Transcript Document

What’s going on at the FASB
Spring 2003
Prepared for the Southern Gas Association Executive Conference on April 28,
2002. Robert E. Jensen, Trinity University, San Antonio, TX 78212
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Topics Selected for Discussion
• Who is the FASB?
– Our Mission
– Impact of Sarbanes-Oxley
• Certain Documents Effective 2002/2003
– Statements 143, 146, 147 and 148
– FINs 45 and 46
• Next Documents to be Issued
– Statements 149 and 150
• Projects on the Agenda
• Other Items
– FASB Staff Positions (FSPs)
– Improving Standards (Principle-based Standards)
– Convergence
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Who is the FASB?
• Private-sector standard setter that provides guidance for
accounting and financial reporting by public and nonpublic entities.
• Not an Oversight Body — no enforcement power.
• Formed in 1973 and recognized by the SEC and the
AICPA as the creator of GAAP.
– Public Companies
– Private Companies
– Not-for-Profit Entities
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Our Mission
• To establish and improve standards of financial accounting
and reporting for the guidance and education of the public,
including issuers, auditors and users of financial
information.
• Accounting standards are essential to the efficient
functioning of the economy because decisions about the
allocation of resources rely heavily on credible, concise,
transparent and understandable financial information.
• Good financial and business reporting reduces the
uncertainty premium charged by investors and lenders.
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Impact of Sarbanes-Oxley
• FASB expects to be Recognized as Private Sector
Accounting Standard Setting Body.
• FAF selects members of FASB (unlike PCAOB).
• FASB is separate from the PCAOB and neither reports to
the other.
• Public companies will be billed for the cost to operate the
FASB and the PCAOB.
• SEC to Report to Congress on Principle-Based Standards
and Off-Balance Sheet Entities.
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Certain Documents Effective
2002/2003
• Statement 143, Accounting for Asset Retirement Obligations
• Statement 146, Accounting for Costs Associated with Exit or
Disposal Activities
• Statement 147, Acquisition of Certain Financial Institutions
• Statement 148, Accounting for Stock-Based Compensation –
Transition and Disclosure
• FIN 45, Guarantor’s Accounting and Disclosure
Requirements for Guarantees
• FIN 46, Consolidation of Variable Interest Entities
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Statement 143, Accounting for Asset
Retirement Obligations
• Reason issued – to recognize a liability when it is incurred
that previously was not recognized until later.
• Issued June 01; Effective – fiscal year beginning after
6-15-02.
• Initial application results in recognition of:
– a liability (initially at fair value)
– higher cost and accumulated depreciation amounts
– cumulative effect of accounting change.
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Statement 146, Accounting for Costs
Associated with Exit or
Disposal Activities
• Reason issued – to replace Issue 94-3 and to recognize
liabilities when they have been incurred and not before.
• Issued June 02; Effective for activities initiated after
12-31-02.
• Specific guidance for:
– One-time Termination Benefits (usually a staybonus)
– Contract Termination Costs (lease termination)
– Other associated costs.
• Extensive disclosure requirements.
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Statement 147, Acquisition of
Certain Financial Institutions
• Reason issued – to remove all but mutual combinations
from Statement 72 and FIN 9 and put certain customerrelationship intangibles into the scope of Statement 144
(impairment of long-lived assets).
• Issued October 02; Effective October 1, 2002.
• The Statement 72 intangible asset is treated as goodwill
under Statement 142. Branch acquisitions are discussed.
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Statement 148, Accounting for
Stock-Based Compensation –
Transition and Disclosure
• Reason issued – to provide additional transition alternatives
for switching from the intrinsic method to the fair value
method for stock-based employee compensation and to
improve disclosures.
• Issued December 02; Alternatives and annual disclosures are
effective for fiscal years ending after 12-15-02; interim
disclosures are effective for interim periods beginning after
12-15-02.
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FIN 45, Guarantor’s Accounting and
Disclosure Requirements for
Guarantees
• Reason issued – to improve disclosures with respect to
information about guarantees, the identification of what is a
guarantee and to improve accounting by requiring
recognition of a liability when incurred.
