FASB: Action Alert No. 02-25

Action Alert No. 02-25
June 20, 2002

NOTICE OF MEETINGS

OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

No Board meetings are scheduled for the weeks of June 24, 2002, and July 1, 2002. The next scheduled Board meeting is Wednesday, July 10, 2002, and topics for that meeting will be announced in the next issue of Action Alert on Wednesday, July 3, 2002.

OPEN MEETING OF THE FINANCIAL ACCOUNTING STANDARDS ADVISORY COUNCIL

Tuesday, June 25, 2002, 9:00 a.m.

FASB Offices
401 Merritt 7
Norwalk, Connecticut

The Advisory Council will meet to discuss the Board’s projects on:

  1. Revenue recognition

  2. Consolidations: interpretive guidance for certain situations

  3. Guarantor's accounting and disclosure requirements for guarantees

  4. Obligations associated with exit and disposal activities.

In addition, the Advisory Council will be briefed on the latest developments concerning the Board’s international activities and will hear reports from the chairman of the FASB on other Board activities and the chief accountant of the SEC on current accounting-related developments.

Closed to Public Observation

The Advisory Council will hold a brief closed session with the outgoing and incoming FASB chairmen to discuss administrative matters. The closed session will begin immediately after the lunch break and is expected to last until approximately 1:40 p.m., at which time the open meeting of the Advisory Council will resume.

OPEN MEETING WITH REPRESENTATIVE OF THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH

Monday, July 8, 2002, 10:00 a.m.

The Board will meet with the Financial Accounting Policy Committee of the Association for Investment Management and Research to discuss matters of mutual interest.

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 hearings, and through other communication channels. Decisions become final only after a formal written ballot to issue a final Statement or Interpretation.

June 12, 2002 Board Meeting

Obligations associated with disposal activities. The Board discussed issues raised in drafting a final Statement on the accounting for costs associated with exit and disposal activities. The Board:

  • Clarified that the scope of the Statement applies broadly to costs associated with exit activities and with disposal activities covered by FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

  • Clarified that for one-time termination benefits that are incurred over a future service period, a liability (expense) should be initially measured at its fair value as of the termination date and recognized ratably over the future service period, adjusted for changes, if any, resulting from revisions to either the timing or the amount of estimated cash flows using a catch-up approach.

  • Reconsidered its decision that in periods subsequent to initial recognition, a liability should continue to be measured at its fair value. The Board decided that instead of subsequent measurement at fair value, the liability should be adjusted for changes resulting from revisions to either the timing or the amount of estimated cash flows, discounted at the original effective rate. Interest on the liability would be accreted after that date using the original effective rate, and recognized as an expense, such as accretion expense, classified as an operating item in the income statement (or statement of activities).

  • Affirmed its decision to authorize the staff to proceed to a draft of a final Statement for vote by written ballot.

June 19, 2002 Board Meeting

Financial performance reporting by business enterprises. The Board discussed the project approach in light of the fact that a similar project is being conducted jointly by the International Accounting Standards Board (IASB) and the UK’s Accounting Standards Board (ASB). The Board decided to discuss issues in this project in approximately the same sequence and timing as the IASB and ASB, and directed the staff to use IASB and ASB staff papers as a basis for FASB discussions. The Board also directed the staff to supplement those papers with its own research and the counsel received from the Board’s task force on the project.

Business combinations: purchase method procedures. The Board discussed issues related to initial measurement of assets acquired and liabilities assumed in a business combination. The Board’s approach on this project, as developed through prior discussions, establishes fair value as the measurement objective for initial measurement of items acquired in a business combination.

The Board decided to adopt hierarchical guidance to assist preparers in determining the fair value of assets acquired and liabilities assumed in a business combination. Under that hierarchy, the fair value of assets acquired and liabilities assumed in a business combination should be determined as follows:

  1. Fair value should be determined by reference to an observable market transaction (for example, an exchange of cash for the same or similar item at or near the transaction date).

  2. If (1) is not available, fair value should be determined using valuation methods or techniques (such as present value, option pricing models, or appraisals) that incorporate market-based assumptions consistent with the objective of measuring fair value. Market-based assumptions are assumptions that market participants would consider in determining the fair value of an asset or a liability when the fair value cannot be directly observed in the market.

  3. If neither (1) nor (2) is available, fair value should be determined using valuation methods or techniques (such as present value, option pricing models, or appraisals) that incorporate assumptions not contrary to market assumptions. (As a practical matter, an entity can use its own assumptions in instances in which market-based assumptions are not available.) Assumptions are not contrary to market assumptions (that is, they are compatible with the fair value measurement objective) as long as there is no contrary information indicating that market participants would use different assumptions. If such contrary information is available, assumptions that incorporate market information should be used.

The Board also decided to explore, in more depth at a later meeting, the application of the fair value hierarchy to specific items including inventory, property, plant and equipment, and in-process research and development.

AcSEC CLEARANCE

June 19, 2002 Board Meeting

The Board met with representatives of the AICPA’s Accounting Standards Executive Committee (AcSEC) and discussed clearance of the Exposure Draft of a proposed Statement of Position, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and Separate Accounts. The Board did not object to issuance of the Exposure Draft subject to certain changes being made.

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through August. Because schedules may change, please check the FASB calendar of meetings on this website before finalizing your plans. Revisions to this list since the last issue of Action Alert are highlighted in bold.

Wednesday, July 10, 2002—FASB Board Meeting

Thursday, July 11, 2002—Liaison Meeting with the Edison Electric Institute

Wednesday, July 17, 2002—FASB Board Meeting

Wednesday, July 24, 2002—FASB Board Meeting

Wednesday, July 31, 2002—FASB Board Meeting

Friday, August 2, 2002—Liaison Meeting with the Financial Managers Society

Wednesday, August 7, 2002—FASB Board Meeting

Wednesday, August 14, 2002—FASB Board Meeting

Wednesday, August 21, 2002—FASB Board Meeting

Wednesday, August 28, 2002—FASB Board Meeting


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