Action Alert No. 05-44
November 3, 2005
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Thursday, November 10, 2005, 9:00 a.m.
The Board meeting will be held on Thursday instead of
- Agenda decision: pensions and other postretirement benefits.
The Board will discuss whether to add a project to its agenda to
reconsider the provisions of FASB Statements No. 87, Employers’
Accounting for Pensions, and No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions. (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 SESSIONS
Wednesday, November 9, 2005, 1:00 p.m.
Thursday, November 10,
2005, following the Board meeting
The Board will hold educational, non-decision-making sessions to
discuss topics that are anticipated to be discussed at the November 16,
2005 Board meeting. Those topics will be posted to the FASB calendar four
days prior to the education sessions.
OPEN LIAISON MEETING WITH THE AMERICAN GAS ASSOCIATION
Monday, November 7, 2005, 3:00 p.m.
The Board will meet with representatives of the American Gas
Association’s Accounting Advisory Council to discuss matters of mutual
OPEN ROUNDTABLE DISCUSSIONS WITH RESPONDENTS TO THE IASB AND FASB
EXPOSURE DRAFTS ON BUSINESS COMBINATIONS
(Visit the IASB website for details on how to listen to the
roundtable meetings live by telephone.)
Wednesday, November 9, 2005, 3:45 a.m. to 6:00 a.m. EST (8:45 a.m.
to 11:00 a.m. GMT)
Wednesday, November 9, 2005, 6:30 a.m. to 8:45 a.m.
EST (11:30 a.m. to 1:45 p.m. GMT)
Wednesday, November 9, 2005, 9:15
a.m. to 11:30 a.m. EST (2:15 p.m. to 4:30 p.m. GMT)
London EC1N 8HN
020 7421 9138
The IASB and FASB will hold public roundtable discussions to listen to
the views of and obtain information from respondents to their June 30,
2005 Exposure Drafts, Business Combinations, and Consolidated
Financial Statements, Including Accounting and Reporting of Noncontrolling
Interests in Subsidiaries.
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
October 24, 2005 Joint IASB/FASB Board Meeting
Comprehensive business reporting model. The CFA Institute made a
presentation to the Boards on its Comprehensive Business Reporting Model.
No decisions were made.
reporting by business entities. The Boards discussed whether to
include a financing category in the statement of earnings and
comprehensive income as part of Segment B of the project. The staff asked
the Boards for direction on how it should structure work on the definition
of a financing category. In this part of the project, the staff will focus
on nonfinancial institutions. The Boards decided that:
- Transactions and events of a financing type should be aggregated and
displayed as a category on the face of the statement of earnings and
- A definition for a financing category should be developed before any
other category, such as operating.
- The definition of financing should be applied consistently by all
entities, excluding financial institutions.
The Boards discussed several approaches the staff might use to define a
financing category. No decisions were made.
recognition. The Boards refined some decisions reached in prior
Board meetings. They:
- Clarified that the definition of performance obligations should
include obligations to provide not only goods and services but also
other rights, such as rights of use
- Noted that the costs incurred to extinguish a performance obligation
would be recognized as a component of comprehensive income and not as a
reduction of the recognized performance obligation
- Clarified the criteria for disaggregating contracts involving
several performance obligations into separate components (‘units of
- Refined the proposed description of the way in which the customer
consideration would be allocated among those units of account.
One of the proposed criteria for disaggregating contracts into separate
units of account is that the goods, services, or other rights underlying a
performance obligation are sold separately or as an optional extra by any
vendor or could be resold separately by the customer. The Boards decided
to specify the market in which such sales by the customer would take place
and asked the staff to consider how to define that market.
At their separate meetings in September, the Boards made decisions
regarding the initial measurement of performance obligations in revenue
contracts involving more than one unit of account. The Boards decided that
the total customer consideration should be allocated to each unit of
account based on the price at which the underlying good, service, or other
right would be sold on a standalone basis. That price would be estimated
by reference to the most reliable available evidence. At the October joint
meeting, the Boards affirmed that decision and asked the staff to review
the guidance on estimating standalone prices in the absence of market
evidence for consistency with the overall measurement objective.
