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Financial Accounting Standards Board

Financial Accounting Standards Board

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Financial Accounting Standards Board

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    1. Financial Accounting Standards Board US GAAP Update June 2008 Michael Crooch

    2. Disclaimer The views expressed in this presentation are my own and do not represent positions of the Financial Accounting Standards Board. Official positions of the FASB Board are arrived at only after extensive due process and deliberations.

    3. FASB Overview Originated in 1973 Recognized by the SEC under Section 108 of the Sarbanes-Oxley Act of 2002 Designated Private-Sector Standard Setter Recognized under Section 203 of the AICPAs Code of Professional Conduct Standard-setter, not a regulator No enforcement authority

    4. Changes to FASB Oversight, Structure and Operations Reduce the size of the Board from seven members to five members, effective 7/1/2008 Composition to be one at-large member and four others having experience as a preparer of financial statements, an auditor, an academic, and a financial analyst/investor, respectively Retain the simple majority voting retirement Adopted a leadership agenda process The Boards technical agenda is established solely by the FASB Chairman, following consultation with the other Board members

    5. Our Mission

    6. Information on Website www.fasb.org FASB Standards, Concepts, and Interpretations, and Staff Positions (FSPs) Audio Webcast of Board Meetings Semi-Annual Detailed Technical Plan April/October Separate Summary Page for Each Project EITF Material

    7. Communication Improvements Weekly e-mail for Action Alert under Action Alert at left side of home page Major codification of all authoritative GAAP has been developed. A verification draft was issued in January 2008 for feedback during a one-year period Ultimately, the codification will become the single authoritative source of U.S. GAAP, superseding all existing standards

    8. Financial Accounting Standards Board FASB Statement No. 141(R), Business Combinations

    9. Business Combinations Phase 1 ended in June 2001 - Issued two FASB Statements No. 141, Business Combinations No. 142, Goodwill and Other Intangible Assets Phase 2 addresses applying the acquisition method and noncontrolling interests

    10. Applying the Acquisition Method Overall Principles Business combinations are exchange transactions in which knowledgeable, unrelated willing parties exchange equal values The acquirer obtains control of the acquiree at the acquisition date and becomes responsible and accountable for all of the acquirees assets, liabilities, and activities, regardless of the percentage of its ownership in the acquiree

    11. Applying the Acquisition Method Overall Principles (continued) The total amount to be recognized is the fair value of the acquiree as a whole and, therefore, the assets acquired and liabilities assumed should be recognized at their fair values on the date control is obtained.

    12. Applying the Acquisition Method Measuring Assets Acquired and Liabilities Assumed Equity securities issued as consideration Measured at their fair value as of the acquisition date (not the agreement date) Acquisition-related costs paid to third parties Not part of consideration transferred Expensed as incurred

    13. Applying the Acquisition Method Measuring Assets Acquired and Liabilities Assumed Contingent Consideration Arrangements Include fair value of contingent consideration in the fair value of the total consideration Determine whether the obligation is a liability or equity. Liability - changes in fair value would be recognized in income (unless it is a hedging instrument for which changes are recognized in other comprehensive income) Equity - no subsequent remeasurement

    14. Applying the Acquisition Method Measuring Assets Acquired and Liabilities Assumed Restructuring reserves Only items that meet the definition of a liability at the acquisition date will be recognized as part of the business combination (EITF 95-3 will be nullified) Others are post-combination expense - thus practice of recognizing liabilities prematurely eliminated Valuation allowances No separate allowance for receivables or other assets measured at fair value

    15. Applying the Acquisition Method Measuring Assets Acquired and Liabilities Assumed Contingencies Applies equally to assets and liabilities Recognize contractual contingencies at fair value as of the acquisition date, and for non-contractual contingencies, only if it is then more-likely-than-not that they meet the definition of an asset or liability

    16. Applying the Acquisition Method Measuring Assets Acquired and Liabilities Assumed Contingencies: Subsequent Measures A liability is to be measured at the higher of: Its acquisition-date fair value The amount recognized if Statement 5 applied An asset is to be measured at the lower of: Its acquisition-date fair value The best estimate of its future settlement amount

    17. Applying the Acquisition Method

    18. Financial Accounting Standards Board FASB Statement No. 160, Noncontrolling Interests in Consolidated Subsidiaries

    19. Noncontrolling Interests

    20. Noncontrolling Interests Loss of control A transaction that causes the subsidiary to cease being consolidated results in recognition of a gain or loss in the income statement. Any investment in the previously consolidated subsidiary that is retained by the reporting entity initially is measured at its fair value.

