Financial Accounting Standards Board (FASB) Updates

FASB Launches Verification Phase for the FASB Accounting Standards Codification
On January 15, 2008, the FASB launched the one-year verification phase of the Accounting Standards Codification. During the verification period, constituents are encouraged to use the online Codification Research System free of charge to research accounting issues and provide feedback on whether the Codification content accurately reflects existing U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. Users are advised that the Codification content is not yet approved as authoritative and, therefore, they must verify research results using their existing resources for the currently effective literature.

The Codification does not change GAAP; instead it reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics, and displays all topics using a consistent structure.

The FASB expects that the new structure and new system will; a) reduce the amount of time and effort required to solve an accounting research issue; b) improve usability of the literature thereby mitigating the risk of noncompliance with standards; c) provide real-time updates as new standards are released; d) assist the FASB with the research and convergence efforts required during the standard-setting process; and e) become the authoritative source of literature for the completed XBRL taxonomy.

Users who register at http://asc.fasb.org are able to review the Codification free of charge and provide specific content-related feedback at the individual paragraph level as well as general system-related feedback. During the verification period, Codification content will be updated for changes resulting from constituent feedback and new standards. The FASB will present a webcast about the Codification on March 13, 2008 from 1:00 – 2:00p.m. est. Registration information about the webcast can be found on FASB’s website at www.fasb.org.

Lawrence W. Smith appointed as FASB member
The Financial Accounting Foundation (FAF) made an announcement on April 9, 2007 that Lawrence W. Smith has been appointed to a five-year term as a member of the FASB beginning July 1, 2007. Mr. Smith is currently the FASB’s Director of Technical Application and Implementation Activities, and Chairman of the Emerging Issues Task Force (EITF). Mr. Smith will replace Edward W. Trott who will retire from the FASB on June 30, 2007. A news release about Mr. Smith’s appointment can be found on the FASB’s website at www.fasb.org.

Proposed FASB Staff Position (FSP) – Computational Guidance for Computing Diluted Earnings Per Share under the Two-Class Method
The FASB issued a proposed FSP that provides guidance on computing diluted earnings per share under the two-class method pursuant to FAS # 128, “Earning Per Share”. A copy of the proposed FSP is available below under related documents. IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the proposed FSP. A copy of the comment letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

Derivative Disclosures Project
The objective of the Derivative Disclosures project is to provide guidance on enhanced disclosure requirements related to derivatives accounted for in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. Additionally, the project is expected to reconsider the existing disclosure requirements under Statement 133 for relevance and applicability. An exposure draft entitled “Disclosures about Derivative Instruments and Hedging Activities” was issued on December 8, 2006. A copy of the exposure draft can be found below under related documents.

IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the exposure draft. The letter addressed 4 major concerns: 1) Need for more principles-based disclosures; 2) Excessive interim disclosures; 3) Disclosure of derivative notional amounts not efficient; 4) Gross versus net presentation of derivative positions. A copy of the letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

Robert Herz Reappointed as FASB Chairman
The Financial Accounting Foundation (FAF) made an announcement on January 23, 2007 that Robert H. Herz has been reappointed to a second five-year term as chairman on the Financial Accounting Standards Board (FASB). His term begins on July 1, 2007. In 2002, the initial year of his first appointment as FASB chairman, Mr. Herz presided over the historic Norwalk Agreement between the FASB and the International Accounting Standards Board (IASB) under which the two Boards agreed to work together to develop a common set of high-quality international accounting standards that will better serve the global capital markets. Since that time, the Boards have made significant progress, and in April 2005 they agreed that all major projects would be conducted jointly. A news release about Mr. Herz’s appointment can be found on the FASB’s website at www.fasb.org.

