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FASB 2001 Report FEI CFRI, November 2001

Timothy S. Lucas FASB Director of RTA Val R. Bitton Partner, Deloitte & Touche AcSEC Member John (“Jay”) Perrell American Express

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FASB 2001 Report FEI CFRI, November 2001

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  1. Timothy S. Lucas FASB Director of RTA Val R. BittonPartner, Deloitte & ToucheAcSEC Member John (“Jay”) Perrell American Express Expressions of individual views by members of the FASB and its staff are encouraged. The views expressed in this speech are those of Mr. Lucas. Official positions of the FASB on accounting matters are determined only after extensive due process and deliberation. FASB 2001 ReportFEI CFRI, November 2001

  2. FASB 2001 ReportOverview • Recently Issued Documents and Other Activities • Current FASB Projects • What Might Be Next ? • Selected AcSEC Projects • Selected EITF Issues

  3. FAS 136 - NFP Intermediaries FAS 137 - Defer 133 FAS 138 - Amend 133 FAS 139 - Movies (AcSEC) FAS 140 - FI Transfers (replace 125) INT 43 - Real Estate INT 44 - APB 25 Repairs & Maintenance Concepts 7 - Present Value Recently Issued Final1999 - 2000

  4. Recently Issued Final2001 • FAS 141 & 142 - Business Combinations • FAS 143 - Asset Retirement Obligations • FAS 144 - Impairment and Disposal of Long Lived Assets

  5. Business Combinations • Improvement • Pooling was Non-accounting • Pooling was an Incentive • Pooling Criteria were Complex • Goodwill Amortization was not Meaningful • Goodwill Impairment was not Operational

  6. Asset Retirement Obligations • Originally (1994) Nuclear Decommissioning (EEI Request!) • ED (2nd) February 2000 • FAS 143 Issued June 2001 • Effective Years Beginning After June 02

  7. Asset Retirement Obligations • Recognize Legal Obligations that Arise from Normal Operations of Assets • Measure the Obligations at Fair Value • Capitalize the Cost and Depreciate • Effective Y/B/A June 15, 2002

  8. Asset ImpairmentREASONS FOR PROJECT • Resolve significant implementation issues relating to Statement 121 • Address inconsistencies in accounting for assets to be disposed of • Added obligations associated with disposal activities

  9. Asset Impairment • FAS 144 Issued August 2001 • Clarifies (and replaces) FAS 121 • One Model for Assets to be Disposed of • Measured at lower of BV or FV less cost to sell • Expands Use of Discontinued Operations • Does not address Liabilities

  10. FASB Current Projects • Business Combinations II (3) • Consolidations • Financial Instruments - Fair Value • Financial Instruments - Liability/Equity • Disposal (restructuring) Obligations • Reporting Financial Performance • Reconsider FAS 4 • FAS 133 Conforming Changes

  11. FASB 2001Combinations Parts II • Purchase Methods • New Basis (Fresh Start) • Not for profits (and Mutuals)

  12. FASB 2001Combinations Parts II • Purchase Methods Questions • 100% Fair Value or Step? • Goodwill on Step Acquisition? • Measurement Date? • Preacquisition Contingencies

  13. FASB 2001Combinations Parts II • Purchase Methods – Status • Just Starting • But Includes many Consolidations Procedures • Joint with IASB – US lead

  14. FASB 2001Combinations Parts II • New Basis / Fresh Start Questions • Multi Combinations (Rollups) • Formation of JV • Contractual Affiliations • Others ?

  15. FASB 2001Combinations Parts II • New Basis / Fresh Start –Status • Just Starting • Trying to define scope (again) • Joint with IASB – IASB lead?

  16. FASB 2001Combinations Parts II • Not for Profit – Questions • May be Different ? • Often No Consideration/Price • No selling Shareholders • How about Mutuals? • COOP,Savings Bank,CU,Ins • Also relook at FAS 72 Intangible

  17. FASB 2001Combinations Parts II • Not for Profit – Status • Well Along before Hold • Purchase Method, Some Contributions • Mutuals Removed from Part I

  18. Current ProjectsConsolidations • Due Process Highlights • 1982 - Group of Projects Added to Agenda • 1987 - FAS 94 • 1991 - DMs Policy & Procedures + New Basis • 1995 - ED Policy & Procedures • 1997 - FAS 131 Segments • 1999 (Feb) Revised ED on Policy • 2001 - Decision to Reassess

  19. Current Projects FI@FV • Preliminary Views 12/99 • International Joint Working Group 12/2000 • Next Step? • What Information about Changes in FV? • Consider Disclosure Improvements including Format