    21. Noncontrolling Interests Allocation of net income and losses Net income or loss and each component of other comprehensive income is attributed to the controlling interests and the noncontrolling interests

    22. Issuance and Effective Date Both final Statements issued in December 2007 Effective dates will be the same for both Statements: Calendar year companies January 1, 2009. Earlier adoption prohibited by FASB

    23. Financial Accounting Standards Board FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities

    24. Derivatives Disclosures Objective: to provide an enhanced understanding of: How and why an entity uses derivatives How derivatives and related hedged items are accounted for under Statement 133 and its related interpretations, and How derivatives affect an entitys financial position, results of operations, and cash flows.

    25. Derivatives Disclosures Tabular Disclosures Final Statement requires 2 tables Those 2 tables focus on (1) where in balance sheet derivatives are located and what is the fair value (balance sheet table) and (2) where in income statement change in fair value is located and what is the change in fair value (income statement table) Information on hedged items is required but does not have to be part of the tabular format

    26. Derivatives Disclosures Other Required Disclosures Final Statement requires disclosure of the existence and nature of credit-risk-related contingent features embedded in derivative instruments. Disclosure must include: The aggregate fair value of derivative instruments that contain those features The aggregate fair value of assets posted as collateral, the aggregate fair value of additional assets that would be required to be posted as collateral and/or needed to settle the instrument if the contingent features were triggered

    27. Derivatives Disclosures Other Required Disclosures Final Statement requires entities to qualitatively discuss, by underlying risk, its objectives for holding or issuing derivative instruments Final Statement requires entities to provide information that would enable users to understand its volume of derivative activity

    28. Derivatives Disclosures Effective Date The effective date for the final Statement is for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 Statement 161 was issued in March 2008

    29. Statement 133 Implementation Issues Finalized Issue No. E23, Issues Involving the Application of the Shortcut Method under Paragraph 68 (Released July 2007) Addresses various practice issues about the applicability of the shortcut method of accounting for hedging relationships.

    30. FSP FAS 157-1 on the Interaction of FAS 157 and Lease Accounting Issued 2/14/2008 Potential practice issues: Leases that presently qualify as direct financing or leveraged leases Estimated residual values for pools of leased assets Effective upon initial adoption of Statement 157 Under Statement 13, a lessor cannot classify a lease as a direct financing lease if the fair value of the leased asset does not equal its cost at inception. Constituents have questioned whether a lease could ever qualify as a direct financing lease under Statement 157s fair value framework, for the following reasons: The fair value of the leased asset determined under Statement 157 would exclude transaction costs, which would be included in fair value under current practice. Statement 157 requires consideration of an assets exit price in the holders principle market for selling the asset to measure fair value. Existing practice considers the price in the entry market (for third-party lessors) to determine fair value. Some have argued that Statement 157s fair value guidance wouldnt affect residual values. But Statement 13 defines the residual value of leased property as the estimated fair value of the leased property at the end of the leased term. Lessors engaged in high volumes of leases of low value leased assets generally use a weighted-average expected cash flow valuation model to determine estimated residual values, reflecting the fact that they typically access multiple markets to dispose of these assets. However, Statement 157s framework requires an entity to consider only its principle market to measure fair value. Use of only the principle market to estimate residual values could result, for example, in more income over the lease term, a higher implicit rate in the lease, and more impairment losses recognized upon the disposal of leased assets that under current practice.Under Statement 13, a lessor cannot classify a lease as a direct financing lease if the fair value of the leased asset does not equal its cost at inception. Constituents have questioned whether a lease could ever qualify as a direct financing lease under Statement 157s fair value framework, for the following reasons: The fair value of the leased asset determined under Statement 157 would exclude transaction costs, which would be included in fair value under current practice. Statement 157 requires consideration of an assets exit price in the holders principle market for selling the asset to measure fair value. Existing practice considers the price in the entry market (for third-party lessors) to determine fair value. Some have argued that Statement 157s fair value guidance wouldnt affect residual values. But Statement 13 defines the residual value of leased property as the estimated fair value of the leased property at the end of the leased term. Lessors engaged in high volumes of leases of low value leased assets generally use a weighted-average expected cash flow valuation model to determine estimated residual values, reflecting the fact that they typically access multiple markets to dispose of these assets. However, Statement 157s framework requires an entity to consider only its principle market to measure fair value. Use of only the principle market to estimate residual values could result, for example, in more income over the lease term, a higher implicit rate in the lease, and more impairment losses recognized upon the disposal of leased assets that under current practice.

