Action Alert No. 06-31
August 3, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Wednesday, August 9, 2006, 9:00 a.m.
guarantee insurance (estimated 60-minute discussion). The
Board will discuss accounting models for financial guarantee insurance
contracts. In particular, the Board will discuss claims recognition
hierarchy (estimated 30-minute discussion). The Board
will discuss the following issues that have arisen subsequent to its
redeliberations of FASB Exposure Draft, The Hierarchy of Generally
Accepted Accounting Principles—(a) whether to carry forward the
grandfathering provision for Statements of Positions that were included
in AICPA Statement on Auditing Standards No. 69, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles, and (b) where EITF D-Topics should reside in the GAAP
- 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, August 9, 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 August 16, 2006
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
July 26, 2006 Board Meeting
of financial assets. The Board continued redeliberations of the
August 2005 revised Exposure Draft, Accounting for Transfers of
Financial Assets, and discussed whether to (1) redeliberate three
decisions made during the transfers project, (2) combine discussions and
decisions related to the Board’s project on servicer discretion with the
transfers project, and (3) redeliberate the limitations on a qualified
special-purpose entity’s (QSPE) ability to hold passive derivative
financial instruments. The Board decided:
- To proceed with redeliberations of the proposed guidance related to
rollovers of beneficial interests.
- To address issues on the permitted activities of a QSPE jointly by
combining discussions and decisions related to its servicer discretion
project with the transfers project.
- To redeliberate the issues on initial measurement of interests that
continue to be held by the transferor and passive derivative financial
instruments held by a QSPE that pertain to a transferor’s beneficial
interests. This decision reverses the Board’s previous decision made at
the June 7, 2006 meeting to delete consideration of those issues.
- To defer making a decision on participating interests (paragraph
8(a)) and transferability requirements (paragraph 9(b)) until completion
of redeliberations of the permitted activities of a QSPE and the effects
of continuing involvements on isolation.
benefit obligations, including pensions. The Board continued
redeliberations of its March 2006 Exposure Draft, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans.
The Board made the following decisions related to the effective date
for the recognition provisions:
- The effective date for a public entity would be its fiscal year
ending after December 15, 2006. For this purpose, the Board decided to
use the definition of public entity in FASB Statement No. 123 (revised
2004), Share-based Payment (that is, an entity with equity
securities traded in a public market), rather than the public entity
definition in proposed FSP FAS 126-a, "Revision to the Definition of a
Public Entity to Include an Obligor for Conduit Debt Securities."
- The effective date for a nonpublic entity would be the fiscal year
ending after June 15, 2007, one year later than proposed in the Exposure
The Board made the following decisions related to the proposed
amendments to the measurement date provisions of FASB Statements No. 87,
Employers’ Accounting for Pensions, and No. 106, Employers’
Accounting for Postretirement Benefits Other Than Pensions:
- The Board affirmed the proposal to require measurement of plan
assets and benefit obligations as of the date of the employer’s
statement of financial position. The Board decided that the effective
date of that change for all entities—both public and nonpublic
entities—would be fiscal years ending after December 15, 2008.
- The Board decided to simplify transition and reduce implementation
costs by allowing an alternative transition method to that proposed in
the Exposure Draft. Under the alternative, net periodic benefit cost for
the period would be determined using the prior measurement date. The
periodic benefit cost would be proportionally allocated to the current
fiscal year with the remaining portion recognized as an adjustment to
retained earnings. For example, a calendar year-end company that
historically used a September 30 measurement date would determine net
periodic benefit cost for the period from October 1, 2007, through
December 31, 2008, using the September 30, 2007, measurement of plan
assets and obligations.
Also, the Board decided that the illustrations included in Statements
87 and 106 of continuing relevance will be updated following issuance of a
final Statement. The updated illustrations will be published in the form
of an FSP.
Measurement of nonfinancial assets and nonfinancial liabilities in
business combinations and impairment evaluations. The Board discussed
the diversity in practice that has arisen with respect to the use of an
entity’s own assumptions, rather than market-participant assumptions, to
measure the fair value of nonfinancial assets and nonfinancial
liabilities. The Board decided to provide guidance to address that
diversity in practice and directed the staff to develop alternative
approaches for discussion at a future Board meeting.
framework: elements and recognition. The Board continued its
discussion of elements and recognition (phase B) of the joint IASB/FASB
conceptual framework project. The Board discussed the following proposed
working definition of an asset:
An asset is a present economic resource to which an entity has a
present right or other privileged access. An asset of an entity has three
- There is an economic resource.
