, 2007—FASB Board Meeting
Wednesday, August 29, 2007—FASB