Wednesday, July 16, 2008

FASB Removes 140 Exception; Moves on Pension Disclosures, Rev Rec

At today’s (July 16) FASB board meeting, the board:

- Voted to remove the practicability exception for measuring fair value in FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Pat Donoghue, project leader on the FAS 140 amendment project, said she expects to provide the board with a pre-ballot draft of the amendments next week, and a draft of updates to related Q&As shortly thereafter. [Note: as previously reported, related amendments are being made to FIN 46R, Consolidation of Variable Interest Entities.]

- Agreed there should be somewhat more granularity – at least from a qualitative standpoint - in disclosing subcategories of plan assets in the proposed amendment (proposed FSP) to FAS 132R on “Disclosures About Postretirement Benefit Plan Assets,” but differed in how much specificity to provide in the standard. Board Member Tom Linsmeier noted that if FASB were to delineate more specific subcategories, it would be a “drastically different approach” than in the proposed FSP. One alternative posited by FASB staff was whether companies should have to “look through” into the holdings of mutual funds or alternative investment funds (e.g. hedge funds), but the board appeared to reject that requirement. A question of whether additional disclosure of concentrations should be required was also discussed; Board Member Larry Smith gave some examples of how such requirements could be written, but observed, “If you want to see more, pull the 5500,” adding, “Let’s not forget how long the pension footnote is in financial statements today.” To move the project along, the board directed the staff to draft two separate examples of tables with different types of categories and different qualitative disclosures to show there is not necessarily “one way” to break down further detail in the tables, but that both ways could meet a common objective or principle. After looking at the tables, the staff will then try to express what that common principle is. Additionally, although not formally deliberated today, the staff indicated they are considering recommending a delayed effective date on the standard, (to fiscal years ending after 12/15/09) and would bring that recommendation to the board at a future meeting as well as proposed fair value disclosures for pension and postretirement benefit plans).

- Agreed that staff should proceed in drafting a Discussion Document (DD) for the Revenue Recognition (Rev Rec) project – a joint project with the IASB - and that the comment period on the DD should be a minimum of 4 months. Initially launched as a joint “conceptual framework project,” the project has been fast-tracked in the sense that the boards now aim to issue a general revenue recognition “standard” by June 2011, as noted on pdf page 2 of FASB’s board handout. The standard as currently envisioned, focusing on a ‘customer consideration’ approach, would replace IAS 18, Revenue, IAS 11, Construction Contracts, and “much of the revenue recognition literature in the U.S.” As further described in FASB’s board handout, the new standard is likely to bring about “significant change[s]” to current practice. Examples provided in para. 18 of the handout note such areas would include accounting for multiple element contracts and software revenue recognition. FASB Chairman Robert Herz noted the proposal would “change radically” the treatment of deferred costs. He also noted it would be a significant change to existing “practice of accelerating portions of revenue to match upfront costs,” as used for construction contracts and certain other practices. There was a great deal of discussion in the meeting as to whether only items with “contracts” were in the scope of the standard, as well as whether only contracts with “customers” or contracts with “counterparties” – such as financial instruments, were included. Additionally there were questions on whether the scope applied only to contracts for “goods and services” or to “rights” – and if “services” included “rights." It appeared these issues would be clarified in drafting, potentially with specific comment requested in the DD, although it is possible some of these questions may be put to a vote by the board before the DD is issued.

We have posted further details on today's FASB board meeting in FEI summaries here (pension/postretirement disclosures) and here (FAS 140 and Rev Rec). The detailed summaries can be downloaded by FEI members only (one of the perks of membership!) find out more about joining FEI.

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