At their September meetings, the Boards considered whether to make
exceptions to the general proposal that performance obligations should be
initially measured at the allocated customer consideration amount. Both
Boards decided to make an exception for obligations—such as financial
liabilities—that are required to be measured at fair value by other
accounting standards. However, they reached different conclusions on
whether to make a similar exception for all unconditional stand-ready
obligations. The FASB decided those obligations should be measured at the
allocated customer consideration amount (unless required to be measured at
fair value by another accounting standard), while the IASB decided they
should be initially measured at fair value. At their October meeting, the
Boards decided to present both views in the Preliminary Views. The IASB
further clarified that an unconditional stand-ready obligation would be
measured at fair value even if that obligation is the only obligation in
the arrangement. That means that for some arrangements, a reporting entity
might recognize some revenue at the inception of the contract.
In September, the Boards decided to explore an alternative measurement
principle that would permit or require a fair value measurement for any
performance obligations that trade in active markets. At the October
meeting, the Boards agreed to defer consideration of this alternative
until the allocated customer consideration approach is more fully
The Boards considered examples that illustrated the customer
consideration allocation approach. They noted that the examples
highlighted a need to consider further how the approach would apply to
revenue transactions in which:
- Customers are not expected to exercise all rights under the
- Nonrefundable up-front fees (such as loan origination fees) are paid
to access another service or right.
The Boards considered an example involving statutorily imposed
obligations (such as warranties that goods sold are fit for a particular
purpose). The Boards decided that such obligations should be accounted for
in the same way as any other contractual obligations. However, they
acknowledged that, in practice, those types of obligations may be
immaterial or inseparable from other obligations within a revenue
Definition of revenues
The Boards discussed the circumstances in which transactions for the
sale of goods, services, or other rights should be treated as generating
revenues, rather than other positive components of comprehensive income
(such as gains).
The Boards had previously decided that the present distinctions between
revenues and gains—based on ongoing major or central operations (FASB
literature) or ordinary activities (IASB literature)—were somewhat
ambiguous and difficult to put into practice.
The Boards considered an alternative basis for distinguishing revenues
from other positive components of comprehensive income—namely, whether the
transactions involved items produced or purchased by the entity for the
purpose of sale or resale. They decided this proposed basis was
sufficiently promising to merit further investigation and asked the staff
to explore it further.
The staff noted that the question of whether production activities
preceding entry into contracts with customers could give rise to revenues
would be considered at a future meeting.
convergence: income taxes. The Boards considered two issues:
- Uncertain tax positions
- The effect of the use of the undistributed rate to measure tax
assets and liabilities on entities that regard themselves as tax exempt
because of tax deductions available on distributions.
On uncertain tax positions, the Boards confirmed their desire to find
converged requirements. They noted that the FASB’s redeliberation of its
proposals following the comments on its draft Interpretation and the
IASB’s further development of its proposals for inclusion in its
forthcoming exposure draft would give the Boards the opportunity to
explore possibilities for such a converged answer.
On the effect of the use of the undistributed rate to measure tax
assets and liabilities on entities that regard themselves as tax exempt,
the Boards expressed concern over the results presented by the staff. They
asked the staff to explore the following options:
- Keep the proposed requirements, noting that entities that did commit
themselves to making a distribution would recognize the distributions
and the available deductions
- Create a definition of an ‘in substance tax exempt entity’ that
would cover entities whose tax structure is set up to avoid shareholders
suffering double taxation and that involves tax deductions being
available if the entity distributes all or almost all of its total
- Require a point-in-time analysis of whether an entity has the
ability to be effectively tax exempt, in which case it would be treated
as tax exempt. Disclosure would be required of why it qualifies and what
it has to do in the future to continue to qualify
- Allow the effects of a distribution outside the entity to be
included as a tax-planning strategy in determining whether or not the
recovery of an asset or settlement of a liability has taxable
consequences and, hence, whether a temporary difference exists.