Invitation to Comment – Valuation Guidance for Financial Reporting
On January 15, 2007, the FASB issued an Invitation to Comment – “Valuation Guidance for Financial Reporting”. The purpose of the Invitation to Comment is to solicit comments from interested constituents about the need, if any, for valuation guidance, including related implementation guidance for financial reporting; the specificity of this valuation guidance; and the duration of standard-setting activities. The Board is also interested in getting feedback from constituents to determine if it should be the only regulatory body involved with providing such guidance. See a copy of the Invitation to Comment below under Related Documents. IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the FASB’s Invitation to Comment about Valuation Guidance for Financial Reporting. A copy of the comment letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

The FASB plans to form a resource group that will provide guidance to the board to address issues that have an impact on the valuation industry. The decision to develop the group was based on feedback the board received from constituents for their Invitation to Comment for Valuation Guidance. IMA is in the process of submitting a nomination for someone to represent the organization by serving on this resource group. The board expects to hold the first resource group meeting during the third quarter of 2007.

Proposed FASB Staff Position (FSP) – Accounting for Registration Payment Arrangements
The FASB issued a proposed FSP that addresses an issuer’s accounting for registration payment arrangements. The FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in the FSP amends FASB Statement No. 133, Accounting for Derivate Instruments and Hedging Activities, and FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to include scope exceptions for registration payment arrangements. A copy of the proposed FSP is available below under related documents. IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the proposed FSP. A copy of the comment letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

Proposed FASB Staff Position (FSP) – Determining Whether Instruments Granted in Shared-Based Payment Transactions Are Participating Securities
The FASB issued a proposed FSP that addresses whether instruments granted in shared-based payment transactions may be participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing basic earnings per share (EPS) pursuant to the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. A copy of the proposed FSP is available below under related documents. IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the proposed FSP. A copy of the comment letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

FASB joint project with American Institute of Certified Public Accountants (AICPA)
The FASB and the AICPA has issued a joint proposal intended to improve the financial reporting process for private company constituents. The organizations have issued an invitation to comment to encourage constituents to give feedback on proposed enhancements to the FASB's standard-setting procedures that would determine whether the FASB should consider differences in accounting standards for private companies within Generally Accepted Accounting Principles. The comment period ends on August 15, 2006. See copy of the Private Company Financial Reporting Proposal at www.pcfr.org.

During December 2006, an announcement was made that Judith O’Dell, President of O’Dell Valuation Consulting, LLC, CPAs, will serve as Chairperson of a Private Companies Financial Reporting Committee that will support the FASB/AICPA’s joint project for private companies. A news release was issued on March 6, 2007 announcing the membership of the committee. The committee is comprised of four CPA practitioners, four financial statement preparers, and four users of private company financial statements. A copy of the news release about membership of the private company financial reporting committee can be found on the FASB’s website at www.fasb.org.

Defined Pension Benefits and Other Post Retirement Benefit Obligations Project
The objective of this project is to comprehensively reconsider guidance in FASB Statements No. 87, "Employers' Accounting for Pensions", No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", and No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", in order to improve the reporting of pensions and other postretirement benefit plans in the financial statements by making information more useful and transparent for investors, creditors, employees, retirees, donors and other users. An exposure draft that addresses such issues was issued on March 31, 2006. The FASB issued Statement No. 158 – “Employers Accounting for Defined Benefit Pension and Other Postretirement Plans” on September 15, 2006. A copy of the statement can be found on FASB’s website at www.fasb.org. Once on the home page, proceed to click on Pronouncements & EITF abstracts on the left hand side of the page. Look for the reference of FASB Standard No. 158.

The Financial Reporting Committee (FRC) is a standing advisory committee for the Institute of Management Accountants (IMA). The committee is comprised of senior financial executives from companies of various sizes. The committee addresses IMA's views on technical issues. The FRC submitted a comment letter to respond to the FASB's exposure draft. The comment letter addressed all of the pertinent issues addressed in the exposure draft. A copy of the comment letter can be found on IMA's website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

The FASB hosted a roundtable discussion at its headquarters on June 27, 2006 to discuss issues addressed in constituents' comment letters about the exposure draft. Nancy Schroeder, CPA, from Beacon Financial Consulting, LLC served as the representative on behalf of FRC at the roundtable to discuss the committee's views about issues addressed in the exposure draft as mentioned in the comment letter. Linda Devonish- Mills, CPA, IMA's new Director of Professional Advocacy observed the roundtable.

