Action Alert No. 06-18
May 4, 2006


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

Wednesday, May 10, 2006, 9:00 a.m.

  1. Uncertain tax positions (estimated 1-hour discussion). The Board will discuss disclosures and tax positions not taken, as well as other issues identified during drafting of the final Interpretation.

  2. 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, May 10, 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 a future Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.


Tuesday, May 9, 2006, 1:00 p.m.

The Board will meet with representatives of the Principles & Practices Board of the Healthcare Financial Management Association to discuss matters of mutual interest.


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.

April 27, 2006 IASB/FASB Joint Board Meeting

Financial instruments. The Boards agreed to a goal of issuing a due process document on financial instruments (as envisioned in the Memorandum of Understanding between the FASB and IASB) before January 1, 2008. The Boards directed the staff to prepare a paper outlining the possible contents of the document, including whether it should contain any preliminary Board decisions, and proposing a draft timetable.

Business combinations: applying the acquisition method. The Boards discussed three matters as part of their redeliberations of their business combinations and noncontrolling interests Exposure Drafts:

  1. The Boards affirmed that acquisition-related costs, such as legal and due diligence costs, should be accounted for separately from the business combination.

  2. The Boards discussed the presentation and disclosure proposals in their separate noncontrolling interests Exposure Drafts and decided to affirm or converge the proposals as follows:

    1. The Boards affirmed the proposal in their separate noncontrolling interests Exposure Drafts that a parent with one or more partially owned subsidiaries should disclose, either in the notes or on the face of the financial statements, amounts attributable to the controlling interest for the following, if reported in the financial statements:

      (1) Income from continuing operations

      (2) Discontinued operations

      (3) Extraordinary items (FASB only).

    2. The FASB converged with the IASB's proposal and decided to require entities to present, either on the face of the statement of changes in equity or in the notes, separately for total equity, equity attributable to equity holders of the parent and noncontrolling interest, a reconciliation of the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:

      (1) Net income

      (2) Transactions with equity holders acting in their capacity as equity holders, showing separately distributions to equity holders

      (3) Components of other comprehensive income.

    3. The IASB converged with the FASB's proposal and decided to require entities to disclose, in the notes to the consolidated financial statements, a separate schedule that shows the effects of any transactions with noncontrolling interests on the equity attributable to the controlling interest.

    4. The IASB converged with the FASB's proposal and decided that if control of a subsidiary is lost, the amount of gain or loss related to the remeasurement to fair value of any retained noncontrolling equity investment in the former subsidiary and the line item in the income statement where the gain or loss is recognized should be disclosed.

  3. The Boards discussed whether the proposal that the transaction price in a business combination is presumptive evidence of the fair value of the acquiree should be modified as a result of decisions reached in the FASB's fair value measurement project. No decisions were reached.

Revenue recognition. Before the joint meeting, each Board had discussed two revenue recognition methods. Under the first method, revenue would be recognized when the obligation to provide goods, services, or other rights is extinguished. This is deemed to be when the customer obtains the right to use or benefit from the goods, services, or other rights.

Under the second method, revenue would be recognized as the entity's production process creates or enhances assets for customers. This is deemed to be when the entity carries out acts to fulfill its contractual obligations to provide goods, services, or other rights to the customer.

At this meeting, the Boards considered some alternatives that could bridge these two methods. The Boards decided that the notion of customer acceptance was important in determining when revenue should be recognized. They further decided that acceptance should mean that the entity has obtained an unconditional right to consideration (and, correspondingly, that the customer has incurred an unconditional obligation). That right might arise under the contract terms or the operation of the relevant contract law.

The Boards noted that determining revenue recognition by reference to customer acceptance could be viewed as a modification of the first method above. This is because customer acceptance would indicate that the entity has been released from part of its obligation. It also could be viewed as modification of the second method because customer acceptance would be an external validation of the entity's performance to date.

Accordingly, the Boards instructed the staff to explore revenue recognition based on the following criterion: Revenue should be recognized if the customer must accept performance to date. That is, the contract's legal remedy for breach is, or is like, specific performance or in the event of customer cancellation, the customer is obligated to pay damages reflecting performance to date.

April 28, 2006 IASB/FASB Joint Board Meeting

Leases. The Boards discussed various alternatives for conducting a potential project to reconsider existing accounting for leases. The Boards decided that if a lease accounting project is added to their agendas, such a project should be undertaken as a comprehensive joint project. The Boards directed the staff to work on a detailed project plan for consideration by both Boards. An agenda decision will be made after the IASB completes its consultative process with its Standards Advisory Council and trustees in June 2006.

