Action Alert No. 06-14
April 6, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
No Board meetings are planned for the week of April 10, 2006. The
next scheduled Board meeting is Wednesday, April 19, 2006, and topics for
that Board meeting will be announced in next week's issue of Action
OPEN EDUCATION SESSION
Thursday, April 13, 2006, 9:00 a.m.
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.
OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS BOARD’S USER
Tuesday, April 11, 2006, 9:00 a.m.
The Helmsley Hotel
212 East 42nd Street
The Board and the User Advisory Council will meet to discuss the
- Conceptual framework issues
- Fair value measurement issues.
The User Advisory Council will hear reports from the chairman of the
FASB and from a representative of the Office of the Chief Accountant of
the SEC. The agenda is subject to change.
Closed to Public Observation
The User Advisory Council will hold a closed session with the Board to
discuss administrative matters. The public portion of the meeting is
expected to end at approximately 1:00 p.m.
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
March 28, 2006 Board Meeting
combinations. The Board affirmed that the following definitions,
assertions, presumptions, and principles underpinning the FASB Exposure
Draft, Business Combinations, provide an appropriate basis for a
final Statement on business combinations:
Assertions and Definitions
- A business combination is a transaction or other event in which an
acquirer obtains control of one or more businesses.
- An acquirer can be identified in every business combination.
- The business combination acquisition date is the date the acquirer
obtains control of the acquiree.
- A business combination is accounted for by applying the acquisition
- By obtaining control of an acquiree, an acquirer becomes responsible
and accountable for all of the acquiree’s assets, liabilities,
and activities, regardless of the percentage of its ownership in the
Main Principles for Applying the Acquisition Method
In a business combination, the acquirer recognizes all of the assets
acquired and all of the liabilities assumed.
In a business combination, the acquirer measures each recognized asset
acquired and each liability assumed at its acquisition-date fair
Users of the acquirer’s financial statements should be able to evaluate
the nature and financial effect of business combinations recognized by the
In relation to the principles, the Board agreed that if it decides to
make an exception to one of those principles, the final Statement should
label the exception clearly and provide the Board’s basis for allowing
such an exception.
The Board also redeliberated and affirmed the following proposals in
its Exposure Drafts, Business Combinations, and Consolidated
Financial Statements, Including Accounting and Reporting of Noncontrolling
Interests in Subsidiaries:
- In a partial or step acquisition, the acquirer should:
- Measure and recognize the acquiree’s identifiable assets
and liabilities at 100 percent of their acquisition-date fair values,
which is consistent with the recognition and fair value measurement
- Recognize all of the acquiree’s goodwill, not just the acquirer’s
share, which is consistent with the recognition principle. Goodwill
should be measured as the difference between the acquisition-date fair
value of the acquiree and the acquisition-date fair value of the
acquiree’s assets acquired and liabilities assumed. (Goodwill is an
exception to the fair value measurement principle because it is
measured as a residual.)
- In a step acquisition, any previously held noncontrolling equity
interests should be remeasured to fair value and the resulting
adjustment should be recognized in net income. Consistent with the
accounting for a step acquisition, if a parent loses control of a
subsidiary but retains a noncontrolling equity investment in the former
subsidiary, the retained noncontrolling equity investment should be
remeasured to fair value and the resulting adjustment should be
recognized in net income. In addition, the amount of any remeasurement
gain or loss and the line item in the income statement where the gain or
loss is recognized should be disclosed.
- In rare circumstances, a business combination is not an exchange of
equal values. The acquirer should account for a business combination
that is not an exchange of equal values as follows:
- If the acquisition-date fair value of the acquirer’s interest in
the acquiree exceeds the acquisition-date fair value of the
consideration transferred for that interest (referred to as a bargain
purchase), the acquirer should reduce to zero any goodwill related to
that acquisition and then recognize any remaining excess as a gain on
the acquisition date. Therefore, the only time an acquirer would
recognize a gain would be if the acquisition-date fair value of the
net identifiable assets exceeds the acquisition-date fair value of the
consideration transferred. In addition, the amount of the gain and the
reasons why the acquirer was able to achieve a gain should be
- If the acquisition-date fair value of the acquirer’s interest in
the acquiree is less than the acquisition-date fair value of the
consideration transferred for that interest (referred to as an
overpayment), the acquirer would not recognize an expense on the
acquisition date. Therefore, any overpayment would be subsumed in
goodwill and subsequently tested for impairment.
Business combinations that are not exchanges of equal values are
exceptions to the recognition principle.
- Noncontrolling interests in subsidiaries are part of the equity of
the consolidated group. Therefore:
- Noncontrolling interests in subsidiaries should be presented in
the consolidated balance sheet within equity separate from the parent
- Any acquisitions or dispositions of noncontrolling interests that
do not result in a change of control should be accounted for as equity
- The effect on the equity attributable to the parent shareholders
of any acquisitions or dispositions of noncontrolling interests that
do not result in a change of control should be presented in the
consolidated statement of changes in equity. However, to give those
transactions additional prominence, any acquisitions or dispositions
of noncontrolling interests that do not result in a change of control
also should be disclosed in a separate schedule in the notes to the
consolidated financial statements.
of EITF consensuses and tentative conclusions. The Board
considered and ratified the tentative conclusions on the following issues
reached at the March 16, 2006 EITF meeting. The Board also approved the
exposure of a draft abstract for each of the issues for a 30-day public
comment period. The draft abstracts are expected to be posted to the FASB
website after April 4, 2006.
- Issue No. 05-1, "Accounting for the Conversion of an Instrument That
Became Convertible upon the Issuer’s Exercise of a Call Option"
(including related modifications to Issue No. 03-7, "Accounting for the
Settlement of the Equity-Settled Portion of a Convertible Debt
Instrument That Permits or Requires the Conversion Spread to Be Settled
in Stock (Instrument C of Issue No. 90-19)")
- Issue No. 06-2, "Accounting for Sabbatical Leave and Other Similar
Benefits Pursuant to FASB Statement No. 43"
- Issue No. 06-3, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation)."
The Board also considered and ratified the modification to the existing
consensus in Issue No. 05-7, "Accounting for Modifications to Conversion
Options Embedded in Debt Instruments and Related Issues." The modification
is effective as of March 28, 2006.
FASB DOCUMENT AVAILABLE
FASB Exposure Draft, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans,
was issued on March 31, 2006, and is available on the FASB website.
Comments are requested by May 31, 2006.
FUTURE OPEN MEETINGS
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 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
Wednesday, May 3, 2006—FASB Board Meeting
May 3, 2006—FASB Education Session
Tuesday, May 9, 2006—Liaison Meeting
with Healthcare Financial Management Association
Wednesday, May 10,
2006—FASB Board Meeting
Wednesday, May 10, 2006—FASB Education
Wednesday, May 17, 2006—No FASB Board Meeting
17, 2006—FASB Education Session
Wednesday, May 24, 2006—FASB Board
Wednesday, May 24, 2006—FASB Education Session
25, 2006—Liaison Meeting with American Accounting
Wednesday, May 31, 2006—FASB Board Meeting
May 31, 2006—FASB Education Session