FASB Outlook - Discussion of Pending Rules/Projects

FASB Outlook

AGA Accounting Principles Committee

Meeting

Alicia Posta, Executive Director,

FASB Advisory Groups

[email protected]

Disclaimer

The views expressed in this presentation are my own and do not represent positions of the FASB. Positions of the FASB are arrived at only after extensive due process and deliberations.

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Overview

• Hot Topics this Year– The Financial Crisis: Related Projects and Activities

• The Financial Crisis Advisory Group (FCAG)• Short-term and Comprehensive Financial Instruments Projects• Special Purpose Entities/Variable Interest Entities Projects

– International Financial Reporting Standards (IFRS) and Convergence– Codification

• Other Projects on the FASB’s Agenda– FASB-IASB Memorandum of Understanding– Other Joint Projects (FASB-IASB)– US GAAP Developments

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The Financial Crisis:

Related Projects and Activities

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The Financial Crisis: Related Projects and Activities

• Financial Crisis Advisory Group (FCAG)– Primary function is to advise the FASB and IASB about

standard-setting implications of • The global financial crisis and • Potential changes to the global regulatory environment.

– Chaired jointly, 16 members, plus observers– Finite-lived– Conducted advisory meetings– Solicited written submissions from constituents about the

issues– Issued a written report with conclusions– Plan to reconvene for a follow-up meeting in December 2009

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• FCAG Report Recommendations

– Effective Financial Reporting

– Limitations of Financial Reporting

– Convergence of Accounting Standards

– Standard Setter Independence and Accountability

• Final Report Available on FASB Website


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Financial Instruments - FSPs Issued– Recognition and Presentation of Other-Than-Temporary

Impairments (FSP FAS 115-2 and FAS 124-2)• Effective for interim and annual reporting periods ending after June 15, 2009,

with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted.

– Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4)

• Effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively.

– Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1)

• Effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.


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Financial Instruments: Improvements to Recognition and Measurement

• Objective: Significantly improve the decision usefulness of financial instrument reporting for users of financial statements

• Discussion Paper, Reducing Complexity in Reporting Financial Instruments

• June 2008 Exposure Draft, Accounting for Hedging Activities, an amendment of FASB Statement No. 133

• Anticipated issues that will be addressed by FASB:– Measurement

– Classification

– Impairment of financial instruments

– Hedge accounting

• Exposure Draft Anticipated: End of 2009/Early 2010• Convergence and IASB Decisions


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Financial Instruments: Improvements to Recognition and Measurement(continued), tentative FASB conclusions:

• Fair value balance sheet presentation

• Fair value changes recognized in net income or OCI

– Optional exception for own debt in certain circumstances

• Criteria for determining whether changes should be classified in net income or OCI

• Presentation in OCI: amortized cost, fair value adjustment

• One statement of financial performance with subtotals for net income

and other comprehensive income

• EPS for net income


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• Financial Instruments: FSPs and Other Projects in Process

– FAS 157—Measurement of Liabilities– FAS 157—Applying Fair Value to Interests in

Alternative Investments– FAS 157—Improving Disclosures about Fair Value

Measurements

– Loan Loss Disclosures


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Special Purpose Entities/Variable Interest Entities:Accounting for Transfers of Financial Assets (FAS 166)• Why was Statement 166 Issued?

Changes from Statement 140• Eliminates the concept of a QSPE • Modifies the transferability constraints of paragraph 9(b)• Requires consideration of all arrangements made in connection

with a transfer• Clarifies the legal isolation analysis in paragraph 9(a)• Provides guidance on when a portion of a financial asset can

be derecognized (participating interests)• Modifies the initial measurement of a beneficial interest retained

by a transferor • Disclosures


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Special Purpose Entities/Variable Interest Entities:Consolidation of Variable Interest Entities (FAS 167)• Why was Statement 167 Issued?

Changes from FIN 46R• New model for determining the primary beneficiary • Primary beneficiary reconsideration assessment • New Disclosures

Transition and Effective Date for FAS 166 and 167


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International Financial Reporting Standards (IFRS)

and Convergence

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The IASB and IFRS

IASB/IASC Foundation’s goal: To provide the world’s integrating capital markets with a common language for financial reporting

CURRENT

STRUCTURE

Website: www.iasb.org

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Historical Context

• A single set of global standards is an old idea.– November 1981 SEC Release (Integrated

Disclosure System for Foreign Private Issuers)

– FASB 1999 Vision statement

• SEC Concepts Release and Roadmap accelerated the discussion.

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SEC Proposal

SEC Proposal (Released Nov 2008, Comments Due April 2009)• A proposed process to a decision; not a decision• Two-pronged approach

– Voluntary adoption for large companies if IFRS (as issued by the IASB) is the GAAP that is used most by top 20 competitors

• SEC estimated that 110 registrants meet this criteria• Large companies weighing risks and uncertainty with anticipated

benefits (for example – uncertainty about whether IFRS will become mandatory, uncertainty about how many years of reconciling statements the SEC would require, anticipated changes to IFRS, SEC and investor perceptions and scrutiny given to IFRS, etc.)

– Mandatory adoption would be considered in the future. Decision regarding other companies will be made in 2011. Anticipate consideration about whether certain milestones have been met and other factors.