Conceptual framework. The Boards continued their deliberations to develop a common conceptual framework.

Definitions of Assets and Liabilities

The Boards considered working definitions of assets and liabilities and their three essential characteristics. Those definitions are as follows:

An asset is a present economic resource of an entity and its characteristics include:

  1. There is an underlying economic resource.

  2. The entity has rights or other privileged access to the economic resource.

  3. The rights or other privileged access exists at the financial statement date.

A liability is a present economic obligation of an entity and its characteristics include:

  1. The entity is obligated to act or perform in a certain way (or refrain from acting or performing).

  2. The obligation exists at the financial statement date.

  3. The obligation is economic—it is an obligation to provide economic resources to others, or to stand ready to do so.

The Boards gave the staff directions to assist in further developing the definitions, characteristics, and amplifying text that can be used for testing them against examples.

Planning for the Measurement Phase

The Boards agreed that they will consider all aspects of the measurement portion of the conceptual framework in a single phase rather than considering some aspects as part of Phase B, as previously agreed. They noted that the measurement phase (Phase C) will be conducted in three milestones. The Boards expressed concern in regard to the estimated time to complete the measurement phase. However, they acknowledged that, given the difficulties of the subject, the plan proposed by the staff is reasonable. They agreed to the need to conduct public consultations and for discussion documents for the milestones.

Objectives and Qualitative Characteristics

The Boards also agreed that the upcoming due process document that discusses the objectives and qualitative characteristics of the framework will be issued as a Preliminary Views, with a 120-day comment period.


FASB-staff-prepared examples that illustrate the application by not-for-profit organizations of the March 31, 2006 FASB Exposure Draft, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, were posted to the FASB website on May 2, 2006. Those examples were prepared to assist not-for-profit organizations in their consideration of the proposed standard by showing how a not-for-profit organization would apply the retrospective application provisions of the Exposure Draft at initial implementation and how such an entity would report actuarial gains or losses and prior service costs or credits in a statement of activities. Examples have been provided for:

  1. A not-for-profit organization that presents, either by requirement or by choice, an intermediate measure of operations (performance indicator) that is functionally equivalent to income from continuing operations of a for-profit entity

  2. A not-for-profit organization that chooses to present an intermediate measure of operations that is not functionally equivalent to income from continuing operations of a for-profit entity

  3. A not-for-profit organization that chooses not to present an intermediate measure of operations.

Other entities that do not report other comprehensive income under FASB Statement No. 130, Reporting Comprehensive Income, also may find these examples useful in evaluating and commenting on the Exposure Draft. While the examples are not part of the Exposure Draft, readers of the Exposure Draft are encouraged to consider them in connection with their written responses to Issue 5 of the Notice for Recipients.


The following is a list of open meetings tentatively scheduled through June. 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, May 17, 2006—No FASB Board Meeting
Wednesday, May 17, 2006—FASB Education Session
Wednesday, May 24, 2006—FASB Board Meeting
Wednesday, May 24, 2006—FASB Education Session
Thursday, May 25, 2006—Liaison Meeting with American Accounting Association
Wednesday, May 31, 2006—FASB Board Meeting
Wednesday, May 31, 2006—FASB Education Session
Wednesday, June 7, 2006—FASB Board Meeting
Wednesday, June 7, 2006—FASB Education Session
Wednesday, June 14, 2006—No FASB Board Meeting
Wednesday, June 14, 2006—FASB Education Session
Wednesday, June 14, 2006—p.m., Emerging Issues Task Force Meeting
Thursday, June 15, 2006—Emerging Issues Task Force Meeting
Monday, June 19, 2006—Liaison Meeting with Financial Executives International, Stamford, CT
Tuesday, June 20, 2006—FASB Board Meeting
Tuesday, June 20, 2006—FASB Education Session
Wednesday, June 21, 2006—Small Business Advisory Council Meeting
Thursday, June 22, 2006—Financial Accounting Standards Advisory Council Meeting
Tuesday, June 27, 2006—Postretirement Benefit Obligations including Pensions Roundtable Meeting
Wednesday, June 28, 2006—FASB Board Meeting
Wednesday, June 28, 2006—FASB Education Session