What

1
Whats going on at the FASBSpring 2003
Prepared for the Southern Gas Association
Executive Conference on April 28, 2002. Robert
E. Jensen, Trinity University, San Antonio, TX
78212
2
Topics Selected for Discussion

• Who is the FASB?
• Our Mission
• Impact of Sarbanes-Oxley
• Certain Documents Effective 2002/2003
• Statements 143, 146, 147 and 148
• FINs 45 and 46
• Next Documents to be Issued
• Statements 149 and 150
• Projects on the Agenda
• Other Items
• FASB Staff Positions (FSPs)
• Improving Standards (Principle-based
  Standards)
• Convergence

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Who is the FASB?

• Private-sector standard setter that provides
  guidance for accounting and financial reporting
  by public and non-public entities.
• Not an Oversight Body no enforcement power.
• Formed in 1973 and recognized by the SEC and the
  AICPA as the creator of GAAP.
• Public Companies
• Private Companies
• Not-for-Profit Entities

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Our Mission

• To establish and improve standards of financial
  accounting and reporting for the guidance and
  education of the public, including issuers,
  auditors and users of financial information.
• Accounting standards are essential to the
  efficient functioning of the economy because
  decisions about the allocation of resources rely
  heavily on credible, concise, transparent and
  understandable financial information.
• Good financial and business reporting reduces the
  uncertainty premium charged by investors and
  lenders.

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Impact of Sarbanes-Oxley

• FASB expects to be Recognized as Private Sector
  Accounting Standard Setting Body.
• FAF selects members of FASB (unlike PCAOB).
• FASB is separate from the PCAOB and neither
  reports to the other.
• Public companies will be billed for the cost to
  operate the FASB and the PCAOB.
• SEC to Report to Congress on Principle-Based
  Standards and Off-Balance Sheet Entities.

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Certain Documents Effective2002/2003

• Statement 143, Accounting for Asset Retirement
  Obligations
• Statement 146, Accounting for Costs Associated
  with Exit or Disposal Activities
• Statement 147, Acquisition of Certain Financial
  Institutions
• Statement 148, Accounting for Stock-Based
  Compensation Transition and Disclosure
• FIN 45, Guarantors Accounting and Disclosure
  Requirements for Guarantees
• FIN 46, Consolidation of Variable Interest
  Entities

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Statement 143, Accounting for AssetRetirement
Obligations

• Reason issued to recognize a liability when it
  is incurred that previously was not recognized
  until later.
• Issued June 01 Effective fiscal year beginning
  after 6-15-02.
• Initial application results in recognition of
• a liability (initially at fair value)
• higher cost and accumulated depreciation
  amounts
• cumulative effect of accounting change.

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Statement 146, Accounting for CostsAssociated
with Exit orDisposal Activities

• Reason issued to replace Issue 94-3 and to
  recognize liabilities when they have been
  incurred and not before.
• Issued June 02 Effective for activities
  initiated after 12-31-02.
• Specific guidance for
• One-time Termination Benefits (usually a
  stay-
• bonus)
• Contract Termination Costs (lease
  termination)
• Other associated costs.
• Extensive disclosure requirements.

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Statement 147, Acquisition ofCertain Financial
Institutions

• Reason issued to remove all but mutual
  combinations from Statement 72 and FIN 9 and put
  certain customer-relationship intangibles into
  the scope of Statement 144 (impairment of
  long-lived assets).
• Issued October 02 Effective October 1, 2002.
• The Statement 72 intangible asset is treated as
  goodwill under Statement 142. Branch
  acquisitions are discussed.

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Statement 148, Accounting forStock-Based
Compensation Transition and Disclosure

• Reason issued to provide additional transition
  alternatives for switching from the intrinsic
  method to the fair value method for stock-based
  employee compensation and to improve disclosures.
• Issued December 02 Alternatives and annual
  disclosures are effective for fiscal years ending
  after 12-15-02 interim disclosures are effective
  for interim periods beginning after 12-15-02.

