Action Alert No. 06-03
January 19, 2006
NOTICE OF MEETINGS
OPEN BOARD MEETING
meetings are available by audio webcast and telephone.)
Wednesday, January 25, 2006, 8:00 a.m.
The Board meeting will begin at 8:00 a.m. instead of 9:00
settlements (estimated 30-minute discussion). The Board
will discuss the remaining two issues on the proposed FSP TB 85-4-a,
“Accounting for Life Settlement Contracts by Investors.” The Board will
focus on whether an entity should be required to disclose an actual
versus expected mortality and whether an entity should be required to
disclose the averaged expected remaining term of the life settlement
value measurement (estimated 1-hour discussion). The
Board will discuss issues raised by external reviewers on the October
21, 2005 working draft of the fair value measurements final Statement,
including issues relating to the fair value hierarchy, disclosures, and
effective date and transition.
combinations (estimated 2 1/2-hour discussion). The Board
will discuss the comment letters received on its Exposure Drafts,
Business Combinations, and Consolidated Financial Statements,
Including Accounting and Reporting of Noncontrolling Interests in
- Transfers of
financial assets (estimated 15-minute discussion). The
Board will discuss the disclosure requirements related to the election
to subsequently measure a class of servicing rights at fair value.
- 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, January 25, 2006, 1:00 p.m.
The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the February 1,
2006 Board meeting. Those topics will be posted to the FASB calendar four
days prior to the education sessions.
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
January 11, 2006 Board Meeting
tax positions. The Board decided:
- On subsequent recognition and measurement that:
- The best estimate of recognized tax benefits at each reporting
date would represent management’s best estimate given the information
available at the reporting date, even though the outcome of the tax
position is not absolute or final.
- Subsequent recognition, derecognition, and measurement should be
based on new information.
- The guidance in APB Opinion No. 28, Interim Financial
Reporting, and FASB Interpretation No. 18, Accounting for Income
Taxes in Interim Periods, would apply in accounting for changes in
judgments about the recognition and measurement of tax benefits during
interim periods, unless other U.S. GAAP applies to the situation.
- Disclosure issues will be addressed at a future Board meeting.
- On interest and penalties:
- A liability for interest and/or penalties would be recognized as
deemed to be incurred based on the provisions of the tax law, that is,
the period for which the taxing authority would begin assessing
interest and/or penalties.
- The amount of interest expense recognized will be based on the
difference between the amount recognized in the financial statements
and the benefit recognized in the tax return. That estimate will not
consider examination risk.
- The final Interpretation will not provide guidance on the
classification of interest or penalties in the income statement.
Entities will be required to establish a policy for classification of
such amounts, disclose that policy in the summary of significant
accounting policies, and also disclose the amount of interest and
penalties recognized in the financial statements.
- The liability recognized pursuant to the final Interpretation would
be classified as a current liability to the extent that cash payment is
expected to occur within 12 months or the operating cycle, if longer.
- The change in net assets as a result of applying the provisions of
the final Interpretation will be considered a change in accounting
principle with the cumulative effect of the change treated as an
offsetting adjustment to the opening balance of retained earnings in the
period of transition.
- The final Interpretation will be effective as of the beginning of
the first annual period beginning after December 15, 2006. Early
application is encouraged provided the entity has not publicly released
financial statements for the period of initial application.
04-6. The Board did not object to the proposed editorial change to
clarify the definition of the production phase of a mine in
paragraph 4 of EITF Issue No. 04-6, "Accounting for Stripping Costs
Incurred during Production in the Mining Industry."
classification. The Board decided to add a project to its agenda
to address the classification guidance in paragraph 32 of FASB Statement
No. 123 (revised 2004), Share-Based Payment, for options or similar
instruments that require or permit cash settlement upon the occurrence of
certain contingent events. The Board discussed two alternatives (a
probability and a grandfathering approach) and directed the staff to
develop a probability approach. That approach would amend the
classification guidance in paragraph 32 of Statement 123(R) for options or
similar instruments. The probability approach would require an entity to
assess the probability of a contingent cash settlement event occurring.
That is, an option or similar instrument would be classified as equity
until the contingent cash settlement event was probable of occurring. That
assessment would be consistent with the classification guidance provided
in footnote 16 of Statement 123(R) for a repurchase feature on a puttable
share that can be exercised only upon the occurrence of a contingent event
outside the employee’s control.
The Board also decided:
- The guidance would be issued as an FASB Staff Position (FSP).
- The guidance in the proposed FSP would be applied upon the initial
adoption of Statement 123(R). An entity that adopted Statement 123(R)
prior to the issuance of this FSP would apply the guidance in this FSP
in the first reporting period beginning after the date the FSP is posted
to the FASB website. If in applying Statement 123(R) an entity treated
options or similar instruments that allow for cash settlement upon the
occurrence of a contingent event in a manner consistent with the
guidance in the proposed FSP, then the entity would not be required to
restate prior periods. However, if in applying Statement 123(R) an
entity treated options or similar instruments that allow for cash
settlement upon the occurrence of a contingent event in a manner
inconsistent with the guidance in the proposed FSP, then the entity
would be required to restate prior periods giving consideration to the
guidance in the proposed FSP. Early application of this guidance would
be permitted in periods for which financial statements have not yet been
- The comment period would be 15 days.
The Board directed the staff to proceed to a draft of a proposed FSP
for vote by written ballot. (Proposed FSP FAS 123(R)-d was posted to the
FASB website on January 16, 2006.)
FASB DOCUMENT AVAILABLE
FSP FAS 123(R)-d, “Classification of Options and Similar
Instruments Issued as Employee Compensation That Allow for Cash Settlement
upon the Occurrence of a Contingent Event,” was issued and posted to the
FASB website on January 16, 2006. Comments are requested by January 31,
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.
Monday, January 30, 2006—Liaison Meeting with American Bar
Wednesday, February 1, 2006—FASB Board
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