Revised 09/3/04—See below
Revised 09/8/04—The September 8, 2004 Board meeting will begin at 10:00 a.m.
Action Alert No. 04-34
September 2, 2004
NOTICE OF MEETINGS
OPEN BOARD MEETING
(Board meetings are available by audio webcast and telephone.)
Wednesday, September 8, 2004, 10:00 a.m.
- [Updated 9/3/04—Revised topic for discussion] Equity-based compensation. The Board will continue redeliberations of its March 2004 Exposure Draft, Share-Based Payment, an amendment of FASB Statements No. 123 and 95. The Board plans to address issues related to employee share purchase plans and disclosures. (Estimated 75-minute discussion.)
- [Updated 9/2/04—This topic will be rescheduled to a later Board meeting] Servicing rights. The Board will continue its deliberations of the disclosure requirements for servicing rights. (Estimated 1-hour discussion.)
- FASB Staff Positions (FSPs). The Board will consider the following:
- Comments received on proposed FSP FAS 142-c, “Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Exchange Memberships” and whether to direct the staff to post that FSP to the FASB website as final. (Estimated 30-minute discussion.)
- Whether to direct the staff to post to the FASB website a proposed FSP providing certain implementation guidance with respect to interest-rate impairments, and a delayed implementation date for the areas affected by the implementation guidance, under EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” (Estimated 1-hour discussion.)
- Comments received on proposed FSP FAS 142-c, “Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Exchange Memberships” and whether to direct the staff to post that FSP to the FASB website as final. (Estimated 30-minute discussion.)
- 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, September 8, 2004, immediately 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 September 15, 2004 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 or Interpretation.
August 25, 2004 Board Meeting
Equity-based compensation. The Board continued its redeliberations of its March 2004 FASB Exposure Draft, Share-Based Payment, an amendment of FASB Statements No. 123 and 95. The Board discussed methods of accounting for income tax effects of share-based payment awards, accounting for those effects in the statement of cash flows, and determining the compensatory status of employee share purchase plans. The Board made the following decisions regarding those issues.
Accounting for Income Tax Effects of Share-Based Payment Awards
The Board decided to change the accounting method for equity awards from that proposed in the Exposure Draft to the method originally promulgated in FASB Statement No. 123, Accounting for Stock-Based Compensation. Those two methods differ in the accounting for a tax benefit deficiency, which is the portion of a recognized deferred tax asset that will not be realized because the tax deduction for an award is less than the total recognized compensation cost for that award. The Exposure Draft proposed that the write-off of the portion of the deferred tax asset related to that deficiency, net of the related valuation allowance, would be recognized in the income statement. Under the Statement 123 method, that write-off, net of the related valuation allowance, is recognized in the income statement except to the extent that there is remaining additional paid-in capital from excess tax benefits from previous share-based payment awards accounted for in accordance with the fair value based method in Statement 123.
The Board affirmed its support for the proposed amendment to FASB Statement No. 95, Statement of Cash Flows, that would require excess tax benefits, as defined in the final Statement, to be reported as a financing cash inflow. The Board directed the staff to consider whether any revisions to that amendment are necessary in light of the Board’s decision to change the method of accounting for income tax effects.
Employee Share Purchase Plans (ESPPs)
The Board decided to modify the guidance for determining the compensatory status of ESPPs in the Exposure Draft. The Board decided that an ESPP is not compensatory and does not give rise to recognizable compensation cost if all of the following conditions are met:
- The ESPP satisfies one of the following criteria:
- The terms of the ESPP are no more favorable than those available to all holders of the same class of shares.
- Any discount for the purchase of shares provided under the plan results in proceeds to the employer that are not less than the proceeds it would receive in an offering of shares if the shares had been issued to third parties by other means, for example, through an underwriter.
- The terms of the ESPP are no more favorable than those available to all holders of the same class of shares.
- Substantially all eligible employees that meet limited employment qualifications may participate on an equitable basis.
- The ESPP does not incorporate option features. For example, a plan in which the purchase price is based on the share price at date of grant and that permits a participating employee to cancel participation before the purchase date and obtain a refund of amounts previously paid is a compensatory plan. The Board will consider related implementation issues at a future Board meeting.
Interpretation of Statement 143. The Board redeliberated several issues and discussed comments received on its proposed Interpretation, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations. The Board made the following decisions:
- Uncertainty about the timing and method of settlement should be factored into the measurement of the conditional asset retirement obligation rather than affect whether a liability should be recognized.
- There are no instances where a law or regulation obligates an entity to perform retirement activities but then allows the entity to permanently avoid settling the obligation.
- The final Interpretation will be effective no later than the end of the fiscal year ending after December 15, 2005. Additionally, the final Interpretation will permit but not require restatement of interim financial information during any period of adoption. The Board also decided to require both recognition of a cumulative change in accounting and disclosure of the liability on a pro forma basis for transition purposes.
The Board directed the staff to proceed to a draft of a final Interpretation for vote by written ballot.
AcSEC clearance. The Board met with representatives of the AICPA's Accounting Standards Executive Committee (AcSEC) and discussed clearance of a draft of the final AICPA Statement of Position (SOP), Accounting for Real Estate Time-Sharing Transactions. The Board did not object to issuance of the final SOP.
FASB STAFF POSITION GUIDANCE AVAILABLE
On September 1, 2004, a majority of the Board did not object to the release of final FSP FAS 142-2, “Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Oil- and Gas-Producing Entities.”
This final FSP will be available on the FASB website by the end of business on September 2, 2004, where it will remain until it can be incorporated into printed FASB literature.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through September. 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.
Tuesday, September 14, 2004—Liaison Meeting with the Institute of Management Accountants
Wednesday, September 15, 2004—FASB Informational Board Meeting on Equity-Based Compensation with Outside Representatives
Wednesday, September 15, 2004—FASB Board Meeting
Wednesday, September 15, 2004—FASB Education Session (tentative)
Monday, September 20, 2004—Liaison Meeting with the American Gas Association
Tuesday, September 21, 2004—Fair Value Measurement Roundtable Discussion
Wednesday, September 22, 2004—FASB Board Meeting
Wednesday, September 22, 2004—FASB Education Session (if needed)
Thursday, September 23, 2004—Financial Accounting Standards Advisory Council Meeting
Friday, September 24, 2004—FASB Education Session
Wednesday, September 29, 2004—FASB Board Meeting
Wednesday, September 29, 2004—Emerging Issues Task Force Meeting
Thursday, September 30, 2004—Emerging Issues Task Force Meeting