Invitation to Comment on Insurance Accounting
The FASB issued an Invitation to Comment on insurance accounting to request information from constituents about: 1) The definition of insurance contract and insurance risk; 2) Whether insurance and reinsurance contracts should be bifurcated into insurance and deposit components; 3) If so, which insurance and reinsurance contracts would be bifurcated? and 4) How would insurance and reinsurance contracts be bifurcated? The specific issues that are expected to be addressed in comment letters can be found on the FASB website under Project Activities/Project Updates & Technical Plan/Insurance Risk Transfer. The Financial Reporting Committee of IMA submitted a comment letter to FASB to express its views on the issues addressed in the invitation to comment. A copy of the comment letter can be found on the Financial Reporting Committee section of this site.

Final 123R FASB Statement of Position
On October 10, 2006, the FASB issued a final Staff Position; FSP #123 R-5; which serves as an amendment of FSP FAS 123 R-1- "Classification an Measurement of Freestanding Financial Instruments Originally Issued In Exchange for Employee Services" under FASB Statement No. 123 (R) - "Shared-Based Payment" . A copy of the FSP is available below under related documents.

Leverage Lease Accounting Project
The FASB project related to leveraged leases is to clarify the application of FASB #13, "Accounting for Leases", to transactions classified as leveraged leases. Specifically, the project will address various issues that have arisen regarding the accounting for potential income tax settlements in connection with leveraged leases. The final FASB Staff Position was issued on July 13, 2006. A copy of the position can be found below under related documents.

The FASB and the International Accounting Standards Board (IASB) added a joint lease accounting project on their agendas on July 19, 2006. On December 7, 2006, the Boards announced the membership of the working group that will assist with work related to the project. The group consists of senior professionals with extensive experience in the leasing industry or with responsibility for the preparation, analysis and audit of financial statements of entities with significant leasing transactions. The working group’s initial meeting is scheduled to take place sometime during January 2007. A copy of the press release announcing the boards’ announcement about membership of the lease accounting working group can be found below under related documents.

Uncertain Tax Positions
The objective of the FASB project related to uncertain tax provisions is to clarify the criteria for recognition of tax benefits in accordance with FASB Statement No. 109, "Accounting for Income Taxes". The project seeks to clarify what criteria must be met prior to recognition of the financial statement benefit of a position taken in a tax return. On July 14, 2005, the FASB issued an exposure draft for the interpretation of FASB Statement No. 109, "Accounting for Income Taxes". On September 8, 2005, the FRC issued a comment letter on behalf of IMA which can be found on IMA's website under the Advocacy section/Financial Reporting Committee Position Letters. The final interpretation (FIN#48 – “Accounting for Uncertainty in Income Taxes”) was issued during June 2006. A copy of the interpretation can be found below under related documents.

The FASB issued a proposed FSP that provides for the “effective settlement” of an uncertain tax position upon the completion of an examination by a taxing authority. A copy of the proposed FSP is available below under related documents. IMA’s Financial Reporting Committee submitted a comment letter that addressed all of the pertinent issues in the proposed FSP. A copy of the comment letter can be found on IMA’s website under the Professional Advocacy section/Financial Reporting Committee Position Letters. The final FSP issued on May 2, 2007 can be found below under related documents.

Exposure Draft on Not-For-Profit mergers/goodwill
The FASB's objective for the project related to not-for-profit mergers/goodwill is to develop standards of accounting and reporting for the acquisition of another entity by a not-for-profit organization. In developing that standard, the board expects to improve the completeness, relevance and comparability of financial information about such acquisitions reported in the financial statements of not-for-profit organizations. Two exposure drafts related to the project were issued on October 9, 2006; “Not-for-Profit Organizations: Mergers and Acquisitions” and “Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition”. Comment letters from constituents that express their views on issues addressed in the exposure drafts are due for submission to FASB by January 29, 2007. An update of the project can be found on the FASB website (www.fasb.org) under Exposure documents.

