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Action Alert No. 06-05
February 2, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board
meetings are available by audio webcast and telephone.)
No Board meetings are planned for the week of February 6, 2006. The
next scheduled Board meeting is Wednesday, February 15, 2006.
OPEN EDUCATION SESSION
Wednesday, February 8, 2006, 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 February 15,
2006 Board meeting. Those topics will be posted to the FASB calendar four
days prior to the education session.
BOARD ACTIONS
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.
January 25, 2006 Board Meeting
Life
settlements. The Board discussed the following two issues on the
proposed FSP TB 85-4-a, "Accounting for Life Settlement Contracts by
Investors":
- Whether an entity should be required to disclose actual versus
expected mortality
- Whether an entity should be required to disclose the averaged
expected remaining term of the life settlement contracts.
The Board decided that:
- If an entity becomes aware of new or updated information and that
information results in an entity’s changing its assumption of the
expected remaining term of its individual life settlement contracts, an
entity should disclose these changes and the related effects on the
financial statements in the notes to the financial statements. The
discussion of the changes in the expected remaining term should be both
qualitative and quantitative in nature. However, the entity should not
be required to update the assumptions used in determining the expected
remaining term of individual life settlement contracts at each financial
reporting date.
- An entity should disclose the following as of the date of the most
recent statement of financial position presented for each of the five
succeeding fiscal years and thereafter, as well as in the aggregate:
- Number of life settlement contracts
- Carrying value of the life settlement contracts
- Face value of the life insurance policies underlying the
contracts.
Fair
value measurements. The Board discussed issues raised by external
reviewers on the October 21, 2005, working draft of a final FASB Statement
on fair value measurements, relating to the fair value hierarchy,
disclosures, and effective date and transition.
The Board clarified the fair value hierarchy as follows:
- The Board affirmed the guidance within Levels 2–4 but decided to
combine those levels, thereby establishing a three-level hierarchy for
both measurement and disclosure purposes.
- The Board decided to incorporate guidance clarifying that where
within the fair value hierarchy the fair value measurement in its
entirety falls should be based on the lowest level significant input.
- The Board affirmed its previous decision to allow the use of an
alternative pricing method (for example, matrix pricing) as a practical
expedient to the requirement to use quoted prices for identical assets
or liabilities within Level 1, but clarified that the resulting
measurement should not be disclosed as a Level 1 measurement. (It is a
Level 2 measurement.)
- The Board affirmed its previous decision that the cost and/or effort
associated with obtaining or otherwise deriving market inputs is not
sufficient basis for determining whether to use those inputs to measure
fair value. The Board acknowledged that, in some cases, market inputs
might not be available. In those cases, entity inputs (inputs reflecting
the entity’s internally developed assumptions of market inputs) should
be used to measure fair value within Level 5 (new Level 3).
However, the fair value measurement objective remains the same.
Therefore, entity inputs should be adjusted if information is available
that indicates that market participants would use different assumptions.
The Board reconsidered its previous decision to require disclosure of
the percentage of total assets (liabilities) that are remeasured at fair
value on a recurring basis. The Board decided not to require that
disclosure. The Board plans to discuss other fair value disclosures at a
future Board meeting.
The Board reconsidered its previous decisions relating to effective
date and transition. Specifically:
- The Board decided that the final Statement should be effective for
financial statements issued for fiscal years beginning after
November 15, 2006, and interim periods within those fiscal years,
subject to the timing of the final Statement. However, the Board decided
that all of the disclosure requirements of the final Statement should
apply in the first interim period in which that Statement is initially
applied.
- The Board affirmed its previous decision that the effect of the
change in accounting principle on income before extraordinary items and
any affected per-share amounts should be initially applied
retrospectively (full retrospective transition approach). However, the
Board decided not to require disclosure of the effect of that change in
the fiscal year in which the final Statement is initially applied, as
previously discussed.
The Board decided not to issue a final Statement until after it
substantially completes redeliberations of related issues raised by
respondents to the proposed FSP FAS 133-a, "Accounting for Unrealized
Gains (Losses) Relating to Derivative Instruments Measured at Fair Value
under Statement 133."
Business
combinations. The Board discussed a summary of the comment letters
received on its Exposure Drafts, Business Combinations, and
Consolidated Financial Statements, Including Accounting and Reporting
of Noncontrolling Interests in Subsidiaries. A copy of that summary is
available on the FASB website. The Board affirmed the project’s objectives
and the plans for redeliberations.
Servicing of
financial assets. The Board discussed two issues related to
transition and disclosure requirements identified by external reviewers of
a draft of a final FASB Statement on accounting for servicing of financial
assets. The Board decided to:
- Provide transition guidance that requires prospective application of
the requirements for initial recognition of servicing assets and
servicing liabilities to transactions that occur after the effective
date of the final Statement. Specifically, servicing assets and
servicing liabilities that had been recognized under current FASB
Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, guidance would
continue to be recognized subsequent to the effective date of the
proposed amendment to Statement 140 but also would be subject to the
initial and subsequent measurement guidance of the proposed amendment to
Statement 140.
- Delete a disclosure requirement that would have required an entity
to disclose the direct and indirect impact on income from continuing
operations of an election to subsequently measure any class of
separately recognized servicing assets and servicing liabilities at fair
value in the first fiscal year of such an election.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
March. 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, February 15, 2006—FASB Board Meeting
Wednesday, February
15, 2006—FASB Education Session
Wednesday, February 22, 2006—FASB Board
Meeting
Wednesday, February 22, 2006—FASB Education
Session
Wednesday, March 1, 2006—FASB Board Meeting
Wednesday, March
1, 2006—FASB Education Session
Wednesday, March 8, 2006—FASB Board
Meeting
Wednesday, March 8, 2006—FASB Education Session
Wednesday,
March 15, 2006—FASB Board Meeting
Wednesday, March 15, 2006—p.m.,
Emerging Issues Task Force Meeting
Thursday, March 16, 2006—Emerging
Issues Task Force Meeting
Friday, March 17, 2006—FASB Education
Session
Wednesday, March 22, 2006—FASB Board Meeting
Wednesday,
March 22, 2006—FASB Education Session
Thursday, March 23,
2006—Financial Accounting Standards Advisory Council Meeting
Wednesday,
March 29, 2006—FASB Board Meeting
Wednesday, March 29, 2006—FASB
Education Session
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