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SEC Proposal (continued)

Milestones in the SEC’s Roadmap• Improvement of IFRS standards

– How will improvement be defined?• Consider independence and funding of the IASB

– Objectivity and independence of the standard-setter– Public accountability versus political interference

• Development of XBRL-like interactive data and taxonomy under IFRS

• Training and education on IFRS. Professionals that– Apply IFRS– Audit and regulate the companies that apply IFRS– Use financial statements that are prepared in accordance

with IFRS• Evidence of success in the early use of IFRS

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Statistics on IFRS adoption

• Over the past several years:– Increasing acceptance of IFRS in major capital

markets throughout the world

– Many countries moved from national GAAP to IFRS• 45% of global equity market capitalization uses

IFRS• 55% do not (US = 35%)

– Approximately 113 countries around the world currently require or permit IFRS reporting for domestic, listed companies.

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Should the U.S. Adopt IFRS?

• What is likely to happen if we do? – We have evidence from empirical research on other

jurisdictions’ adoptions…but…– The U.S. is different:

• More developed existing standards• Higher proportion of stock ownership among population• More advanced regulatory structure• Unique legal environment

• What is likely to happen if we do not adopt?– What alternative paths are there? – What are their relative benefits and costs?

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Codification

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• July 1, 2009 - FASB instituted a major change in the way accounting standards are organized

• Single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP)

FAQs• How will new standards be incorporated into the Codification?• What happened to U.S. GAAP literature on July 1, 2009?• Will the Codification include content that is not yet required for

entities?• How do I access the Codification and is it available for free?• How do I locate where content from a standard (such as a FASB

Statement, EITF Issue, and so forth) is used in the Codification?• My financial statements reference “legacy” GAAP (such as

FAS71), what should I do with those references in future financial statements and filings?

Codification 21

Other Projects on the FASB’s Agenda

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The FASB Agenda• Joint Projects

– The Memorandum of Understanding (September 2008)

• Short-Term Convergence Projects• Projects where the Boards are currently working jointly on

areas identified for improvement in IFRSs and US GAAP• Areas identified for improvement in IFRSs and US GAAP,

where the Boards are at different stages in standard development and will seek a common standard

– Other Projects Conducted Jointly by the FASB and IASB

• FASB Projects

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The Memorandum of Understanding (MoU)

Project Current Status

Joint Ventures (IASB) Final IFRS standard expected in 3Q 2009

Income Taxes (IASB) The IASB published an Exposure Draft of an IFRS to replace IAS 12. The comment period ends July 2009.

Subsequent Events Completed. The FASB issued FASB Statement No. 165, Subsequent Events, in May 2009.

Consider whether to add projects to eliminate differences in the accounting for taxes, investment properties, and research and development by adopting the relevant IFRS standards

The Boards considered this issue (specifically related to income taxes) at their June 2009 joint meeting. Further discussion (including consideration of the comments received by the IASB) is planned this fall.

Short-Term Convergence Projects

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Joint projects where the Boards are currently working jointly

Project Next Steps (as of 9/2008)

Financial Instruments Decision by late 2008 regarding the nature and scope of any proposed improvements to U.S. GAAP and IFRS, after considering comments on the IASB discussion paper and on the FASB Exposure Draft to simplify hedge accounting.

Financial Statement Presentation

Preliminary views/discussion paper in third quarter of 2008.

Leases Preliminary views/discussion paper to be published in the second half of 2008.

Financial Instruments with Char. of Equity

Exposure Draft in 2009.

Revenue Recognition Preliminary views/discussion paper to be published in fourth quarter of 2008.

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Areas identified for improvement, where the Boards are at different stages

Project Next Steps (as of 9/2008)

Consolidations Decision in 2008 on a strategy to develop a common standard.

Derecognition Decision in 2008 on a strategy to develop a common standard.

Fair Value Measurement IASB: Exposure Draft in first half of 2009FASB: Review FAS 157 in light of IASB’s deliberations.

Post-Employment Benefits

IASB: Exposure draft in 2009, following consideration of comments on discussion paper

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FASB Agenda

Project Current Status and Plans

Conceptual Framework Projects

Conducting in phases. Due process documents are anticipated for the phase related to Objective and Qualitative Characteristics (Final in 3Q), Measurement (Discussion Paper in 4Q), and the Reporting Entity (Exposure Draft in 3Q).

FAS 144—Reporting Discontinued Operations

Finalize in 4Q

Insurance Contracts Issue an Exposure Draft in 4Q

Emissions Trading Schemes

Issue an Exposure Draft in 1H 2010

Other projects being conducted jointly that are not included on the MoU

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FASB Agenda

Project Current Status and Plans

Credit Crisis Projects Various projects on the application of fair value, derivatives, and impairments of financial instruments.

FIN 48 for Private Companies

Finalize in 3Q

Going Concern Issue an Exposure Draft in 3Q

Loan Loss Disclosures Finalize in 4Q

Disclosures of Certain Loss Contingencies

Finalize in 4Q

Disclosure Framework Issue an Discussion Paper in 1H 2010

Planned US GAAP Developments

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Questions???

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Documents

FASB Outlook - Discussion of Pending Rules/Projects