Action Alert No. 05-50
December 15, 2005
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Tuesday, December 20, 2005, 9:00 a.m.
The Board meeting will be held on Tuesday instead of
- Combinations of
not-for-profit organizations (estimated 2-hour
discussion). The Board will consider an alternative to its prior
- Require that a not-for-profit organization measure goodwill and
any inherent contribution based on the fair value of the acquired
business enterprise in an acquisition of a business.
- Require that a not-for-profit organization (parent) initially
consolidate a partially owned subsidiary at its full fair value
in an acquisition of less than 100 percent of a for-profit business or
another not-for-profit organization.
The Board also will discuss the following remaining issues:
- Recognition and measurement. Whether to apply the decisions
reached in its Exposure Draft, Business Combinations, to
mergers and acquisitions in this project:
(1) Exceptions to the recognition of assets acquired and
liabilities assumed at fair value
(2) Transaction-related costs
(3) Measurement period
(4) Guidance for determining what’s part of the
- Donor-related intangible assets. Whether to provide further
guidance for the recognition of those assets acquired in a merger or
- Presentation of a contribution received in financial
statements. Whether to report a contribution recognized in a
merger or acquisition as part of a performance indicator, if such a
measure is reported.
- Disclosure requirements. Whether to apply the decisions
reached in the business combinations Exposure Draft to mergers and
acquisitions in this project:
(1) Disclosure objectives.
(2) Incremental disclosures requirements that were added by the
business combinations Exposure Draft that were not required by APB
Opinion No. 16, Business Combinations; for example, to the
extent applicable, the maximum potential amount of future payments
for contingent consideration, the nature of any preexisting
relationship, and a reconciliation of the beginning and ending
balance of liabilities for contingent consideration and
contingencies that are required to be measured at fair value.
(3) Pro forma information about a merger or acquisition.
- Comment period, transition, effective date, and other
risk transfer (estimated 60-minute discussion). The Board
will consider the applicability of bifurcation in the analysis of the
transfer of insurance risk and the accounting for finite (financial)
insurance and reinsurance contracts.
- Servicer discretion (estimated 30-minute discussion).
The Board will discuss whether to add a limited-scope project to its
agenda to provide additional guidance on the passive nature of a
qualifying special-purpose entity (SPE) and its permitted activities.
The project would focus on the discretion that a servicer is permitted
in servicing the assets of a qualifying SPE.
- 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, December 21, 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 a future 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
December 7, 2005 Board Meeting
of financial assets. The Board discussed issues related to
redeliberations of the Exposure Draft, Accounting for Transfers of
- Decided to issue the final Statement on transfers of financial
assets as a standalone document and separate Statements on servicing of
financial assets and hybrid financial instruments. The Board expects to
issue the final Statements on servicing of financial assets and hybrid
financial instruments in the first quarter of 2006 and the final
Statement on transfers of financial assets in the second quarter of
- Decided to address the issue of initial measurement of a
transferor’s beneficial interest in the final Statement on transfers of
financial assets, as originally planned.
- Agreed with the redeliberation issues identified by the staff
related to the transfers document.
performance reporting by business entities. The Board decided not
to issue an Exposure Draft on Segment A decisions at this time.
Instead, the Board will continue work on a Preliminary Views that will
incorporate decisions reached in both Segment A and Segment B.
loan products. The Board discussed comments received on proposed
FSP SOP 94-6-a, "Nontraditional Loan Products." The Board
- An effective date should be added to Question 1 of the proposed FSP.
- Nontraditional loans do not represent a major category as
that term is used in AICPA Statement of Position 01-6, Accounting by
Certain Entities (Including Entities With Trade Receivables) That Lend
to or Finance the Activities of Others. Therefore, the
reference to SOP 01-6 should be removed from the FSP.