    31. FSP FAS 157-2, Effective Date of FASB Statement No. 157 Issued 1/12/2008 Partial deferral of the effective date of Statement 157 Nonfinancial assets and liabilities, except for those recognized or disclosed at fair value on a recurring basis Now effective for fiscal years beginning after November 15, 2008

    32. FSP FAS 157-2: Examples of Items Subject to FAS 157 Deferral Impairment tests Goodwill (FAS 142) Indefinite-lived intangible assets (FAS 142) Long-lived assets (FAS 144) Initial measurement Nonfinancial items in a business combination (FAS 141(R)) Asset retirement obligations (FAS 143) Liabilities for exit costs (FAS 146)

    33. FSP FAS 157-2: Examples of Items Not Subject to FAS 157 Deferral Financial assets and liabilities (FAS 107, 141(R), and 159) Derivatives (FAS 133) Servicing assets and liabilities (FAS 156) Impaired loans measured at fair value of collateral even if the collateral is nonfinancial (FAS 114) In the case of FAS 114 when using practical expedient in paragraph 13, even if the underlying collateral is nonfinancial.In the case of FAS 114 when using practical expedient in paragraph 13, even if the underlying collateral is nonfinancial.

    34. Proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157 Would clarify the application of Statement 157 to measuring the fair value of liabilities Best evidence: quoted market price for the identical liability Example: a bond traded as an asset If quoted market price unavailable, the amount the reporting entity would receive as proceeds if it were to issue the liability on the measurement date Comment period ended February 18, 2008 Final FSP expected in the third quarter of 2008Comment period ended February 18, 2008 Final FSP expected in the third quarter of 2008

    35. FSP APB 14-1 on the Accounting for Certain Convertible Debt Instruments Issued 5/9/2008 Will require separation of all convertible debt instruments that may be settled partially or entirely in cash upon conversion Will require initial measurement of the liability component at the fair value of a similar instrument that does not have an equity component Guidance to be applied retroactively with restatement of prior years statements Effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is not permitted.

    36. Proposed FSP 132(R)-a Objective: To improve disclosures about plan assets and to require nonpublic entities to disclose net periodic cost Requires separate disclosure of the fair value of each major category of plan assets based on the types of assets held in the plan Redeliberations are expected to begin in late June.Redeliberations are expected to begin in late June.

    37. Proposed FSP 132(R)-a Disclosures about the following major categories, if significant, are also required: Cash and cash equivalents Equity securities Governmental debt securities Structured debt Corporate debt securities Asset-backed securities Private equity funds Hedge funds Venture capital funds Real estate Derivatives, segregated by type (interest rate, FX, etc.)

    38. Proposed FSP 132(R)-a The following disclosures are also required: Disclosures about the nature and amount of concentrations of risk arising within or across categories of plan assets Disclosures about fair value measurements, similar to those required by FASB Statement No. 157, Fair Value Measurements.

    39. FSP FAS 142-3 on Intangible Assets Amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. It allows an entity to consider its own assumptions about renewal or extension of the arrangement. No guidance on the measurement or amortization of a recognized intangible asset Provides Enhanced Disclosures Effective for fiscal years beginning after December 15, 2008. Early adoption is prohibited. Guidance for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. Disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Issued 4/25/2008 Enhanced Disclosures: For a recognized intangible asset, an entity shall disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement. In addition to the required disclosures in paragraphs 44 and 45 of Statement 142, an entity shall disclose the following, where applicable: a. The entitys accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset b. In the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class c. For an entity that capitalizes renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is presented, by major intangible asset class. Issued 4/25/2008 Enhanced Disclosures: For a recognized intangible asset, an entity shall disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement. In addition to the required disclosures in paragraphs 44 and 45 of Statement 142, an entity shall disclose the following, where applicable: a. The entitys accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset b. In the period of acquisition or renewal, the weighted-average period prior to the next renewal or extension (both explicit and implicit), by major intangible asset class c. For an entity that capitalizes renewal or extension costs, the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period for which a statement of financial position is presented, by major intangible asset class.

