^ÅÅçìåíáåÖ=oçìåÇìé c^p_=aéîéäçéãéåíë j~ó=nti=ommq FASB Issues Final FSPs q~ääé=çñ=`çåíéåíë

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1 ^ÅÅçìåíáåÖ=oçìåÇìé Deloitte & Touche LLP Audit and Enterprise Risk Services j~ó=nti=ommq q~ääé=çñ=`çåíéåíë FASB Developments FASB Issues Final FSPs FSPs FAS and FSP FIN 46(R)-4 Recent FASB Meetings SEC Developments SEC Approves PCAOB s Proposed Technical Amendments SEC Proposes Rule for Asset-Backed Securities IASB Developments IASB Issues Exposure Drafts Combinations by Contract Alone or Involving Mutual Entities Amendment to IAS 19 IFRIC Issues Draft Interpretation D6 Recent IASB Meeting Appendix A: Significant Upcoming Dates Accounting Roundup is prepared by the National Office Accounting Standards and Communications Group of Deloitte & Touche LLP ( Deloitte & Touche ). For further information, contact your local Deloitte & Touche office. The purpose of this publication is to briefly describe key regulatory and professional developments that have recently occurred in the field of accounting and to provide links to locations where additional information can be found on each topic. Readers seeking additional information about a topic should review the information referred to in the hyperlinks and not rely solely on the descriptions included in this communication. Deloitte & Touche is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte & Touche shall not be responsible for any loss sustained by any person who relies on this publication. c^p_=aéîéäçéãéåíë FASB Issues Final FSPs FSPs FAS and FAS 142-1, Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and EITF Issue No. 04-2, Whether Mineral Rights are Tangible or Intangible Assets On April 30, 2004, the FASB issued final FSPs FAS and FAS to address inconsistencies between the consensus reached for EITF 04-2 that certain mineral rights are tangible assets and the characterization of mineral rights as intangible assets in SFAS 141 and SFAS 142. The FSPs amend SFAS 141 and 142 to conform them to the EITF consensus stating that certain mineral rights are tangible assets. The FSPs are effective for the first reporting period beginning after April 29, If the guidance in the FSPs results in recharacterization of an asset, prior period amounts in the statements of financial position should be reclassified, and any effects on amortization or depreciation of the asset should be accounted for prospectively. Early application of this guidance is permitted in periods for which financial statements have not yet been issued. FSPs FAS and FAS are available on the FASB s Web site. FIN 46(R)-4, Technical Correction of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, Relating to Its Effects on Question No. 12 of EITF Issue No , Implementation Issues in Accounting for Leasing Transactions Involving Special-Purpose Entities On April 30, 2004, the FASB issued FSP FIN 46(R)-4 to correct Appendix F of FIN 46(R), which incorrectly states that FIN 46(R) fully nullifies Question 12 of EITF The nullification noted in FIN 46(R) should apply only to a guarantor-lessee that is the primary beneficiary of a lessor that is a variable interest entity. A guarantor-lessee that is not the primary beneficiary of the lessor under FIN 46(R) should continue to apply the Question 12 guidance for the timing of the accrual for a contingent loss under the guarantee.

