Action Alert No. 08-27 July 3, 2008

FASB: Action Alert No. 08-27

Action Alert No. 08-27
July 3, 2008

NOTICE OF MEETINGS

OPEN BOARD MEETING
(Board meetings are available by audio webcast and telephone.)

No Board meetings are planned for the week of July 7, 2008. The next scheduled Board meeting is Wednesday, July 16, 2008.

OPEN EDUCATION SESSION

Thursday, July 10, 2008, 9:00 a.m.

The education session will be held on Thursday instead of Wednesday.

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.

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, FSP, or Statement 133 Implementation Issue.

June 25, 2008 Board Meeting

Conceptual framework: elements and recognition. As part of its joint project with the IASB, the Board considered how to determine when statutes, laws, and regulations give rise to a liability and how to deal with uncertainty when ascertaining the existence of a liability.

Statutes, laws, and regulations

The Board noted that an entity may be subject to the requirements of a statute, law, or regulation, yet a government or other party cannot enforce those requirements until the entity violates the statute, law, or regulation or until an event occurs that triggers the requirements. The Board discussed three examples—an environmental obligation, a statutory warranty, and a speeding ticket—and decided the following:

  1. An entity does not have a present unconditional obligation to comply with a statute that is not yet effective.

  2. An entity does not have a present unconditional obligation for future actions it expects or intends to take but cannot be compelled to take.

  3. An entity does not have a present unconditional obligation to transfer economic resources merely because it must comply with the law. An obligating event must also have occurred.

  4. An entity has a present unconditional obligation at the reporting date when the entity violates a requirement or when another obligating event has occurred.

  5. An entity has a present unconditional obligation that has an associated conditional obligation (a stand-ready obligation) when a statute requires the entity to provide risk protection. That requirement results in an implicit contractual obligation between the two parties.

  6. An entity has a present unconditional obligation that has an associated conditional obligation when the entity separately agrees to bear another’s risk that arises from being subject to a statute.

Dealing with uncertainties

Uncertainties result from situations where evidence is lacking or facts are unclear. The Board considered whether to address uncertainties about whether a liability exists in the guidance accompanying the definition or in the criteria for recognition. The Board decided to address uncertainty in the guidance accompanying the definition. The Board decided that if an entity is uncertain about whether a liability exists, that entity should make a neutral judgment based on its understanding of the facts and circumstances at the end of the reporting period. If it is judged that a liability exists, uncertainty about the amount of the liability would be taken into account in measurement. The Board also decided that additional guidance should be developed on how those judgments can be made in a comparable manner at a standards level.

The Board considered additional situations to evaluate the robustness of the working definition of a liability. With regard to the proposed working definition of a liability, the Board directed the staff to consider revising the definition (1) to include an additional reference that an economic obligation must be unconditional and (2) to replace the description that an economic obligation is something that is capable of resulting in “cash outflows or reduced cash inflows, directly or indirectly” with “provision of an economic resource.” Also, the Board agreed with the summary of tentative decisions made to date and its proposed working definition, including the suggested revisions above, as a basis for drafting those aspects of the discussion paper on elements and recognition.

The IASB discussed these issues and proposals about the proposed working definition of a liability and reached similar conclusions at its meeting on June 20, 2008.

FASB ratification of EITF consensuses and tentative conclusions. The Board considered and ratified the following consensuses reached at the June 12, 2008 EITF meeting:

  1. Issue No. 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock"

  2. Issue No. 08-3, "Accounting by Lessees for Nonrefundable Maintenance Deposits"

  3. Issue No. 08-4, "Transition Guidance for Conforming Changes to Issue No. 98-5."

The Board also considered and ratified the consensus-for-exposure reached at the June 12, 2008 EITF meeting on Issue No. 08-5, "Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement."

The FASB chairman announced the removal of the following issues from the Task Force’s agenda:

  1. Issue No. 02-D, “The Effect of Dual-Indexation both to a Company's Own Stock and to Interest Rates and the Company's Credit Risk in Evaluating the Exception under Paragraph 11(a)(1) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities

  2. Issue No. 08-2, “Lessor Revenue Recognition for Maintenance Services.”

Agenda decision announcement. The FASB chairman announced the removal from the Board’s agenda of proposed Statement 133 Implementation Issue No. C21, “Whether Options (Including Embedded Conversion Options) Are Indexed to both an Entity’s Own Stock and Currency Exchange Rates,” because that issue was resolved by the consensus in EITF Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock.”

FUTURE OPEN MEETINGS

The following is a list of open meetings tentatively scheduled through August. 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, July 16, 2008—FASB Board Meeting
Wednesday, July 16, 2008—FASB Education Session
Wednesday, July 23, 2008—FASB Board Meeting
Wednesday, July 23, 2008—FASB Education Session
Wednesday, July 30, 2008—FASB Board Meeting
Wednesday, July 30, 2008—FASB Education Session
Wednesday, August 6, 2008—FASB Board Meeting
Wednesday, August 6, 2008—FASB Education Session
Wednesday, August 13, 2008—FASB Board Meeting
Wednesday, August 13, 2008—FASB Education Session
Wednesday, August 20, 2008—FASB Board Meeting
Wednesday, August 20, 2008—FASB Education Session
Wednesday, August 27, 2008—FASB Board Meeting
Wednesday, August 27, 2008—FASB Education Session