  20. Liability/EquityED Proposals • Amendment of Concepts Statement 6 Some Liabilities settle in shares • Separation of components • Elimination of mezzanine section (Temporary Equity probably isn’t) • Classification of minority interests

  21. Liability /Equity - Status • Comments Expressed Reservations • Field Visits and Educational Sessions • Redeliberations Under Way

  22. Reporting Financial Performance • Newly Added following Proposal/Comment • Better Understand How people use financial statements to assess performance • Improve Quality of Key Information • Require Presentation of elements of Key Performance Metrics

  23. Reporting Financial Performance • Form, Content, Classification, Aggregation, and DisplayIN • Basic Financial Statements ofComprehensive Income, Earnings, Cash Flows, Financial Position

  24. Reporting Financial Performance • How does this relate to “Pro Forma” earnings ?

  25. Disposal (restructuring) Obligations • Spun Off from Asset Impairment • Basic application of Liability definition • ED attracted significant comment, especially on employee severance • Board decided to include all of scope of EITF 94-3 • Also looking at 95-3 in BC II

  26. Other Projects • Reconsider FAS 4 • FAS 133 Conforming Changes

  27. FASB 2001Other Activities • Financial Instruments Implementation • Derivatives Implementation (DIG) • SFAS 140 Transfers Issues • EITF and Revenue Recognition • International • Business Reporting Research Project

  28. Coming Attractions ? • Be Selective - Cannot do Everything • First Challenge - Define a Realistic set of Issues • International Convergence an Agenda Wild Card • Opportunity to Comment

  29. Coming Attractions ? • Intangible Assets and the NEW Economy • incl. R&D, IPR&D • Recognition of Liabilities and Revenue • EITF level and/or More Fundamental Review? • Simplification/ Codification of GAAP

  30. Coming Attractions ?Possible International Priorities • Leases • Insurance Accounting • Share Based Payments (???!)

  31. . • Now for AcSEC and EITF

  32. Thank You • Your Questions ARE IMPORTANT TO US

  33. Why Are We Here? • Financial Reports Matter • Financial Reports Need to Communicate • Financial Reports Need to be Credible • Better Financial Reports Benefit All • Standards Can Help

  34. FASB • Sole Objective is to maintain and improve the Quality of Financial Reports • Independent • Private Sector • Open Process • Your Participation is IMPORTANT

  35. FASB Challenges • Improve (vs. Change) • Converge (International) • Your Participation is IMPORTANT

  36. Business Combinations • 141 & 142 Issued June 30, 2001 • Everybody OUT of the POOL! • Goodwill is not a Wasting Asset • But Goodwill can become Impaired

  37. Business CombinationsMethods & Intangibles(Overview) • `Added in 1996 because: • Two Methods , Big Differences, Essentially the Same Transaction • Accounting for Cost Incurred is Preferred to NOT Accounting for Cost. • U.S. Practice Unique Internationally • APB 16 is High Maintenance.

  38. Business CombinationsMethods and Intangibles • Special Report - June 1997 • Invitation to Comment (G4) - Dec 1998 • Exposure Draft (ED) - September 1999 • Public Hearings - February 2000 • Redeliberations - March 2000 - June 2001 • Electronic ED - February 2001 • Split into 2 Statements - March 2001

  39. Australia Canada France Germany IASC Japan New Zealand Nordic Countries United Kingdom United States International JWG on FI

  40. International JWG on FI • Comprehensive Proposal on FI • All FI at Fair Value (excl. Insurance) • Gain/Loss in Earnings • Repo = sale, Securitizations may be borrowings • No special hedge accounting, but disclosure of hedging policy optional.

  41. Amend Concepts Statement 6 • Definition of liabilities • Transfer of assets vs. issuance of shares • Ownership interest vs. debtor- creditor relationship • Comments 00-19 is Very Popular

  42. Liability/EquitySeparate Components • Some Instruments are Hybrid • Example = Convertible Debt • Separate at Issue using Relative FV or With-and-without • Comments and Visits – Instruments are Complex and Components are not Obvious

  43. Liability/EquityTemporary Equity in Mezzanine • Mezzanine Never Popular at FASB • Mandatory Redemption = Liability • Economic Compulsion = Not Liability • Comments: • Some Entities Redeem All Equity • Mixed Views Otherwise

  44. Liability/EquityMinority Interests • Are Considered Equity • Consolidated Net Income Includes MI • Sales of Subsidiary shares are Treasury Stock Transactions

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