Action Alert No. 07-12
March 22, 2007
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board meetings are available by audio webcast and telephone.)
Wednesday, March 28, 2007, 9:00 a.m.
- Earnings per share (estimated 45-minute discussion). The Board will continue its redeliberations of the proposed amendments to FASB Statement No. 128, Earnings per Share, as part of its international convergence efforts.
- Conceptual framework (estimated 1-hour discussion). The Board will discuss a summary of the comments of participants at the measurement roundtable discussions held in Hong Kong, London, and Norwalk in January and February 2007 and its plans for using the roundtable comments.
- FASB ratification of EITF consensuses and tentative conclusions (estimated 15-minute discussion). The Board will consider the ratification of the consensuses and tentative conclusions reached at the March 15, 2007 EITF meeting. (See discussion under EITF ACTIONS.)
- 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, March 28, 2007, following the Board meeting
The Board will hold an educational, non-decision-making session to discuss topics that are anticipated to be discussed at the April 4, 2007 Board meeting. Those topics will be posted to the FASB calendar four days prior to the education session.
OPEN ROUNDTABLE DISCUSSIONS WITH RESPONDENTS TO THE FASB EXPOSURE DRAFTS ON MERGERS AND ACQUISITIONS BY A NOT-FOR-PROFIT ORGANIZATION
(This meeting is available by audio webcast and telephone.)
Tuesday, March 27, 2007, 9:00 a.m. 12:00 p.m.
The Board will hold a public roundtable discussion to listen to the views of and obtain information from respondents to the October 9, 2006 FASB Exposure Drafts, Not-for-Profit Organizations: Mergers and Acquisitions, and Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition.
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.
March 14, 2007 Board Meeting
Transfers of financial assets. The Board discussed the accounting for a transaction involving a transfer of a financial asset and a repurchase financing of that asset that involves the same parties to the initial transfer. The Board instructed the staff to develop an approach to determine if the transactions should be linked and accounted for as a single transaction under FASB Statement No. 140, Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, or if the transactions should be accounted for separately. The Board also instructed the staff to develop the approach by describing the indicators that a reporting entity should consider in deciding whether the transactions should be linked or not.
Agenda decision: valuation of commodity inventory. The Board added a project to its agenda to provide guidance on whether ARB No. 43, Restatement and Revision of Accounting Research Bulletins, should be amended to require fair value accounting for certain nonfinancial assets with readily determinable fair values that are held in trading inventory, including traded emissions allowances.
Statement 133 Implementation Issueconvertible debt with elements of foreign exchange risk. The Board discussed the issuance of a proposed Statement 133 Implementation Issue on whether embedded conversion options are indexed to both an entity’s own stock and currency exchange rates. The Board decided:
- Embedded conversion options in a convertible debt instrument denominated in a currency other than the issuer’s functional currency do not meet the scope exception in paragraph 11(a) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and, therefore, must be separated from the host contract and accounted for as a derivative.
- Embedded conversion options in a convertible debt instrument denominated in the issuer’s functional currency but convertible into shares traded only on non-functional-currency exchanges do meet the scope exception in paragraph 11(a) of Statement 133 and, therefore, do not have to be separated from the host contract and accounted for as a derivative.
- If an entity determines that an embedded conversion option is required to be separately accounted for as a derivative instrument upon adoption of the guidance summarized in 1 above, the embedded conversion option should be measured at its fair value at the date of adoption and the debt host contract should be measured at the accreted value that would have been recorded at that date if the embedded conversion option had been bifurcated at issuance. The difference between (a) the aggregate carrying amount of the embedded conversion option and the debt host immediately after adoption and (b) the carrying amount of the convertible debt instrument immediately prior to adoption should be recognized as a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position).
- If an entity determines that an embedded conversion option that was separately accounted for as a derivative instrument qualifies for the scope exception in paragraph 11(a) of Statement 133 upon adoption of the guidance summarized in 2 above, the carrying amount of the liability for the conversion option (that is, its fair value) should be reclassified to equity upon adoption. Any debt discount that was recognized when the conversion option was bifurcated from the convertible debt instrument should continue to be amortized.
The Board directed the staff to proceed to a draft of a proposed Statement 133 Implementation Issue for vote by written ballot. The implementation guidance would be effective for financial statements issued for interim and annual periods beginning the fiscal year after the Board-cleared guidance is posted on the FASB website. Early adoption would not be permitted.
March 15, 2007 EITF Meeting
The Task Force discussed the following issues:
- Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements." The Task Force considered the comment letters received in response to the draft abstract for this Issue, which presented the tentative conclusions reached at the November 16, 2006 EITF meeting, and decided to redeliberate this Issue in its entirety.
The Task Force reached a consensus that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Omnibus Opinion1967, if the employer has agreed to maintain a life insurance policy during the employee’s retirement or provide the employee with a death benefit based on a substantive arrangement with the employee.
The Task Force observed that all available evidence should be considered in determining the substance of the arrangement, such as explicit written terms of the arrangement, communications made by the employer to the employee, and the determination of whether the employer is the obligor for the postretirement benefit. For example, if the terms of the arrangement are such that the employer has no obligation in the postretirement period to loan amounts to an employee for future insurance policy premiums, that may indicate that there is no postretirement obligation. However, if the employer has an arrangement with the employee to participate in the experience gains and losses of the insurance company, that may indicate that an employer has a postretirement benefit obligation for the cost of the insurance in the postretirement period. In determining the appropriate measurement and attribution of the cost and obligation under any particular arrangement, the Task Force observed that the employers should refer to the guidance in Statement 106 or Opinion 12, as applicable.
