FASB Issues Some Standards and Proposes Others
By Linda Cavanaugh, CPA - I am really far behind in my reading and I thought I would just give you a quick update on what is going on in the FASB realm.
FAS 161 - Derivative Disclosures
This is a new standard that is effective for fiscal years beginning after December 15, 2008. It requires tabular disclosures of derivatives by risk group. Much more to come later.
FAS 163 - Accounting for Financial Guarantee Insurance Contracts
This new standard is effective for fiscal years beginning after December 15, 2008 and is in response to the recent credit market meltdown. Statement 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. I know nothing about insurance contracts, so I will try to summarize this one later this year.
FSP EITF 03-6-1 - Determining Whether Instruments Granted in Share-Based Payment Transaction are Participating Securities
This one was proposed in 2004 and is just now being approved. It is effective for fiscal years beginning after December 15, 2008. It calls for certain share-based compensation to be included in basic earning per share (eps). If a person is granted a stock award and receives dividends during the vesting period that he/she does not have to give back if they later forfeit the stock, then those shares are to be included in part of the calculation of basic eps. Net income is to be divided into two pieces, distributed income (dividends paid) and undistributed income (what is left). Distributed income is to be divided by outstanding shares plus participating securities and undistributed income is to be divided by just outstanding shares. These two numbers are then added together to get to basic eps.
I have read this one several times and am still not sure how to practically apply it. More to come.
Soon to be approved
The EITF has approved three consenses and the FASB will probably approve them at their June 25 meeting.
EITF 07-5 Meaning of “Indexed to a Company’s Own Stock” states that derivative contracts on a company’s own stock may be accounted for as equity instruments rathan as assets and liabilities, only if htey are both indexed solely to the company’s stock and settleable in shares. If approved it would be effective for fiscal years beginning after December 15, 2008.
EITF 08-3 Lessee Accounting for Maintenance Deposits states that lessees should account for nonrefundable mainenance dposits as deposit assets if it is probable that maintenance activities will occur and the depaist is therefore realizable. Amounts on deposit that are not probable of being used to fund future maintenance activities should be charged to expense. If approved it would be effective for fiscal years beginning after December 15, 2008.
EITF 08-4 Conforming Changes to Issue 98-5 revises EITF 98-5 to conform to Statement 150 and EITF 0027. If approved it would be effective for fiscal years ending after December 15, 2008. I have no idea what EITF 98-5 or 00-27 are about, so I will have to read them first to see what has changed.
EITF 08-5 Liabilities Measured at Fair Value with a Third-Party Guarantee states the fair value measurement of the debt by the issuer of the debt should not include the effect of the credit-enhancement feature (i.e. guarantee), because, in the event of default and payment by the guarantor to the holder, the issure would continue to be obligated to repay the debt to the guarantor. If approved it would be effective beginning in the first reporting period after approval.
FSP on Disclosures about Credit Derivatives and Financial Guarantees
This FSP would require additional disclosures for credit derivatives under FAS 133 and financial guarantees under FIN 45. If approved it would be effective for fiscal and interim periods ending after November 15, 2008.
FSP ARB 43-a Trading Inventories
This FSP would require inventory that is held for trading purposes to be recorded at fair value. It would also add disclosures about inventory that is held for trading purposes.
Proposed Standard on Hedge Accounting for Derivative Instruments
This standard is suppose to make it easier to get hedge accounting. It lower the effectiveness test to probably effective instead of highly effective. This will allow most of those economic hedges to qualify as accounting hedges.
Proposed Standard on Loss Contingency
This standard would amend FAS 5 and cause more contingencies to end up on the balance sheet.
I think that is all of the new stuff. I will eventually read all this stuff and post a better summary of them.
Linda is a CPA living in Southwestern Ohio, working as a research accountant for an investor-owned publicly traded utility company. She specializes in implementing new FASB and SEC requirements and FAS 133 derivative issues. In her role at the utility she has encountered many issues and written many memos, so send in your implementation and derivative issues and Linda will help figure out an answer.