October 25, 2005 Joint IASB/FASB Board Meeting
Financial instruments. At the joint meeting in April 2005, the
Boards expressed the view that adopting a single measurement attribute,
fair value, would improve financial reporting and significantly simplify
their accounting standards. At that meeting, however, Board members
differed in their views about whether that solution is attainable in the
At this meeting, the Boards established three objectives for improving
financial reporting for financial instruments to help the Boards evaluate
and prioritize future projects on financial instruments. One long-term
objective is to require that all financial instruments be measured at fair
value with realized and unrealized gains and losses recognized in the
period in which they occur. The Boards stated that fair value measurement
will produce more relevant information and solve many problems caused by
using different measurement attributes for different instruments. However,
a number of issues remain to be resolved before the Boards can establish
such a requirement. Some of those issues are how to estimate fair value
for instruments that are not traded or that are traded in
government-controlled or illiquid markets, how to report the components of
the net changes in fair values, what information to disclose about past
changes in fair values and exposures to future changes in market factors,
and which instruments and related assets and liabilities should be subject
to the requirement.
Another objective the Boards established is to simplify requirements
for hedge accounting and, if possible, reduce or eliminate the need for
special accounting. A third objective is to develop a converged standard
for derecognition of financial instruments that is simpler, easier to
apply, and more consistent with concepts of financial reporting than any
existing derecognition standard.
The Boards directed the staff to prepare material to be posted to each
Board’s website to (1) inform constituents of the Board’s objectives, (2)
explain the reasons why those objectives were established, (3) describe
the nature and status of the work that remains to be done before the
objectives can be achieved, and (4) summarize the work currently underway
to address financial instruments issues. Additionally, the Boards
requested that the staff prepare an article that contains a detailed
explanation of why fair value is the most relevant measurement attribute
for all financial instruments.
As part of the project to address how to report changes in fair values,
the Boards also discussed possible methods that could be used to
disaggregate the changes in fair value of financial instruments, which
would be included in a future due process document on disaggregation. The
Boards decided that classifying changes in fair value as operating or
financing and recurring or nonrecurring should be considered as part of
the performance reporting project. The Boards also decided that they would
require disclosure of the total changes in fair value for each type of
instrument and the cash receipts and cash payments for each type of
instrument, as well as information about the relative subjectivity of
estimated changes in fair value. The staff will provide more specific
recommendations about those disclosures at future Board meetings.
Finally, the Boards directed the staff to seek the views of users of
financial statements about the information that those users would find
relevant with regard to past changes in fair value of financial
instruments, exposures to future changes in market factors, and how they
might use that information.
framework. The Boards continued their deliberations on developing
a common conceptual framework. They discussed four matters and made the
- The process for using qualitative characteristics of accounting
information in developing standards for decision-useful financial
reports. The Boards discussed how to best illustrate the process for
resolving issues raised by relationships between qualitative
characteristics and directed the staff to proceed to drafting
qualitative characteristics concepts.
- Whether the objectives and qualitative characteristics need to
differ for particular types of entities. The Boards concluded that
there is no need to modify the objectives of financial reporting or
qualitative characteristics of decision-useful financial reporting for
any types of private-sector entities. Cost-benefit constraints will be
considered in November 2005. The Boards acknowledged that there might be
differences in how certain qualitative characteristics are applied.
- Objectives for financial reporting staff draft. The Boards
gave the staff drafting directions, including the following:
- The staff should not expend efforts to develop an appendix about
the environmental context of financial reporting and the
characteristics and limitations of financial reporting.
- In the objectives portion, the key concepts will not be
highlighted using the black letter/gray letter format used of the
IASB’s standards. The staff should consider other techniques (for
example, side-headings and summaries) and how this might affect other
- The objectives will be described as those of financial reporting
rather than of financial statements.
- Project status and plans, including due process. The Boards
decided that the first due process document for the objectives of
financial reporting and qualitative characteristics of accounting
information will be an Exposure Draft.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
December. 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, November 16, 2005—FASB Board Meeting
16, 2005—FASB Education Session
Tuesday, November 22, 2005—FASB Board
Tuesday, November 22, 2005—FASB Education Session
November 29, 2005—FASB Board Meeting
Tuesday, November 29, 2005—FASB
Wednesday, November 30, 2005—Small Business Advisory
Thursday, December 1, 2005—Financial Accounting Standards
Wednesday, December 7, 2005—FASB Board
Wednesday, December 7, 2005—FASB Education Session
December 8, 2005—New York Society of Security Analysts
December 14, 2005—FASB Board Meeting
Wednesday, December 14, 2005—FASB
Wednesday, December 21, 2005—FASB Board
Wednesday, December 21, 2005—FASB Education
Wednesday, December 28, 2005—No FASB Board Meeting or
Education Session scheduled