The Financial Accounting Standards Board has outlined a productive year that includes a host of projects coordinated with the International Accounting Standards Board, an exploration into the fundamental concepts of accounting, four substantive standards projects and a half-dozen implementation documents.Arguably, FASB's most far-reaching project is its work on the Conceptual Framework. Any decisions reached on this project - which is being developed in conjunction with the IASB - would impact virtually every accounting standard that will be set in the United States and around the world.
In October of last year, FASB issued a discussion memorandum on the concepts of assets and liabilities with uncertainties, with comments requested by Jan. 3, 2006. These concepts are part of the initial part of an eight-phase approach to the Conceptual Framework, that of "elements, recognition, measurement, attributions."
In December, both FASB and the IASB tentatively agreed on a working definition of "asset." The next steps are to refine the definition for application in uncertain situations, such as that of options, and to agree on a definition of "liability" and explore its distinctions from the concept of equity.
In 2006, the board also plans an initial document on the "objectives and qualitative characteristics" phase of the framework project. The document is expected to be issued in the first quarter, but as of the beginning of the year, the board had not decided whether it would be a preliminary views document or an exposure document.
The board has just begun to deliberate concepts in the "reporting entity" phase. The first tentative decisions have dealt with the boundaries of a reporting entity.
FASB plans several joint projects with the IASB. Two such undertakings focus on business combinations - applying the acquisition method, and non-controlling interests - and will continue redeliberations based on last year's exposure drafts and roundtables.
The boards hope to eliminate existing inconsistencies in the guidance for measuring assets acquired and liabilities assumed in a business combination, and to determine whether a transaction or event other than a purchase of net assets or equity interests that results in a reporting entity obtaining control over a business should be accounted for by the acquisition method. Final statements may be issued in the fourth quarter.
The boards also plan to issue a preliminary views document on "Financial Instruments: Liabilities and Equity" by the end of the year. The IASB will not initially deliberate the issue, but will issue the FASB document to elicit comments for subsequent deliberation.
The boards are working together on a standard on financial performance reporting by business entities. Though they had expected to issue exposure documents on each of two segments of the project, in December they decided to continue work on the second segment and issue a single preliminary views document covering both segments, perhaps in the fourth quarter of 2006.
Both FASB and the IASB hope to produce a statement on the form, content, classification, aggregation and display of specified items and summarized amounts on the face of interim and annual financial statements. That includes determining whether to require the display of certain items determined to be key measures or necessary for the calculation of key measures. The project will not address management discussion and analysis or the reporting of so-called pro forma earnings, nor does it include segment information or matters of recognition or measurement.
The boards are also partnering on a large and complex project on revenue recognition. They are hoping to develop not only comprehensive guidance but improvements to the Conceptual Framework, which currently includes various inconsistencies. FASB Concepts Statement No. 6 defines revenues in terms of changes in assets and liabilities, while Concepts Statement No. 5 bases the concept on notions of realization and the completion of an earnings process. The boards hope to issue a preliminary views document in the third quarter.
FASB is also expected to issue a final statement on earnings per share in the first quarter that will converge the U.S. standard with the international standard. At about the same time, the board is expected to move toward convergence on accounting for income taxes with an exposure draft of an amendment to Statement 109. A final statement may be issued by the end of 2006.
At the same time, the board is wrapping up an interpretation of Statement 109 to clarify the recognition of income tax benefits. An exposure draft is possible in the second quarter.
Further in the future, FASB is expected to develop a standard on accounting for research and development. The FASB staff is assessing existing differences between U.S. and international standards and evaluating the feasibility of one or two narrow-scope projects to eliminate differences and improve U.S. generally accepted accounting principles. No target dates have been set.
Combinations of nonprofits
The board also plans to work on four major standards projects that are not coordinated with IASB projects. One is on combinations of not-for-profit organizations, which may appear as an exposure draft in the first quarter of 2006.
The board plans to address the perceived noncomparability that results from existing accounting standards that permit economically similar combinations to be accounted for using different methods (pooling-of-interests method or purchase method) that produce dramatically different financial information. The board concluded that acquisitions by nonprofit organizations are similar in many respects to acquisitions made by business entities.
In addition, this project will provide guidance that assists nonprofit organizations in the application of FASB Statement No. 142, Goodwill and Other Intangible Assets, and the proposed statement on accounting and reporting of noncontrolling interests in consolidated subsidiaries.
Fair value measurement
FASB is reaching the conclusion of a project on fair value measurement, with a final statement possible in the first quarter. It is widely hoped that the project will bring together and resolve inconsistencies in generally accepted accounting principles that call for fair value measurement.
FASB is also working on a project to establish general standards of accounting for, and reporting of, events that occur subsequent to the balance sheet date. Deliberations may also go on to consider whether certain minor differences between U.S. and international GAAP can be eliminated or minimized. An exposure draft is possible in the first quarter, with a final statement by the end of the year.
With some of the nation's largest corporations reconsidering their pension plans, and with many seriously underfunded, FASB has cranked up a project to possibly improve the guidance in Statement 87,
Employers' Accounting for Pensions, and Statement 106, Employers' Accounting for Post-Retirement Benefits Other Than Pensions. The board is concerned with the fact that, under these standards, important information about the financial status of a company's post-retirement benefit plans is reported in the notes to the financial statements, but not in the statement of financial position.
The board does not plan to change how pension plan asset and benefit obligations are measured, nor to change the approach for measuring the amount of annual benefit cost included in earnings. It hopes to implement improvements soon, issuing an exposure draft in the first quarter, with final standards effective for fiscal years ending after Dec. 15, 2006.
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