Action Alert No. 05-08
February 24, 2005
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Wednesday, March 2, 2005, 9:00 a.m.
convergence: accounting changes. The Board will continue its
redeliberations of the FASB Exposure Draft, Accounting Changes and Error
Corrections, focusing on the accounting for and reporting of indirect
effects of a change in accounting principle, as well as other issues
that have arisen in the drafting of the final Statement. (Estimated
value measurement. The Board will continue its redeliberations
of the FASB Exposure Draft, Fair Value Measurements. The Board
will discuss the definition of fair value and its application to
liabilities. (Estimated 2-hour discussion.)
instruments: liabilities and equity. The Board will discuss
comments received from resource group members on a draft of the proposed
guidance communicating the Board’s decisions regarding the
classification of single component instruments. The Board also will
discuss certain issues related to the definition of ownership
instruments that have arisen as a result of the comments received.
(Estimated 60-minute discussion.)
leases. The Board will continue its discussion of various issues
related to income tax settlements and their potential impact on
transactions classified as leveraged leases under the provisions of FASB
Statement No. 13, Accounting for Leases. The Board will consider
whether to issue guidance to address those issues and, if so, in what
form. (Estimated 60-minute discussion.)
instruments: derivatives implementation. The Board will discuss
alternatives for addressing whether certain embedded prepayment options
should be bifurcated and accounted for separately as derivatives in
conjunction with a discussion of proposed Statement 133 Implementation
Issue No. B38, "Evaluation of Net Settlement with Respect to Embedded
Prepayment Options in Certain Debt Instruments." (Estimated 60-minute
- 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
Thursday, March 3, 2005, 9:00 a.m.
The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the March 9, 2005
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 or
February 16, 2005 Board Meeting
combinations: purchase method procedures. The Board discussed
certain drafting issues identified by the staff in developing the joint
FASB-IASB Exposure Draft on business combinations. The staff reported that
several of the issues identified for discussion were resolved as a result
of decisions reached by the IASB at its February meeting and, thus, did
not require discussion by the FASB. Of the remaining issues, the Board
- Require that any recognition of an acquirer’s deferred tax benefits
(through the reduction of the acquirer’s previously recorded valuation
allowance) that results from a business combination be included in
income at the acquisition date. Currently, FASB Statement No. 109,
Accounting for Income Taxes, requires that such a deferred tax
benefit be recognized through a corresponding reduction to goodwill or
certain noncurrent assets or an increase in negative goodwill. The
amount of such benefits reported in income should be disclosed in the
notes to the financial statements.
- Amend the disclosure requirement for the reconciliation of the
carrying amount of goodwill in FASB Statement No. 142, Goodwill and
Other Intangible Assets, to clarify that the reconciliation should
include the items listed in paragraph 75 of IFRS 3, Business
- Clarify the subsequent accounting for reacquired rights acquired in
a business combination that would be initially accounted for as
intangible assets under Statement 142 and the application guidance of
EITF Issue No. 04-1, "Accounting for Preexisting Relationships between
the Parties to a Business Combination." Subsequently, those rights would
be amortized over the remaining contractual period of the precombination
contract that granted those rights.
- Include in the joint Exposure Draft, reverse acquisition guidance
and related example that is currently included in IFRS 3, modified as
necessary to conform with the decisions made in this phase of the
business combinations project.
The Board also considered, but decided not to require, certain
additional disclosures currently required by IFRS 3.
tax positions. The Board continued its discussions on this project
and decided to:
- Require that an entity recognize the benefit of tax positions when
it is probable, in the context of FASB Statement No. 5, Accounting
for Contingencies, that the position will be sustained when
challenged by taxing authorities.
- Require that an entity presume that a taxing authority will review a
tax position when evaluating whether the position is probable of being
sustained. Therefore, consideration of the risk of detection is
- Require that the benefit of tax positions be derecognized when it is
more likely than not that the position will not be sustained.
- Require the use of a best estimate to measure the financial
statement benefit of a tax position.
- Classify the liability that results from the difference between the
probable tax basis in the financial statements and the as-filed tax
basis based on the expected timing of cash flows to settle underpayment
controversies with taxing authorities.
- Recognize an interest expense accrual for the settlement of
underpayment controversies based on the amounts reflected on the tax
return for which a benefit has not been recognized in the financial
- Affirm its decision that disclosures should continue to be made in
accordance with Statement 5.
- Account for the impact of adopting the new pronouncement as a
cumulative effect of a change in accounting principle.
The Board instructed the staff to proceed to a draft of a proposed
Interpretation for vote by written ballot.
interests. The Board discussed the application alternatives for
electing fair value to subsequently measure hybrid financial instruments
with embedded derivatives that otherwise would require bifurcation.
Additionally, the Board discussed the impact of identifying embedded
derivatives in beneficial interests in securitized financial assets on the
limitations on qualifying special-purpose entities holding derivatives as
established in FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The
Board made the following decisions:
- The option to elect fair value for hybrid financial instruments with
embedded derivatives that otherwise would require bifurcation should be
applied on an instrument-by-instrument basis.
- The parenthetical phrase other than another derivative financial
instrument should be deleted from paragraph
Statement 140. That would simplify the requirement to be met to be a
qualifying special-purpose entity by eliminating the restriction that a
derivative in the entity cannot pertain to a derivative beneficial
Staff Position (FSP) FIN 46(R)-b. The Board discussed the comment
letters received on proposed FSP FIN 46(R)-b, "Implicit Variable Interests
Resulting from Related Party Relationships under FASB Interpretation No.
46 (revised December 2003), Consolidation of Variable Interest
Entities." The Board decided to:
- Affirm its previous decision to issue an FSP that addresses whether
a reporting enterprise should consider whether it has an implicit
variable interest in a variable interest entity (VIE) or potential VIE
- Not provide a scope exception for small and midsize nonpublic
- Clarify that if a contractual arrangement between unrelated parties
establishes a related party relationship, the potential existence of an
implicit variable interest should be considered
- Include additional guidance in the example given in the proposed FSP
to assist in determining whether an implicit variable interest exists
and to clarify the applicability of the guidance in the title of the
The Board directed the staff to post the final FSP to the website.
Life insurance settlements (viaticals). The Board decided to
provide guidance related to life settlements. A life settlement occurs
when an individual sells his or her life insurance policy to a third
party. The Board considered, but decided against, including life insurance
policies within the scope of the project. The Board will consider whether
to add a life insurance project to its agenda at a later date.
FUTURE BOARD MEETINGS
The following is a list of open meetings tentatively scheduled through
March. All meetings are held in Norwalk, Connecticut, unless otherwise
noted. 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.
Tuesday, March 8, 2005—User Advisory Council Meeting, New York
Wednesday, March 9, 2005—FASB Board Meeting
Wednesday, March 9,
2005—FASB Education Session
Wednesday, March 16, 2005—FASB Board
Wednesday, March 16, 2005—FASB Education Session
March 17, 2005—Emerging Issues Task Force Meeting
Tuesday, March 22,
2005—Financial Accounting Standards Advisory Council
23, 2005—FASB Board Meeting
Wednesday, March 23, 2005—FASB Education
Wednesday, March 30, 2005—FASB Board Meeting
March 30, 2005—FASB Education Session