2 The guidance should be applied in accordance with the effective dates and transition provisions of FIN 46(R). Appendix F of FIN 46(R) is revised to reflect the guidance in this FSP. FSP FIN 46(R)-4 is available on the FASB s Web site. Recent FASB Meetings The summary below highlights certain tentative decisions reached, or topics discussed at recent FASB meetings. Final conclusions were not reached and further consideration is expected. Additional information is available in the FASB s weekly Action Alert newsletter, which is available on the FASB s Web site. Note: Dates in parentheses indicate FASB meetings at which respective issues were discussed. Business Combinations: Purchase Method Procedures (April 14, April 22-23) Discussed clarifications and potential changes to the October 2003 joint IASB and FASB decision regarding which assets and liabilities should be considered part of a business combination. The following tentative conclusions were made: o Generally, the acquirer should recognize assets acquired and liabilities assumed as part of the combination at their respective fair values at the acquisition date. o The substance of transactions entered into by parties to the combination should be assessed to determine whether they were arranged to achieve an accounting result favorable to the acquirer, and thus, should be excluded from the accounting for the combination. o Certain factors should be considered when assessing whether a transaction was arranged to achieve an accounting result favorable to the acquirer. o The proposed Statements on purchase method procedures and noncontrolling interests should be effective for financial statements issued for fiscal years beginning after December 15, 2005, with earlier adoption encouraged. (April 14) Discussed jointly with the IASB the status of each Board s discussion of the following issues: o Which assets and liabilities should be included as part of the business combination accounting, and o The treatment of contingent liabilities of the acquiree in a business combination. The joint Boards noted that convergence has been tentatively reached for these issues. (April 22-23) Certain Costs and Activities Related to Property, Plant, and Equipment (April 14) Removed this project from the FASB agenda after the FASB objected to clearing the final draft of the Proposed AICPA SOP, Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment. No further discussion is planned, although work performed for the project will be retained for use in connection with any future convergence efforts with the IASB relating to property, plant, and equipment. Financial Performance Reporting by Business Enterprises/Reporting Comprehensive Income (April 22-23) Discussed the path of this project, and type and timing of any future public discussion documents. In addition, decided that the work performed for the project should be divided into two segments based on the different characteristics of the goals associated with the project. Work for both segments will be performed contemporaneously. Liability Extinguishment (April 14) Discussed the scope, direction, and priorities of the broadscope project on liability extinguishment. Priorities for the project (in descending order) are as follows: o Supporting the revenue recognition project by considering how the liability derecognition criteria in SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, would be applied in the context of derecognizing performance obligations. o Addressing whether and, if so, how to clarify the SFAS 140 guidance that states that a liability has been extinguished if the debtor has been legally released from being the primary obligor under the liability. o Considering whether the SFAS 140 liability derecognition guidance also should apply to liabilities that are currently explicitly excluded from the scope of SFAS 140. Revenue Recognition (April 22-23) Discussed and tentatively concluded that: o Distinctions between different components of comprehensive income, such as revenues and gains, provide useful information to investors and creditors. o The present distinctions between revenues and gains should be sharpened, and possibly may require defining components of comprehensive income. 2

3 o Production can give rise to a component of comprehensive income. o A reporting entity should not recognize revenues for the performance by third parties of its obligations to deliver goods or render services to customers if those obligations are legally assumed by those third parties. o In all other circumstances, a reporting entity should recognize revenues for the performance by third parties of its obligations to deliver goods or render services to customers. o Disclosures about outsourcing and subcontracting activities should not be required on the face of the income statement, either by disaggregating revenues or by means of a line item for expenses. o Nonreciprocal transfers received should not be excluded from revenues, and should be disclosed as a separate line item in income statements. Short-term Convergence: Income Taxes (April 14, April 22-23) Discussed issues concerning the recognition of deferred taxes upon the initial acquisition of an asset other than through a business combination. (April 14) Discussed jointly with the IASB how to account for the tax effects of asset acquisitions that are not accounted for as a business combination, if the amount paid differs from the tax basis of the asset acquired. The Boards tentatively concluded that the asset should be recognized at fair value (assuming full deductibility for tax purposes), and the corresponding deferred tax asset or liability should be recognized as the difference between the asset s fair value and its tax basis multiplied by the tax rate. Any difference between the consideration paid and the sum of the fair value of the asset and the recognized deferred tax amount should be recognized as a purchase discount allowance on the deferred tax. (April 22-23) Short-term Convergence: Research and Development (April 22-23) Discussed the scope of the research and development part of the short-term convergence project and agreed with the IASB to explore the possibility of eliminating some IFRS/U.S. GAAP differences in the short term. Possible areas for convergence included: o Examining the criteria for capitalization of costs under SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, to see if the criteria in IAS 38, Intangible Assets, could be made more robust; and o Determining whether any aspects of U.S. GAAP, such as the treatment of purchased intangibles acquired outside of a business combination, could be moved closer to IAS 38. FASB Project Summaries and Meeting Minutes Project summaries maintained by the FASB staff, handouts distributed at each meeting, FASB meeting minutes, and summaries of FASB meetings and recent actions are available on the FASB s Web site. Further information about the FASB can be found on the FASB s Web site, Conclusions of the FASB are subject to change at future Board meetings and generally do not affect current accounting requirements until an official position (Statement or Interpretation) is issued. Official positions of the FASB are determined only after extensive deliberation and due process, including a formal vote by written ballot to issue a Statement or Interpretation. The FASB Staff s guidance (FASB Staff Positions) is proposed after the Board s review and, after being exposed for public comment, becomes final if a majority of the Board does not object to its issuance. pb`=aéîéäçéãéåíë SEC Approves PCAOB s Proposed Technical Amendments to Interim Standards Rules On April 28, 2004, the SEC approved PCAOB proposed rule amendments pursuant to the Sarbanes-Oxley Act of 2002, which consist of technical amendments to the PCAOB s interim standards rules. In April 2003, the PCOAB adopted initial, transitional basis temporary rules that directed registered public accounting firms to comply with the then-existing generally accepted standards on auditing, attestation, quality control, ethics, and independence (the interim standards rules ). The approved amendments reflect that, when the PCAOB adopts a new auditing or related professional practice standard that addresses a subject matter also addressed in the interim standards, the affected portion of the interim standards are superseded or amended. Specifically, the technical amendments add the phrase to the extent not superseded or amended by the Board to each of the interim standards rules. The rule is available on the SEC s Web site. 3