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FIN 45, Guarantors Accounting andDisclosure
Requirements for Guarantees

• Reason issued to improve disclosures with
  respect to information about guarantees, the
  identification of what is a guarantee and to
  improve accounting by requiring recognition of a
  liability when incurred.
• Issued November 02 Disclosure requirements
  effective for interim or annual periods ending
  after 12-15-02 recognition effective for
  guarantees issued or modified after 12-31-02.
• Guarantees are initially recognized at their fair
  value. Discussion of subsequent accounting and
  what in the debit is provided.

12
FIN 46, Consolidation of VariableInterest
Entities

• Reason issued to identify entities where
  applying the majority of voting interest approach
  is not effective (VIEs) and providing an approach
  to use for those entities.
• Issued January 03 Effective for new VIEs upon
  issuance and for existing VIEs at the beginning
  of the first interim or annual period beginning
  after 6-15-03. For nonpublic entities it is
  effective for existing VIEs at the end of the
  annual period beginning after 6-15-03.
• VIEs do not have sufficient equity investment at
  risk to permit the entity to finance its
  activities without additional financial support
  or the holders of the equity investment lack any
  one of the the 3 characteristics of a controlling
  financial interest.

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FIN 46, Consolidation of VariableInterest
Entities (contd.)

• An enterprise that has variable interests that
  will
• absorb a majority of the VIEs variability in
  its expected
• losses (tie breaker),
• receive a majority of the variability in its
  expected
• residual return, or
• both
• is the VIEs Primary Beneficiary and must
  consolidate.

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Next Documents to be Issued

• SFAS 149, Amendments to Statement 133
• Incorporates various DIG issues into the
  Statement.
• Clarifies the definition of a derivative
  (paragraph 66).
• Effective 6-30-03.

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Next Documents to be Issued (contd.)

• SFAS 150, Liability and Equity Instruments
• The following instruments that have been
  treated as
• equity will be treated as liabilities

1. Instruments that are mandatorily redeemable on a
   fixed or determinable date or upon an event
   certain to occur.
2. Obligations to repurchase an issuers equity
   shares (forward purchase contract or written
   puts) that must be physically or net cash settled.

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Next Documents to be Issued (contd.)

1. Obligations that the issuer must or could settle
   by issuing a variable number of its equity shares
   when the obligations monetary value is fixed or
   varies on something other than equity values
   (accounts payable or accrued expense) or the
   variation is not in the same direction as equity
   values (written puts with net share settlement.

For public companies SFAS 150 probably will be
effective for annual or interim periods beginning
after6-15-03. For nonpublic companies
mandatorily redeemable instrument probably will
be effective for annual periods beginning after
12-15-03.
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Projects on the FASBs Agenda

• Stock-Based Compensation
• Pension Disclosures
• Disclosures about Fair Value of Financial
  Instruments
• Liabilities and Equity (Phase II)
• Financial Performance Reporting
• Revenue Recognition
• Short-term International Convergence
• Purchase Method Procedures
• Combinations of Not-for-Profit Organizations
• Combinations of Mutuals
• Consolidation
• What can a QSPE do with respect to Reissuance of
  BI
• What does legally released from being the
  primary obligator mean?

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Selected Projects

• Share-Based Compensation working with IASB
  goal is to get the same approach and have it
  effective as of 1-1-04.
• Pension Disclosures will focus on information
  about plan assets and the population of persons
  to receive pension payments. Also, some
  quarterly information and where the expense is
  recorded in the I/S.
• Liabilities and Equity (Phase II) how to treat
  instruments with both liability and equity
  elements try to get convergence.

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FASB Staff Positions (FSPs)

• New way to provide guidance on applying GAAP.
• Provides for due process and access.
• Look for FSPs website and get notice of posting
  from the e-mail Action Alert.

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Improving Standards

• Document on Principles-Based Standards issued
  fall 2002 Roundtables held and comment letters
  received.
• Shifting focus to how to improve standards by
  addressing issues raised by our constituents.
• SEC doing a study.
• Changing relationship of FASB with EITF and AcSEC.

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Convergence

• Working with the IASB on the following joint
  projects and parallel projects.
• Revenue Recognition
• Purchase Method Procedures
• Stock-Based Compensation
• Reporting Financial Performance.
• Both the FASB and IASB have a short-term
  convergence project to focus on matters not
  otherwise covered in a major project.
• All FASB projects and EITF issues consider
  convergence.