Conceptual Framework Project
The conceptual framework project is a joint FASB/IASB project and will be accomplished in phases. There will be an exposure draft during the summer of 2006 dealing with the objectives of financial reporting and qualitative characteristics. Presently, there is no intent to make significant changes to the focus of financial reporting or the qualitative characteristics. In general, the framework should explain the consequences of decisions and help the public to react to exposure drafts with greater insight. With regard to cost/benefit considerations, there is likely to be greater emphasis on the benefit area, e.g., who will benefit from change and how users will use new information. With regard to the entity concept, comments received have been 95% against the concept. FRC members have expressed concern that standard setting is getting ahead of the conceptual framework. The FASB issued a preliminary views document in relation to the project on July 6, 2006. A comment letter was issued by the FRC on behalf of IMA addressing issues raised in the preliminary views document. The comment letter was issued on November 6, 2006 which can be found on the IMA website under the Professional Advocacy section/Financial Reporting Committee Position Letters. The FASB and IASB will hold roundtable discussions on measurement in conjunction with their joint conceptual framework project in three locations during January and February 2007. Two sessions in the U.S. will take place on February 1, 2007 from 9a.m. to noon and from 1:30 – 4:30 p.m. at the FASB headquarters in Norwalk, Connecticut. Go on the FASB website at www.fasb.org to register to participate in one of the sessions by November 17. Those selected to participate will be notified by e-mail by November 27. An update of the project can be found on the FASB website under Project Activities/Project Updates & Technical Plan/Conceptual Framework Project.

Fair Value Measurements Project
The FASB has concluded that fair value information is relevant and they believe users of financial statements generally have agreed. Others, however, have expressed concerns about the ability to apply the fair value measurement objective in GAAP, more recently, in response to the FASB Proposal, "Principles - Based Approach to U.S. Standard Setting". An exposure draft for a proposed statement was issued during June 2004. A comment letter was issued by the FRC on behalf of IMA addressing issues raised in the exposure draft. The comment letter was issued on September 21, 2004 which can be found on the IMA website under the Professional Advocacy section/Financial Reporting Committee Position Letters. The FASB issued Statement No. 157 – “Fair Value Measurements” during September 2006. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption is permitted. A copy of the statement can be found on FASB’s website at www.fasb.org. Once on the home page, proceed to click on Pronouncements & EITF abstracts on the left hand side of the page. Look for the reference of FASB Standard No. 157. The Financial Reporting Committee of IMA submitted a letter to the FASB for the board to consider a one year delay in implementation of FAS 157. A copy of the letter can be found on the Financial Reporting Committee section of this site.

The FASB has decided to proceed with the exposure of a proposed FASB Staff Position (FSP), “Fair Value Measurements in Business Combinations and Impairment Tests”. The proposed FSP would amend Statements 141, 142 and 144 to clarify the existing guidance in those Statements regarding fair value measurements. The proposed FSP would be effective until the reporting entity adopts FASB Statement No. 157, “Fair Value Measurements”. The proposed FSP would not require application of the guidance in Statement 157 prior to a reporting entity’s adoption of that Statement. A copy of the proposed FSP can be found below under Related Documents.

During December 2007, the FASB issued two Staff Position (FSPs) related to FASB Statement No. 157, FSP FAS 157 – A, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions”, and FSP FAS 157 – B, “Deferral of Effective Date”. The FSP related to the deferral of an effective date proposes a one year deferral of the effective date of FASB Statement No. 157 for nonfinancial assets and liabilities. A copy of the proposed FSPs can be found on the FASB’s website at www.fasb.org under Pronouncements and EITF Abstracts. The Financial Reporting Committee of IMA submitted a letter to the FASB to address their views about the FSPs. A copy of the letter can be found on the Financial Reporting Committee section of this site.