4 SEC Proposes Rule For Asset-Backed Securities On April 28, 2004, the SEC proposed new and amended rules and forms to address comprehensively the registration, disclosure, and reporting requirements for asset-backed securities under the Securities Act of 1933 and the Securities Exchange Act of Principally, the SEC proposed to: Update and clarify the Securities Act registration requirements for asset-backed securities offerings, including expanding the types of asset-backed securities that may conduct delayed primary offerings on Form S-3; Consolidate and codify existing interpretive positions that allow modified Exchange Act reporting that is more tailored and relevant to asset-backed securities; Provide tailored disclosure guidance and requirements for Securities Act and Exchange Act filings involving assetbacked securities; and Streamline and codify existing interpretive positions that permit the use of written communications in a registered offering of asset-backed securities in addition to the statutory registration statement prospectus. The rule is available on the SEC s Web site. The comment period ends July 12, Further information about the SEC can be found on the SEC s Web site, f^p_=aéîéäçéãéåíë IASB Issues Exposure Drafts Combinations by Contract Alone or Involving Mutual Entities On April 29, 2004, the IASB proposed amendments to IFRS 3, Business Combinations, as an interim solution to the issue of accounting for combinations involving mutual entities or combinations in which separate entities are brought together by contract alone. The main features of the proposals are: Removal of IFRS 3 s scope exclusion for combinations involving two or more mutual entities, or combinations in which separate entities are brought together to form a reporting entity by contract alone without obtaining an ownership interest. This includes combinations in which separate entities are brought together by contract to form a dual-listed corporation. Determination that an acquirer should measure the cost of such a combination as: o The net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities when the combination is one in which separate entities or businesses are brought together to form a reporting entity by contract alone without the obtaining of an ownership interest. o The aggregate of the following amounts when the combination is one in which the acquirer and acquiree are both mutual entities: The net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities; and The fair value, at the date of exchange, of any assets given, liabilities incurred or assumed, or equity instruments issued by the acquirer in exchange for control of the acquiree. Therefore, until guidance on applying the purchase method to such transactions is developed by the IASB as part of a later phase of its Business Combinations project, the acquirer would recognize goodwill equal to the fair value of any consideration given by the acquirer in exchange for control of the acquiree. The IASB intends that the amendments take effect at the same time IFRS 3 (as issued in March 2004) is applied. A related press release is available on the IASB s Web site. The comment period ends July 31, Amendment to IAS 19, Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures On April 29, 2004, the IASB issued proposals on aspects of pension cost accounting. In particular, the proposal provides entities an option to show, in full, pension deficits and available surpluses. Entities choosing the proposed option would recognize in the balance sheet the surplus or deficit in the plan at the balance sheet date and would show the best estimate for gains and costs of the plan in the income statement. The exposure draft also includes proposals: To extend the application of multi-employer plan accounting to entities within a consolidated group that meet specified criteria, and To provide additional disclosures. The IASB also is considering undertaking a comprehensive project on post-employment benefits that looks at fundamental aspects of measurement and recognition. Until the outcome of such a broader review of the accounting for post-employment benefits, the IASB will continue to permit the option under IAS 19 to recognize actuarial gains and losses in profit or loss, either in the period in which they occur or spread over the service lives of the employees. A related press release is available on the IASB s Web site. The comment period ends July 31,

