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Accounting Research Manager(TM)
Weekly Summary of Developments
September 3-7, 2007
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Accounting Research Manager subscriber,
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Accounting and SEC Headlines
Earnings Per Share -- Interpretations of FASB Statement No. 128 Updated
Income Taxes -- Addition to Interpretations of Accounting for Income Taxes
Convertible Debt Instruments -- Proposed FASB Staff Position Issued
Conceptual Framework -- FASB Discusses its Conceptual Framework and Postretirement Benefit Obligations Projects at August 29, 2007 Meeting
Financial Statements -- Revised International Accounting Standard No. 1 Issued
Hedge Accounting -- IASB Issues Exposure Draft on Exposures Qualifying for Hedge Accounting
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ACCOUNTING AND SEC HEADLINES:
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Earnings Per Share -- Interpretations of FASB Statement No. 128 Updated
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We have updated our interpretations of FASB Statement No. 128, Earnings Per Share. The Update reflects amendments to Statement 128 and related consensuses reached by the EITF. The Update provides guidance on calculating EPS when certain instruments or issues exist including:
-Financial instruments with characteristics of both liabilities and equity;
-Convertible securities with beneficial conversion options;
-Contingently convertible instruments;
-Derivative financial instruments indexed to or settable in an issuer's equity;
-Put warrants;
-Redeemable common stock;
-Contracts or convertible bonds that may be settled in stock or cash;
-Allocating earnings or losses to participating securities under the two-class method; and
-Accounting for the tax benefits of employee stock ownership plans;
In addition, we have also added a "Recent Developments" section to this publication to reflect the current status of related pending changes by the FASB and EITF. See our Literature Update for complete details.
Income Taxes -- Addition to Interpretations of Accounting for Income Taxes
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We have updated our publication Accounting for Income Taxes-Interpretations of FASB Statement 109. We have added Appendix V, "Compliance Checklist with FIN 48," to provide users a tool to use in complying with the various requirements of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes.
See our Literature Update for complete details.
Convertible Debt Instruments -- Proposed FASB Staff Position Issued
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The FASB has issued proposed FASB Staff Position (FSP) APB 14-a, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." This proposal would clarify that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. In general, paragraph 12 of Opinion 14 precludes considering cash proceeds from the issuance of specified types of convertible debt instruments as attributable to the conversion feature.
The proposed FSP would also require that the liability and equity components of a convertible debt instrument within the scope of the FSP, be accounted for separately so that such accounting will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Convertible preferred shares that are accounted for in equity (or temporary equity) are not within the scope of this proposed FSP.
If adopted, the proposed guidance would be effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Early adoption would not be permitted. The guidance in the proposed FSP would be applied retrospectively to all periods presented. Comments on the proposed FSP are due October 15, 2007.
Conceptual Framework -- FASB Discusses its Conceptual Framework and Postretirement Benefit Obligations Projects at August 29, 2007 Meeting
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As reported in its "Action Alert" publication, the FASB met on August 29, 2007, and addressed both its Conceptual Framework and Postretirement Benefit Obligations Including Pensions projects. Among the decisions reached at this meeting, the FASB defined the logical order of Chapter 1 of its Preliminary Views on its Conceptual Framework project so that it flows logically with the premise that the basic perspective of financial reporting is that of the entity. In addition, the FASB decided to proceed with the next phase of its Postretirement Benefit Obligations project with an approach that leverages the respective resources of the FASB and IASB. Currently, both the FASB and IASB are working on similar, but separate, projects related to postretirement benefit obligations. As a result, the FASB will rely on the IASB's work on measurement of plan obligations that contain defined return promises. At a later date, the two boards plan to meet to determine possible areas of convergence between their two projects. The FASB will focus its project on the following issues:
-How changes in postretirement benefit assets and obligations should be presented;
-How the reporting of an employer's obligations associated with participation in a multiemployer plan might be improved; and
-Whether and how to improve disclosures about risks inherent in plan investments.
The Action Alert also indicates that the FASB will hold an educational, non-decision making session on September 12, 2007 to discuss topics that are anticipated to be discussed at a future Board meeting.
Financial Statements -- Revised International Accounting Standard No. 1 Issued
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The IASB issued a revised version of International Accounting Standard (IAS) No. 1, Presentation of Financial Statements, aimed at improving financial statement users' ability to analyze and compare information. In general, IAS No. 1 sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Revisions included in the revised standard include:
-Aggregation of information presented in financial statements on the basis of shared characteristics;
-Introduction of a statement of comprehensive income - presented as either a separate financial statement or combined as a single financial statement with an income statement; and
-Changes to financial statement titles to better reflect their function more clearly.
The revision of IAS No. 1 represents the first phase of the IASB/FASB joint project to harmonize the presentation of financial statements. The second phase is already under way and is expected to provide further financial statement guidance on more fundamental questions about what is presented in financial statements. The revised IAS No. 1 is effective for annual periods beginning on or after January 1, 2009. Early adoption is permitted.
Hedge Accounting -- IASB Issues Exposure Draft on Exposures Qualifying for Hedge Accounting
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The IASB issued an Exposure Draft (ED), Amendments to IAS 39 Financial Instruments: Recognition and Measurement-Exposures Qualifying for Hedge Accounting. The ED is intended to clarify what can be designated as a hedged item in a hedge accounting relationship and to prevent divergence in practice from arising. Specifically, the ED provides guidance on: (a) the risks that qualify for designation as hedged risks when an entity hedges its exposure to a financial instrument and (b) designating a portion of the cash flows of a financial instrument as a hedged item.
The proposed changes would be required to be applied retroactively. Comments on the ED are due January 11, 2008.
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