• Issued November 02; Disclosure requirements effective for
interim or annual periods ending after 12-15-02; recognition
effective for guarantees issued or modified after 12-31-02.
• Guarantees are initially recognized at their fair value.
Discussion of subsequent accounting and what in the debit
is provided.
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FIN 46, Consolidation of Variable
Interest Entities
• Reason issued – to identify entities where applying the
majority of voting interest approach is not effective (VIEs)
and providing an approach to use for those entities.
• Issued January 03; Effective for new VIEs upon issuance
and for existing VIEs at the beginning of the first interim or
annual period beginning after 6-15-03. For nonpublic
entities it is effective for existing VIEs at the end of the
annual period beginning after 6-15-03.
• VIEs do not have sufficient equity investment at risk to
permit the entity to finance its activities without additional
financial support or the holders of the equity investment
lack any one of the the 3 characteristics of a controlling
financial interest.
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FIN 46, Consolidation of Variable
Interest Entities (cont’d.)
• An enterprise that has variable interests that will :
– absorb a majority of the VIE’s variability in its expected
losses (tie breaker),
– receive a majority of the variability in its expected
residual return, or
– both
is the VIE’s Primary Beneficiary and must consolidate.
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Next Documents to be Issued
• SFAS 149, Amendments to Statement 133
– Incorporates various DIG issues into the Statement.
– Clarifies the definition of a derivative (paragraph 66).
– Effective 6-30-03.
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Next Documents to be Issued (cont’d.)
• SFAS 150, Liability and Equity Instruments
– The following instruments that have been treated as
equity will be treated as liabilities:
(1) Instruments that are mandatorily redeemable on a
fixed or determinable date or upon an event certain
to occur.
(2) Obligations to repurchase an issuer’s equity shares
(forward purchase contract or written puts) that must
be physically or net cash settled.
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Next Documents to be Issued (cont’d.)
(3) Obligations that the issuer must or could settle by
issuing a variable number of its equity shares when
the obligation’s monetary value is fixed or varies on
something other than equity values (accounts
payable or accrued expense) or the variation is not in
the same direction as equity values (written puts with
net share settlement.
– For public companies SFAS 150 probably will be
effective for annual or interim periods beginning after
6-15-03. For nonpublic companies mandatorily
redeemable instrument probably will be effective for
annual periods beginning after 12-15-03.
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Projects on the FASB’s Agenda
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Stock-Based Compensation
Pension Disclosures
Disclosures about Fair Value of Financial Instruments
Liabilities and Equity (Phase II)
Financial Performance Reporting
Revenue Recognition
Short-term International Convergence
Purchase Method Procedures
Combinations of Not-for-Profit Organizations
Combinations of Mutuals
Consolidation
What can a QSPE do with respect to Reissuance of BI
What does “legally released from being the primary
obligator” mean?
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Selected Projects
• Share-Based Compensation – working with IASB; goal is to
get the same approach and have it effective as of 1-1-04.
• Pension Disclosures – will focus on information about plan
assets and the population of persons to receive pension
payments. Also, some quarterly information and where the
expense is recorded in the I/S.
• Liabilities and Equity (Phase II) – how to treat instruments
with both liability and equity elements; try to get
convergence.
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FASB Staff Positions (FSPs)
• New way to provide guidance on applying GAAP.
• Provides for due process and access.
• Look for FSPs website and get notice of posting from the
e-mail Action Alert.
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Improving Standards
• Document on Principles-Based Standards issued fall 2002;
Roundtables held and comment letters received.
• Shifting focus to “how to improve standards” by addressing
issues raised by our constituents.
• SEC doing a study.
• Changing relationship of FASB with EITF and AcSEC.
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Convergence
• Working with the IASB on the following joint projects and
parallel projects.
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Revenue Recognition
Purchase Method Procedures
Stock-Based Compensation
Reporting Financial Performance.
• Both the FASB and IASB have a short-term convergence
project to focus on matters not otherwise covered in a
major project.
• All FASB projects and EITF issues consider convergence.
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