- The entity has rights or other privileged access to the economic
- The economic resource and the rights or other privileged access both
exist at the financial statement date.
The Board directed the staff to continue developing the proposed
working definition by clarifying certain aspects of the definition and
amplifying text, particularly the meaning of economic resource and the
relationship of rights to contractual promises. The Board anticipates
discussing the proposed working definition of a liability together with
clarifying revisions to the proposed working definition of an asset in
September 2006. The IASB discussed similar issues and reached similar
conclusions on the proposed working definition of an asset at its meeting
in July 2006.
recognition. The Board previously decided 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
The Board discussed the application of that decision to four examples.
The Board decided that revenue should be recognized as the reporting
entity performs under the contract and creates (produces) an asset for its
customer if, in the event of customer breach, the legal remedy is one of
- Specific performance, which requires both parties to the contract to
fully perform as promised
- Partial physical settlement, which requires the customer to pay an
amount that reimburses the reporting entity for its costs incurred for
production to date plus a profit margin and, in exchange for paying
those damages, the customer obtains the work in process
- Net cash settlement, which requires the customer to pay damages in
an amount sufficient to place the reporting entity in as good a position
as it would have been if the contract had been performed.
The Board also decided that if the contract contains explicit customer
acceptance provisions that obligate the customer to compensate the
reporting entity for performance to date at certain points during the
contract term (and there are no other legal remedies available in the
event of customer breach), revenue would be recognized only at those
specified acceptance points.
to Statement 123(R): technical corrections. The Board decided to
issue a proposed FSP to address certain technical corrections of FASB
Statement No. 123 (revised 2004), Share-Based Payment. In approving
the proposed FSP for issuance, the Board decided to amend:
- Paragraph A240(d)(1) to exempt nonpublic entities from disclosing
the aggregated intrinsic value of outstanding fully vested share options
(or share units) and share options expected to vest
- Paragraph A102 of Illustration 4(b) to revise the computation of the
minimum compensation cost that must be recognized to comply with
paragraph 42 of Statement 123(R)
- Paragraph A170 of Illustration 13(e) to indicate that on the date
that the illustrative awards were no longer probable of vesting, any
previously recognized compensation cost should be reversed.
The Board also decided that:
- The guidance in the FSP should be applied as follows:
- If in applying Statement 123(R) an entity did so in a manner
consistent with the provisions of the FSP, then that entity should
continue to apply the provisions in the FSP to prior periods.
- If an entity did not apply Statement 123(R) in a manner consistent
with the provisions of the FSP, then that entity should
retrospectively apply the provisions in the FSP to prior periods when
those periods' financial statements are included for comparative
purposes with current-period financial statements.
- Early application of the FSP is permitted in periods for which
financial statements have not yet been issued.
- The comment period would be 30 days.
The Board directed the staff to proceed to a draft of a proposed FSP
for vote by written ballot.
FASB DOCUMENT AVAILABLE
FSP FAS 123(R)-f, "Technical Corrections of FASB Statement No.
123(R)," was issued on August 2, 2006, and is available on the FASB
website. Comments are requested by September 2, 2006.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
September. 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, August 16, 2006—FASB Board Meeting
Wednesday, August 16,
2006—FASB Education Session
Wednesday, August 23, 2006—FASB Board
Wednesday, August 23, 2006—FASB Education Session
August 28, 2006—Liaison Meeting with Edison Electric Institute and
American Gas Association
Wednesday, August 30, 2006—FASB Board
Wednesday, August 30, 2006—FASB Education Session
September 6, 2006—FASB Board Meeting
Wednesday, September 6, 2006—FASB
Wednesday, September 6, 2006—p.m., Emerging Issues
Task Force Meeting
Thursday, September 7, 2006—Emerging Issues Task
Tuesday, September 12, 2006—Liaison Meeting with the
AICPA Accounting Standards Executive Committee
Wednesday, September 13,
2006—FASB Board Meeting
Wednesday, September 13, 2006—FASB Education
Tuesday, September 19, 2006—Liaison Meeting with Institute of
Wednesday, September 20, 2006—FASB Board
Wednesday, September 20, 2006—FASB Education
Thursday, September 21, 2006—Financial Accounting Standards
Advisory Council Meeting
Wednesday, September 27, 2006—FASB Board
Wednesday, September 27, 2006—FASB Education Session
September 29, 2006—Liaison Meeting with the AICPA PCPS Technical Issues