REVISED 3/13/06 for order of topics.

Action Alert No. 06-10
March 9, 2006


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

Wednesday, March 15, 2006, 9:00 a.m.

  1. Postretirement benefit obligations, including pensions (estimated 1-hour discussion). The Board will discuss the initial phase of this project. Specifically, the Board will discuss (a) the application of the proposed Statement by a not-for-profit organization that sponsors a defined benefit postretirement benefit plan and prepares financial statements following the guidance in FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations, (b) the effective date and transition for not-for-profit organizations and nonpublic entities, (c) guidance related to discount rate assumptions, and (d) whether the perceived benefits of the proposed Statement exceed the perceived costs of its implementation.

  2. Fair value measurements (estimated 1-hour discussion). The Board will clarify aspects of the guidance included in the October 21, 2005 working draft of the fair value measurements final Statement, including the guidance for using transaction prices to measure fair value at initial recognition. The Board also will discuss the effective date and timing of the final Statement.

  3. Life settlements (estimated 15-minute discussion). The Board will discuss two issues raised in the external review process and will discuss whether to proceed to a final FSP.

  4. Financial instruments: liabilities and equity (estimated 1-hour discussion). The Board will discuss how to determine the substance of an arrangement through (a) linking instruments that are part of the same arrangement and (b) distinguishing between substantive and nonsubstantive features of an arrangement.

  5. 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 15, 2006, 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 March 22, 2006 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.

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

Thursday, March 16, 2006, 8:30 a.m. – 4:30 p.m.

The Task Force plans to discuss all of the following issues in the order shown:

  1. Issue No. 05-1, "Accounting for the Conversion of an Instrument That Becomes Convertible upon the Issuer's Exercise of a Call Option"

  2. Issue No. 06-1, "Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Specialized Equipment Necessary for an End-Customer to Receive a Service from the Service Provider"

  3. Issue No. 06-3, "How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)"

  4. Issue No. 06-4, "Accounting for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements"

  5. Issue No. 06-2, "Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for Compensated Absences."

The Task Force also plans to consider a proposed modification to the consensus reached at the September 15, 2005 EITF meeting on Issue No. 05-7, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues."


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 1, 2006 Board Meeting

Conceptual framework. The Board continued its deliberations on this joint FASB/IASB project by discussing the working definitions of an asset and a liability. The staff also reported that an Exposure Draft of a Concepts Statement on objectives of financial reporting and the qualitative characteristics of decision-useful financial reporting information is now expected to be issued in the second quarter of 2006.

Definition of an Asset

  1. The Board discussed the following proposed working definition of an asset that reflects revisions resulting from Board decisions reached in December 2005:

      An asset of an entity is:

      1. Cash held by the entity

      2. A present right of the entity to cash

      3. A present right, or other present privilege, of the entity to a resource that is capable of generating economic benefits to the entity, either directly or indirectly.

    The Board agreed that:

    1. The notion of other present privilege of the entity is better than other access (as proposed in December 2005)

    2. The phrases cash held by the entity and a present right of the entity to cash are not necessary because those items meet part (c) of the definition, as modified

    3. The words either directly or indirectly should not be included in the definition but rather explained in amplifying text.

  2. The proposed working definition should be tested by applying it to certain accounting issues that have been difficult to resolve.

  3. The Board provided other suggestions and clarifications for further consideration, including particular wording for the definition and its amplifying text.

Definition of a Liability

  1. The Board discussed the following proposed working definition of a liability:

      A liability of an entity is its present obligation to one or more other entities that compels potential outflows or other potential sacrifices of economic benefits.

  2. The Board agreed that:

    1. Liability should continue to be defined directly, with reference to assets.

    2. It is the present obligation, not the future sacrifice, that is the liability.

    3. An obligation to forgo a cash inflow or to stand aside can be a liability, or perhaps a reduction in an asset.

    4. Only an obligation to one or more other entities can be a liability.

    5. The notion in the current definition of little or no discretion to avoid a future sacrifice should be replaced, perhaps by a notion of legal or equivalent compulsion.

    6. The definition need not include "probable" or other notions of likelihood, which instead belong in recognition criteria or measurement.

    7. Explicit reference to past events is unnecessary—redundant—because a present obligation can only have arisen from past events.

Revenue recognition. The Board discussed two topics related to accounting for revenue contracts under the assets and liabilities approach—(1) accounting for wholly executory (or wholly unperformed) revenue contracts and (2) assessing when performance has occurred and, thus, when revenue should be recognized.

The Board tentatively agreed that unconditional rights and obligations in wholly executory revenue contracts would meet the definitions of assets and liabilities. Moreover, the Board agreed that a reporting entity would not recognize any assets or liabilities at the inception of a wholly executory contract for which the legal remedy in the event of breach is monetary damages (and, thus, the unit of account is the contract as a whole). That is because the net measurement of those assets and liabilities at contract inception would be zero under the allocated customer consideration approach. However, the Board agreed that a reporting entity would recognize separate assets and liabilities at the inception of a wholly executory contract for which legal remedy in the event of breach would be specific performance. That is because the unit of account is the individual assets and liabilities arising from the contract.

The Board discussed two methods for assessing when performance occurs under a contract (and, thus, when revenue should be recognized) but did not reach any decisions. The Board directed the staff to further analyze both methods in a variety of different fact patterns.

Business combinations. The Board continued redeliberations of its June 2005 Exposure Draft, Business Combinations. The Board affirmed that the formation of a joint venture should be excluded from the scope of the business combinations final Statement. The Board also decided to explore developing a new definition of a business combination.

Uncertain tax positions. The Board decided that the measurement attribute for the amount of recognized tax benefit should be the maximum amount which is more likely than not to be realized.

Servicing of financial assets. The Board decided that servicing assets should be accounted for as proceeds of a sale when a transferor enters into a transaction that results in a separately recognized servicing asset for the transferor.


At its March 7, 2006 meeting, the EITF Agenda Committee discussed a potential new issue, "Transactions Involving the Purchase of Financial Assets and Simultaneous Repurchase of the Same Financial Assets with the Seller," and deferred making a decision on this potential new issue pending a decision by the Board to add a project to its agenda to provide guidance on the issue.


The following is a list of open meetings tentatively scheduled through April. 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 22, 2006—FASB Board Meeting
Wednesday, March 22, 2006—FASB Education Session
Thursday, March 23, 2006—Financial Accounting Standards Advisory Council Meeting
Tuesday, March 28, 2006—FASB Board Meeting
Wednesday, March 29, 2006—FASB Education Session
Wednesday, April 5, 2006—FASB Board Meeting
Wednesday, April 5, 2006—FASB Education Session
Tuesday, April 11, 2006—User Advisory Council Meeting, New York City
Wednesday, April 12, 2006—FASB Board Meeting
Wednesday, April 12, 2006—FASB Education Session
Wednesday, April 19, 2006—FASB Board Meeting
Wednesday, April 19, 2006—FASB Education Session
Thursday, April 27, 2006—FASB/IASB Joint Board Meeting, London
Friday, April 28, 2006—FASB/IASB Joint Board Meeting, London