5 IFRIC Issues Draft Interpretation D6, Multi-Employer Plans On May 6, 2004, the IFRIC released for public comment a draft Interpretation providing guidance on employee benefit plans that have more than one participating employer (multiemployer plans). The proposed Interpretation addresses a concern that guidance in IAS 19, Employee Benefits, has been interpreted as allowing all participating entities in a multiemployer plan to receive an automatic exemption from defined benefit accounting, which was not the intent of the IASB. The proposal also resolves uncertainty over when the definition of multi-employer plans is met and how defined benefit accounting should be applied to such plans. A related press release is available on the IASB s Web site. The comment period ends July 9, Conclusions of the IASB are subject to change at future Board meetings and generally do not affect current accounting requirements for entities that apply IASB standards until an official position (IFRS or Interpretation) is issued. Official positions of the IASB are determined only after extensive deliberation and due process, including a formal vote by written ballot to issue an IFRS or Interpretation. April 21-23, 2004 IASB Meeting The IASB discussed the following topics at its April 21-23, 2004 meeting: Business Combinations (Phase II) IFRIC Issues Changes in Existing Decommissioning, Restoration and Similar Liabilities (sweep issue) Proposed amendments to IAS 39, Financial Instruments: Recognition and Measurement Leases Revenue Recognition Financial Reporting Standards for Small and Medium-Sized Entities Reporting Comprehensive Income Short-Term Convergence Projects o IAS 12, Income Taxes o IAS 37, Provisions, Contingent Liabilities and Contingent Assets o Research and Development A summary of the April 2004 IASB meeting is available on the IASB s Web site. The observer notes and IASB staff presentations made at the meetings are available on the IASB s Web site. A summary of IASB meeting decisions and discussions is also available on Deloitte s IAS Plus Web site. The next IASB meeting is scheduled for May 19-21, Further information about the IASB can be found on its Web site, and on the IAS Plus Web site, 5

6 ^éééåçáñ=^w==páöåáñáå~åí=réåçãáåö=a~íéë The chart below illustrates significant upcoming dates for the FASB, GASB, SEC, and IASB. FASB Status Upcoming Adoption Dates FIN 46(R), Consolidation of Variable Interest Entities For interests in entities created after December 31, 2003: FIN 46(R) must be applied immediately. Public companies that are not small business issuers: For interests in SPEs, FIN 46 or FIN 46(R) must be applied no later than for financial statements ending after December 15, For interests in all entities, FIN 46(R) must be applied no later than for financial statements ending after March 15, Small Business Issuers: For interests in SPEs, FIN 46 or FIN 46(R) must be applied no later than for financial statements ending after December 15, For interests in all entities, FIN 46(R) must be applied no later than for financial statements ending after December 15, Nonpublic Entities: FIN 46(R) must be applied by the beginning of the first annual period beginning after December 15, For guidance related to foreign private issuers, refer to the related article, SEC Issues Letter to AICPA Regarding FIN 46(R) Effective Date Provisions With Regard to Foreign Private Issuers on the SEC s Web site. SFAS 133 Implementation Issue E22, Accounting for the Discontinuance of Hedging Relationships Arising From Changes in Consolidation Practices Related to Applying FASB Interpretation No. 46 or 46(R) Effective as of the date of initial application of FIN 46 and/or FIN 46(R). FSP FAS 129-1, Disclosure Requirements Under FASB Statement No.129, Disclosure of Information About Capital Structure, Relating to Contingently Convertible Securities FSPs FAS and FAS 142-1, Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, and EITF Issue No. 04-2, Whether Mineral Rights are Tangible or Intangible Assets FSP FIN 46(R)-4, Technical Correction of FASB Interpretation No. 46 (revised December 2003) Effective April 9, Effective for the first reporting period beginning after April 29, The guidance should be applied in accordance with the effective dates of FIN 46(R). Projects in Exposure Draft Stage Share-Based Payment, an amendment of SFAS 123 and SFAS 95 Comments due June 30,

