Action Alert No. 05-44
November 3, 2005


(Board 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 Wednesday.

  1. 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 discussion.)

  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, 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.


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 interest.

(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)

The Hatton
Diamond Suite
First Floor
51-53 Hatton Garden
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 FSP.

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.

Performance 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:

  1. Transactions and events of a financing type should be aggregated and displayed as a category on the face of the statement of earnings and comprehensive income.

  2. A definition for a financing category should be developed before any other category, such as operating.

  3. 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.

Revenue recognition. The Boards refined some decisions reached in prior Board meetings. They:

  1. 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

  2. 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

  3. Clarified the criteria for disaggregating contracts involving several performance obligations into separate components (‘units of account’)

  4. 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 developed.

Illustrative examples

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:

  1. Customers are not expected to exercise all rights under the contract, or

  2. 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 contract.

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.

Short-term convergence: income taxes. The Boards considered two issues:

  1. Uncertain tax positions

  2. 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:

  1. Keep the proposed requirements, noting that entities that did commit themselves to making a distribution would recognize the distributions and the available deductions

  2. 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 income

  3. 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

  4. 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 near future.

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.

Conceptual framework. The Boards continued their deliberations on developing a common conceptual framework. They discussed four matters and made the following decisions:

  1. 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.

  2. 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.

  3. Objectives for financial reporting staff draft. The Boards gave the staff drafting directions, including the following:

    1. 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.

    2. 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 phases.

    3. The objectives will be described as those of financial reporting rather than of financial statements.

    4. 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.


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
Wednesday, November 16, 2005—FASB Education Session
Tuesday, November 22, 2005—FASB Board Meeting
Tuesday, November 22, 2005—FASB Education Session
Tuesday, November 29, 2005—FASB Board Meeting
Tuesday, November 29, 2005—FASB Education Session
Wednesday, November 30, 2005—Small Business Advisory Committee
Thursday, December 1, 2005—Financial Accounting Standards Advisory Council
Wednesday, December 7, 2005—FASB Board Meeting
Wednesday, December 7, 2005—FASB Education Session
Thursday, December 8, 2005—New York Society of Security Analysts
Wednesday, December 14, 2005—FASB Board Meeting
Wednesday, December 14, 2005—FASB Education Session
Wednesday, December 21, 2005—FASB Board Meeting
Wednesday, December 21, 2005—FASB Education Session
Wednesday, December 28, 2005—No FASB Board Meeting or Education Session scheduled