Fair Value Options Project
The FASB is considering whether to permit entities a one-time election to report certain financial and some nonfinancial instruments at fair value with the changes in fair value included in earnings. An exposure draft related to this topic was issued during January 2006. The exposure draft proposes to amend FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", to require that securities reported at fair value in accordance with Statement # 115 satisfies the financial statement presentation requirement. A comment letter was issued by the FRC on behalf of IMA addressing issues raised in the exposure draft. The comment letter was issued on April 23, 2006 which can be found on the IMA website under the Professional Advocacy section/Financial Reporting Committee Position Letters.

The FASB hosted a roundtable discussion at its headquarters on June 19, 2006 to discuss issues addressed in constituents' comment letters about the exposure draft. Linda Devonish- Mills, CPA, IMA's new Director of Professional Advocacy observed the roundtable.

The FASB issued FAS #159, “The Fair Value Option for Financial Assets and Liabilities” on February 15, 2007. A copy of the standard can be found on the FASB website at www.fasb.org. Once on the FASB home page, proceed to click on Pronouncements & EITF abstracts on the left hand side of the page. Look for the reference of FASB Standard No. 159.

Quotes from Albert King, Vice Chairman of Marshall & Stevens and member of IMA’s Financial Reporting Committee, appeared in an article that appears in the March 27, 2007 edition of Compliance Week about the Financial Accounting Standards Board’s issuance of FAS # 159, “Fair Value Option”. The name of the article is “Markets Cautiously Optimistic on Fair-Value Option", which can be found at www.complianceweek.com.

Business Combinations Project
During December 2007, the FASB issued two pronouncements, FAS# 141, “Business Combinations” and FAS #160, “Noncontrolling Interests in Consolidated Financial Statements”. The pronouncements were issued as a result of FASB’s involvement with a joint project with the International Accounting Standards Board (IASB) to address issues related to Business Combinations. The pronouncements can be found on the FASB’s website at www.fasb.org under Pronouncements and EITF abstracts.

Complexity in Financial Reporting
Senior level staff at the Securities and Exchange Commission (SEC) and FASB have expressed concerns about complexity issues related to financial reporting. Both the SEC and FASB support the concept of moving towards a simplified, more transparent, "principles-based" system to govern financial reporting instead of the current "rule-based' system that results in overly complex requirements. Senior level staff at the SEC and FASB recommends a formation of a senior level panel or commission of experts to oversee a project related to the complexity concept. The suggested timeframe for such a project would be 18-24 months for recommendations and implementation plans for recommendations would follow based on constituents' reception of recommendations. Comments made by Robert Herz, Chairman at the FASB, and Scott Taub, Acting Chief Accountant at the SEC (title during time of presentation) about this issue at the 25th annual SEC and Financial Reporting Institute Conference at the University of Southern California can be found below under related documents.

Related Documents

FASB Staff Position – “Computational Guidance for Computing Diluted EPS under the Two-Class Method”

FASB Staff Position – “Definition of Settlement in FASB Interpretation No. 48”

FASB Exposure Draft: “Disclosures about Derivative Instruments and Hedging Activities”

FASB’s Invitation to Comment – "Valuation Guidance for Financial Reporting"

FASB Press Release – “Leverage Lease Accounting Working Group”

FASB Staff Draft – “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”

FASB Staff Position – “Accounting for Registration Payment Arrangements”

FASB Staff Position – “Fair Value Measurements Guidance”

FASB Staff Position - 123R-5 – October 10, 2006
"Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services"

FASB Staff Position - July 13, 2006
“Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction”

"Conceptual Framework Preliminary Views Document" – July 6, 2006

FASB Interpretation #48 – June 2006
“Accounting for Uncertainty in Income Taxes”

FASB Chairman Calls for Senior Level Panel,
Move to Principles-Based Financial Reporting