The Task Force affirmed as a consensus the tentative conclusion reached at the November 16, 2006 EITF meeting that an employer should recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The Task Force observed that in determining the nature and substance of the arrangement, the employer should assess what future cash flows the employer is entitled to, if any, as well as the employee's obligation and ability to repay the employer. For example, if the arrangement limited the amount the employer could recover to the amount of the cash surrender value of the insurance policy held by the employee (or retiree), and if the employer's loan to the employee (or retiree) is greater than the cash surrender value of the insurance policy, at the balance sheet date the employer's asset would be limited to the amount of the cash surrender value of the insurance policy. Conversely, if the arrangement required the employee to repay the employer irrespective of the amount of the cash surrender value of the insurance policy (and assuming the employee [or retiree] is an adequate credit risk), the employer should recognize the value of the loan (including accrued interest, if applicable) considering the guidance in APB Opinion No. 21, Interest on Receivables and Payables. An employer should evaluate all available information in determining the nature and substance of the collateral assignment split-dollar life insurance arrangement.
The Board will consider the ratification of the consensuses in this Issue at its March 28, 2007 meeting.
- Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." The Task Force discussed the tentative conclusion reached at the November 16, 2006 EITF meeting but was not asked to affirm it as a consensus at this time. The Task Force discussed whether a tax benefit from a dividend on a share-based payment award should be reclassified from additional paid-in capital to the income statement when the related award is forfeited (or is no longer expected to vest) in circumstances in which that tax benefit may have been applied against a tax deficiency on another share-based payment award. The Task Force was not asked to reach a conclusion on this issue but requested the FASB staff to provide examples illustrating the various alternatives. The Task Force will discuss this Issue at a future meeting and consider those alternatives.
- Issue No. 07-1, "Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property." The Task Force discussed how to determine whether an arrangement constitutes a collaborative arrangement within the scope of this Issue and considered the Working Group’s recommendation that a collaborative arrangement be defined as an arrangement in which the parties share in the risks and rewards of the arrangement's operations from the arrangement’s inception through its termination. The Task Force also discussed the Working Group’s recommendation of indicators that could be used to identify a collaborative arrangement. The Task Force also observed that, in addition to those indicators proposed by the Working Group, there may be other indicators that could identify the existence of a collaborative arrangement. However, the Task Force was not asked to reach a conclusion and requested the FASB staff to revise (a) the indicators as recommended by the Working Group to clarify the scope of the Issue and (b) the illustrative scenarios in Exhibit 07-1A of Issue Summary No. 1, to consider additional fact patterns.
The Task Force reached a tentative conclusion that transactions with third parties, that is, revenue generated and costs incurred by participants in a collaborative arrangement, should be reported on the appropriate line item in each company's respective financial statement pursuant to the guidance in EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent."
The Task Force discussed the alternative views presented to address how sharing payments made to or received by a participant pursuant to a collaborative arrangement should be presented in the income statement. The Task Force requested the FASB staff to explore an additional view for consideration. Under this additional view, a participant of a collaborative arrangement who is deemed to be the principal for a given transaction would record that transaction on a gross basis in their financial statements. All sharing payments would be recorded on a net basis within other operating income or expense in the participant’s statement of operations. The Task Force discussed potential disclosures by participants to a collaborative arrangement under this view, including summarized information for the results of the activities of the collaborative arrangement. This Issue will be discussed further at a future meeting.
- Issue No. 07-2, "Accounting for Convertible Debt Instruments That Require or Permit Partial Cash Settlement upon Conversion." The Task Force discussed how an entity should account for a convertible debt instrument that requires or permits partial cash settlement upon conversion if, at issuance, the embedded conversion option is not required to be separately accounted for as a derivative under Statement 133. The Task Force was not asked to reach a conclusion. The Task Force requested that a working group be formed to discuss (a) the scope of this Issue, (b) diluted earnings per share considerations, and (c) other potential short-term improvements to the accounting for convertible instruments. This Issue will be discussed further at a future meeting.
- Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities." The Task Force reached a tentative conclusion that nonrefundable advance payments for future research and development activities should be deferred and capitalized until the goods have been delivered or the related services have been performed. The Board will consider the ratification of this tentative conclusion at its March 28, 2007 meeting. If ratified, a draft abstract will be posted to the FASB website for a comment period that will end on May 3, 2007. This Issue will be discussed further at a future meeting.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through May. 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, April 4, 2007FASB Board Meeting
Wednesday, April 4, 2007FASB Education Session
Wednesday, April 11, 2007FASB Board Meeting
Wednesday, April 11, 2007FASB Education Session
Wednesday, April 18, 2007FASB Board Meeting
Wednesday, April 18, 2007FASB Education Session
Monday, April 23, 2007FASB/IASB Joint Board Meeting, London
Tuesday, April 24, 2007FASB/IASB Joint Board Meeting, London
Thursday, April 26, 2007FASB Education Session
Monday, April 30, 2007Valuation Guidance for Financial Reporting Roundtable
Tuesday, May 1, 2007User Advisory Council Meeting, New York City
Wednesday, May 2, 2007FASB Board Meeting
Wednesday, May 2, 2007FASB Education Session
Tuesday, May 8, 2007FASB Board Meeting
Tuesday, May 8, 2007FASB Education Session
Wednesday, May 16, 2007FASB Board Meeting
Wednesday, May 16, 2007FASB Education Session
Wednesday, May 23, 2007FASB Board Meeting
Wednesday, May 23, 2007FASB Education Session
Wednesday, May 30, 2007FASB Board Meeting
Wednesday, May 30, 2007FASB Education Session