Download Panel_2_-_Leslie_Seidman

FASB Update
Baruch College
Financial Reporting Conference
May 3, 2007
Leslie F. Seidman
The views expressed in this presentation are my own and do not
represent positions of the Financial Accounting Standards Board.
Positions of the FASB Board are arrived at only after extensive due
process and deliberations.
Agenda
• Agenda Snapshot
• Guidance Expected to Be Issued
in 2007
• Longer-term Projects
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Converging Projects
Joint Projects:
• Conceptual Framework
• Acquisition Method and Noncontrolling
Interests
• Leasing
• Presentation of Financial Statements
• Revenue Recognition
Modified Joint Projects:
• Liabilities and Equity (FASB leading)
• Fair Value Measurement (FASB led)
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Converging Projects (cont’d)
“Short-term” Convergence Projects:
• Earnings per Share
• Income Taxes
Convergence Pipeline
• Insurance (FASB ITC?)
• Consolidations (FASB ITC?)
• Internally generated intangible assets
• Pensions: Phase 2 (Joint?)
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FASB-Only Projects
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Combinations of Not-for-Profit Organizations
Statement 140 Revisions
Derivative Disclosures
Financial Guarantees
Insurance Risk Transfer
Research and Development
Loan Disclosures
Emission Allowances
Numerous FASB Staff Positions, EITF Issues
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Guidance Expected to Be
Issued in 2007
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Business Combinations and
Noncontrolling Interests
• The Boards confirmed much of the guidance that was
proposed in the June 2005 Exposure Drafts
• Overall principles reaffirmed in redeliberations:
• Record 100% of the assets acquired and liabilities assumed
at FV on acquisition (control) date, not just the % purchased.
– New guidance on noncontractual contingencies
• Transactions involving noncontrolling (minority) interests are
equity transactions; no gains/losses as long as still in control
• In a step acquisition/disposition, remeasure previous
holdings (in earnings) upon gaining or losing control.
• Final Statements expected to be issued in 3Q 2007.
Effective date: Fiscal years beginning after 12/15/08
(1/1/09 for calendar year co’s)
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Derivatives Disclosure
• Investors dissatisfied with disclosures about
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derivatives, primarily in nonfinancial sectors
Will require (for all entities):
– More narrative disclosure
– Detailed quantitative information by risk (including
notionals)
– Info about where amounts are reported in balance
sheet and income statement
• Comments in on Exposure Draft; will begin
redeliberations in 2Q ‘07
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FAS 133,
Critical Terms Match ¶65
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Board is aware of practice issues, esp. FX
FASB staff is researching
Board meeting on scope alternatives in May
Possibilities:
– Clarify paragraph 65
– Reconsider paragraphs 65 and 68 together
– Fundamentally reconsider hedging by risk (in
light of FVO).
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FAS 133,
Short-Cut Issues ¶68
– Proposed clarifications of shortcut issues:
– Trade date/settlement date differences: OK
– Market conventions (rounding coupons) that
result in slight premiums and discounts: OK
– Hedges of other debt instruments whose
carrying amount ≠ par (a.k.a. “late
hedging”): NOT OK
– Zero-coupon instruments: NOT eligible
• Expect to issue Draft DIG Issue in 2Q;
60 day comment period
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Longer-term Projects
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Accounting for Leases
• Current GAAP: “All or nothing” evaluation of whether
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leased asset has been sold.
Investors routinely add operating leases to lessee
balance sheets using incomplete disclosures
Possible new approach: What are the assets and
liabilities relating to the lease contract? Present value
of expected lease payments?
Implications for lessors (revenue recognition)
– Is there a point where enough of the benefits/risks been
transferred that the original asset should no longer be
recognized?
• Goal is Preliminary Views document in 2008 (not an
Exposure Draft)
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Financial Statement Presentation
• Establish a common standard for presentation of
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information in the financial statements to facilitate
financial analysis and investment decisions.
Criticism of existing practices:
– Categories in financial statements do not “track” with each
other (e.g., Cash Flow Statement categories do not relate to
presentation on Balance Sheet or Income Statement)
– “Core” and “Noncore” items are intermingled, making it
harder to forecast
– Not enough information about the nature of income
statement items, most currently organize by functional
categories, which group unlike items (SG&A)
– Different accounting methods are grouped, such as accruals
and value changes
• Expect to issue Preliminary Views document in 3Q
2007
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Revenue Recognition
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Current guidance is voluminous, industry-specific
and inconsistent
Developing 2 competing models:
1) Revenue = Customer consideration; allocate to
2)
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deliverables and recognize as obligations are satisfied
Revenue = Sum of Fair Value of obligations (using exit
price, not actual price); recognize any difference from
contract price up front. Then, recognize revenue as value
of obligations change
Goal is to issue a Discussion Paper with both
approaches in 3Q 2007
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Liabilities and Equity
• Key problem: Equity hybrids and derivatives have
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vastly different reporting based on minor differences
in terms
Developed 3 approaches:
– Ownership/Settlement (poss. cash settlement trumps)
– Narrow View of Equity (only common stock)
– Reassessed Expected Outcomes (at every reporting date,
allocate between debt and equity based on likelihood of
settlement in stock)
– Underlying concepts differ
– Which improves information to investors?
• Goal is to issue either Preliminary Views or
Discussion Memo in 3Q 2007 (IASB likely ITC)
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Sources of Information
• The FASB website www.fasb.org
– Project updates
– Effective dates
– FSPs
– Exposure drafts
– EITF material
– Original Statements
– Live webcasts
– Minutes of Board mtgs
• Sign up for a weekly e-mail from the FASB (under
Action Alert on left side of home page).
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