Don't expect many heavy pronouncements from the Financial Accounting Standards Board during the second half of 2006, but behind the scenes there will be a lot of progress and a good number of lesser documents on technical implementation.The only final statement on accounting standards projected for the remainder of the year is on post-retirement benefit obligations, including pensions. A comment period on the proposed standard ended in May; roundtable discussions were scheduled for the end of June.
If the redeliberations go well, a final statement may be issued in the third quarter.
That first phase of the post-retirement benefit obligations project is of relatively limited scope, amending or replacing FASB Statement 87, Employers' Accounting for Pensions; Statement 88, Employers' Accounting for Settlements and Curtailments of Defined-Benefit Pension Plans and for Termination Benefits; Statement 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions; and Statement 132, Employers' Disclosures about Pensions and other Post-Retirement Benefits.
The second phase of the project, on subsequent events, would be more complex. It will deal with events that occur subsequent to the balance-sheet date. Deliberations will begin once the first phase has been completed, and at that time the board will set a target date for an exposure draft.
The CFA Institute, which advocates for investors and users of financial statements, filed an early comment letter on Phase 1, supporting the project and its tentative conclusions.
"[We] urge the board to stand firm on the proposed changes, and not to delay implementation of these changes," the letter stated. "Moreover, we hope that the board will proceed expeditiously in completing Phase 2 of this project to improve measurement of a company's current obligation and to reflect completely the effect that defined-benefit plans have on a company's financial condition."
Insurance and reinsurance
At the end of May 2006, the board issued an invitation to comment on the possible bifurcation of insurance and reinsurance contracts into insurance components and financing components. (For more, see "FASB seeks comments on insurance contracts acct'g," page 14.) Current standards allow both to be combined and accounted for as simply "insurance contracts." Standards also provide only limited guidance on how policyholders should account for insurance contracts.
Comments are requested by Aug. 24, 2006.
Late summer should also see an exposure draft of a proposed statement on accounting for income taxes. The project is a part of a short-term convergence effort with the International Accounting Standards Board. The project is moving to adjust American and international standards to make them more similar. A final statement, however, is not expected until the second quarter of 2007.
Work continues on the board's conceptual framework, the philosophical underpinnings of its standards and guidance. The board spent the second quarter of 2006 putting the finishing touches on an exposure draft on objectives and qualitative characteristics, but it is not predicting when it might unfurl a final document. Meanwhile, it will spend the next year working up two invitations to comment - one on elements, recognition and measurement attributes, and another defining the reporting entity.
FASB senior project manager Ronald Bossio said that progress on this long, complex project is "moving along fine," though of course much remains to be done.
"The measurement phase is probably where the most difficult stuff is coming up," Bossio said. "What attribute is the most relevant measure, should you do re-measurements, how frequently, and all those kinds of questions."
FASB is working jointly with the IASB as both build on their existing frameworks, refining, updating, completing and, ultimately, converging them into a common framework. The project has seven phases, each resulting in an initial document issued for comment.
Working for 2007
With no additional major pronouncements scheduled for this year, the board will spend the next six months to a year in discussions that will not yield documents until 2007.
One of the bigger of these expected statements is a two-part project on business combinations, both being hammered out in conjunction with the IASB. One, on non-controlling interests, will classify minority interests in consolidated statements and set the accounting for and reporting of transactions between parents and holders of minority interests.
The other part of the project, on applying the acquisition method, will define the scope of the project so that similar economic events are accounted for similarly. It will clarify which assets and liabilities should be recognized, and how they should be measured.
In a related project not in conjunction with the IASB, the board is about to issue an exposure draft of a proposed standard on mergers and acquisitions of not-for-profit organizations. The proposed standard will help not-for-profits apply FASB Statement 142, Goodwill and Other Intangible Assets, and will address the perceived noncomparability that results from economically similar combinations being accounted for under the pooling-of-interests method, as opposed to the purchase method.
Following a four-month comment period, the board will hold a roundtable meeting to discuss the proposal. No timetable for a final document has been established.
The board will also spend the next year working on a preliminary views document on financial instruments. The objective is to develop a comprehensive standard on accounting for and reporting of instruments with characteristics of equity and of liabilities, assets, or both. The next few months will be dedicated to developing two approaches to making the liability and equity distinction.
FASB and the IASB expect to issue simultaneous preliminary views documents in the second quarter of 2007, and to then work together toward a common standard.
Another joint FASB/IASB project, on financial statement presentation, may produce a preliminary views document in the first quarter of 2007. The objective of the standard is to present information in financial statements that makes it easier to understand financial positions and past activities that cause financial positions to change, and to assess future cash flows.
The board's complex project on revenue recognition and liability extinguishment may yield a PV document by the second quarter of next year. The board needs to iron out inconsistencies in its conceptual framework while it coordinates 200 related standards and pronouncements from half a dozen other standards-setters.
Discussions on revenue recognition during the rest of 2006 should focus on assessing when contract performance has occurred, identifying the unit of account for partially executory contracts, and determining whether performance obligations should be re-measured for nonperformance-related events. The board will also begin considering an alternative approach that would use fair value to measure obligations to deliver goods and services that have readily determinable fair values.
The board and its staff also plan to issue a slew of papers and pronouncements on the application and implementation of existing accounting standards.
One of the most significant implementation projects aims to simplify and clarify the guidance in Statement 140, on accounting for transfers of financial assets. The board is considering the comments received on an exposure draft, and hopes to issue a final statement in the first quarter of 2007.
The board also plans to issue more guidance on enhanced disclosure requirements and the balanced sheet and income statement display of derivatives. An exposure draft is expected in the third quarter of this year.
FASB'S TO-DO LIST
Upcoming FASB staff positions
* Useful Life and Amortization of Intangible Assets - final FSP, third quarter 2006
* Financial Guarantee Insurance - final FSP, third quarter 2006
* Offsetting Cash Collateral against Secured Obligations - exposure draft of FSP, third quarter 2006
* Statement 133 Implementation Issue - Convertible Debt with Elements of Foreign Exchange Risk - proposed implementation issue, third quarter 2006
* Statement 133 Implementation Issue - Hedging Proceeds to Be Received from a Forecasted Foreign Currency Denominated Debt Issuance - proposed implementation issue, third quarter 2006
* Statement 133 Implementation Issue - Whether Interest Cash Flows on Variable-Rate Assets or Liabilities Are Explicitly Based on an Index That Is Not a Benchmark Interest Rate - proposed implementation issue, third quarter 2006
* Statement 133 Implementation Issue - Clarification of the Application of the Shortcut Method - proposed implementation issue, third quarter 2006
Upcoming research projects
* Accounting for insurance contracts
* Financial instruments
* Consolidations: Policy and procedure
* Share-based payment
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