The Board directed the staff to proceed to a draft of a final FSP for
vote by written ballot subject to drafting, which will focus mainly on
rewording the definition of a nontraditional loan product.
option. The Board discussed a number of issues regarding the fair
value option project and decided:
- Cash receipts and cash payments related to financial assets and
financial liabilities for which the fair value option has been elected
should not be required to be classified as operating activities in the
statement of cash flows. In addition, FASB Statement No. 95,
Statement of Cash Flows, as amended by FASB Statements No. 102,
Statement of Cash Flows—Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale, and No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections,
should be amended to remove the requirement that cash receipts and cash
payments resulting from purchases and sales of securities classified as
trading securities under FASB Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, be classified as
operating activities. The cash receipts and cash payments for those
financial assets and financial liabilities should be classified pursuant
to Statement 95 (as amended) based on the nature and purpose for which
the related financial assets and financial liabilities were acquired or
- Cash receipts and cash payments related to investments in life
settlement contracts (both those reported at fair value and under the
investment method) should not be required to be reported as investing
activities in the statement of cash flows. Rather, those cash receipts
and cash payments should be classified pursuant to Statement 95 (as
amended) based on the nature and purpose for which the related financial
assets and financial liabilities were acquired or incurred. (This
decision will be reflected in the forthcoming FSP on life settlement
contracts, not in the fair value option Exposure Draft.)
- Both written loan commitments that would otherwise not be recognized
at inception under existing GAAP and financial liabilities for demand
deposit accounts should be excluded from the scope of the fair value
option election in phase 1 of the project. Rather, those items should be
included for consideration in phase 2 of the project.
- Entities should be required to disclose how interest and dividends
are reported and measured with respect to financial assets and financial
liabilities for which the fair value option has been elected.
- For only those financial assets and financial liabilities that are
reported at fair value pursuant to the fair value option election, fair
value carrying amounts should not be aggregated with non-fair-value
carrying amounts of similar financial assets or similar financial
liabilities in the balance sheet.
- The following disclosures should be required to compensate for the
lack of comparability created by the fair value option election:
- For an entity that is reporting any financial liabilities at fair
value due to electing the fair value option, the qualitative reasons
for significant changes in those liabilities’ fair values included in
current period earnings.
- Where gains and losses are reported in the income statement
arising from the changes in the fair value of financial assets and
financial liabilities for which the fair value option has been
elected. This requirement for quantitative information by line item
would apply for each period for which an income statement is
- The difference between the carrying amount of any financial
liabilities reported at fair value due to election of the fair value
option and the aggregate principal amount the entity would be
contractually required to pay at maturity to the holders of the
obligations (or through the maturity date for any debts whose
principal amounts are payable in installments).
- The following disclosures should not be required by the Exposure
- Additional disclosures with respect to the amount of the fair
value changes that are unrealized at the reporting date
- A roll-forward presentation of the debt balances from period to
period that would incorporate the effect of fair value changes and
- For entities that have elected the fair value option for its
liabilities, circumstances that have contributed to the deterioration
of the reporting entity’s creditworthiness but have not yet caused
loss recognition in the financial statements.
- For entities that elect the fair value option for some of its
current available-for-sale securities in conjunction with the initial
adoption of the fair value option Statement, the amount of the effect of
that reclassification into the trading category should be disclosed and
reported consistent with the transition provisions of the fair value
option Statement (and not under Statement 115’s reporting provisions for
transfers between categories).
- Adoption of the Statement should be required as of the beginning of
each reporting entity’s first fiscal year that begins after December 15,
2006, with earlier adoption permitted as of the beginning of an entity’s
earlier fiscal year that begins after issuance of the Statement
(provided the entity has not yet issued financial statements for any
interim period of that fiscal year).
- Retrospective application of the Statement should not be required or
- The impact of the initial adoption of the Statement should be
accounted for as a cumulative-effect adjustment for retained earnings.
- The comment period for the fair value option phase 1 Exposure Draft
should be 75 days.
The Board directed the staff to prepare a draft of the Exposure Draft
for vote by written ballot for phase 1 of this project.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
February. 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, December 28, 2005—No FASB Board Meeting or Education
Wednesday, January 4, 2006—FASB Board
Wednesday, January 4, 2006—FASB Education Session
January 11, 2006—FASB Board Meeting
Wednesday, January 11, 2006—FASB
Wednesday, January 18, 2006—FASB Board
Wednesday, January 18, 2006—FASB Education
Wednesday, January 25, 2006—FASB Board Meeting
January 25, 2006—FASB Education Session
Wednesday, February 1,
2006—FASB Board Meeting
Wednesday, February 1, 2006—FASB Education
Wednesday, February 8, 2006—FASB Board Meeting
February 8, 2006—FASB Education Session
Wednesday, February 15,
2006—FASB Board Meeting
Wednesday, February 15, 2006—FASB Education
Wednesday, February 22, 2006—FASB Board Meeting
February 22, 2006—FASB Education Session