7 GASB Status Upcoming Adoption Dates GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries GASB Statement No. 40, Deposit and Investment Risk Disclosures an amendment of GASB Statement No. 3 SEC Effective for fiscal periods beginning after December 15, Effective for fiscal periods beginning after June 15, Status Upcoming Adoption Dates SAB No. 105, Application of Accounting Principles to Loan Commitments Final Rule, Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date Final Rule, Management s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (an extension of compliance date) IASB/IFRIC Effective for loan commitments accounted for as derivatives entered into subsequent to March 31, Effective August 23, Effective for fiscal years ending on or after November 15, 2004, for accelerated filers. Effective for fiscal years ending on or after July 15, 2005, for nonaccelerated filers. Effective for fiscal years ending on or after July 15, 2005, for foreign private issuers that file annual reports on forms 20-F or 40-F. Status Upcoming Adoption Dates IFRS No. 5, Non-current Assets Held for Sale and Discontinued Operations IFRS No. 4, Insurance Contracts IFRS No. 3, Business Combinations IFRS No. 2, Share-Based Payment Amendment to IAS No. 39, Financial Instruments: Recognition and Measurement Amendment to IAS No. 32, Financial Instruments: Disclosure and Presentation Improvements to International Accounting Standards Effective for business combinations for which the agreement date is on or after March 31,

8 Projects in Exposure Draft Stage Amendment to IAS 39, Financial Instruments: Recognition and Measurement: The Fair Value Option Proposed Interpretation D5, Applying IAS 29, Financial Reporting in Hyperinflationary Economies, for the First Time Comments due July 21, Comments due May 14, Proposed Interpretation D6, Multi-Employer Plans Comments due July 9, Amendment to IFRS 3, Business Combinations: Combinations by Contract Alone or Involving Mutual Entities Amendment to IAS 19, Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures Comments due July 31, Comments due July 31,

9 ^éééåçáñ=_w==^ääêéîá~íáçåë AcSEC AICPA APB Accounting Standards Executive Committee American Institute of Certified Public Accountants Accounting Principles Board IFAC IFRIC IFRS International Federation of Accountants International Financial Reporting Interpretations Committee International Financial Reporting Standards ARB EITF FASB FIN FSP GAAP Accounting Research Bulletin Emerging Issues Task Force Financial Accounting Standards Board FASB Interpretation FASB Staff Position Generally Accepted Accounting Principles PCAOB MD&A SAB SEC SFAS Public Company Accounting Oversight Board Management s Discussion & Analysis Staff Accounting Bulletin Securities and Exchange Commission Statement of Financial Accounting Standards GASB IAS Governmental Accounting Standards Board International Accounting Standards SOP TPA Statement of Position Technical Practice Aid IASB International Accounting Standards Board Deloitte Accounting Research Tool Available Deloitte & Touche is making available, on a subscription basis, access to its online library of accounting and financial disclosure literature. Called the Deloitte Accounting Research Tool (DART), the library includes material from the FASB, the EITF, the AICPA, the PCAOB, the IASB, and the SEC, in addition to Deloitte & Touche s own accounting manual and other interpretative accounting guidance. Updated every business day, DART has an intuitive design and navigation system which, together with its powerful search features, enable users to quickly locate information anytime, from any computer. Additionally, DART subscribers receive periodic s highlighting recent additions to the DART library. For more information, including subscription details and an online DART demonstration, visit 9

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