    40. Exposure Draft, Disclosure of Certain Loss Contingencies The proposal to significantly improve the disclosures about certain loss contingencies was released for comment on June 5, 2008. Comments are requested by August 8, 2008. It is proposed to be applied prospectively for financial statements issued for fiscal years ending after December 15, 2008, and for both interim and annual periods in subsequent fiscal years.

    41. Exposure Draft, Disclosure of Certain Loss Contingencies The proposal would significantly expand and improve the qualitative and quantitative disclosures about loss contingencies QualitativeAn entity shall provide disclosures to enable users of financial statements to assess the likelihood, timing, and amount of future cash flows associated with loss contingencies. Such disclosure shall include discussion of the risks loss contingencies pose to the entity and their potential effects on the entitys financial position, cash flows, and results of operations .

    42. Exposure Draft, Disclosure of Certain Loss Contingencies Other disclosures about loss contingencies QualitativeAt a minimum, disclose a description of the contingency (for example, how it arose, its legal or contractual basis, its current status, and the anticipated timing of its resolution), a description of the factors that are likely to affect the ultimate outcome of the contingency along with their potential impact on the outcome, managements qualitative assessment of the most likely outcome of the contingency, and significant assumptions made by management.

    43. Exposure Draft, Disclosure of Certain Loss Contingencies Other disclosures about loss contingencies QuantitativeDisclose the following information about the entitys gross exposure to loss from the contingency: The amount of the claim or assessment against the entity (including any estimated treble or punitive damages, if known), if applicable, or If there is no claim or assessment amount, an estimate of the entitys maximum exposure to loss

    44. Exposure Draft, Disclosure of Certain Loss Contingencies Other disclosures about loss contingencies QuantitativeIn addition, an entity may supplementally disclose managements best estimate of the possible loss or range of loss, if management believes that the amount of the claim or assessment or the maximum exposure to loss is not representative of the entitys actual exposure

    45. Exposure Draft, Disclosure of Certain Loss Contingencies Other disclosures about loss contingencies QuantitativeIn addition, a reconciliation is required, in a tabular format, of the total amount recognized in the aggregate for loss contingencies in its statement of financial position at the beginning and end of the period. Detailed components in the reconciliation are specified.

    46. Exposure Draft, Disclosure of Certain Loss Contingencies Other disclosures about loss contingencies QuantitativeEven if an entity has made an assessment and determined that the likelihood of loss is remote, it shall disclose a loss contingency, or a combination of loss contingencies, if events that are expected to occur in the near-term (within one year) could have a severe impact on the entitys financial position, cash flows, or results of operations.

    47. Hedging Project Project Objectives Simplify accounting for hedging activities Improve the financial reporting of hedging activities to make the accounting model and the associated disclosures easier to understand for financial statement users Resolve hedge accounting practice issues that have arisen under Statement No. 133 Address differences in the accounting for derivative instruments and hedged items or transactions

    48. Hedging Project The hedge accounting approach would establish a fair value methodology to hedge accounting. The approach would eliminate many elements that exist under the current hedge accounting model, including bifurcation-by-risk, the shortcut method, critical terms match, and the requirement to quantitatively assess effectiveness in order to qualify for hedge accounting The items and transactions currently eligible for hedge accounting would continue to be eligible under this approach.

    49. Hedging Project-Major Changes Hedge Effectiveness Qualitative instead of Quantitative Reasonably effective No ongoing effectiveness testing unless circumstances suggest no longer reasonably effective No effectiveness testing at all was considered

    50. Hedging Project - Major Changes Dedesignation Discontinuation of hedge accounting only if hedging relationship is terminated Discontinuation of hedging relationship by merely dedesignating is not permitted

    51. Hedging Project - Major Changes Hedged Risk General model is that the designated hedged risk must be all changes in fair value or variability in cash flows (bifurcation-by-risk not permitted) Two exceptions: Foreign exchange rate risk can be designated as the hedged risk Interest rate risk can be designated as the hedged risk in a hedge of an entitys own debt at inception of the debt

    52. Hedging Project - Major Changes Measurement of Hedged Item in Fair Value Hedges Hedged item and derivative hedging instrument must be independently measured for changes in fair value Not permitted to take the change in fair value of the derivative, change the sign and apply it to the hedged item All of contractual cash flows of the entire hedged item must be included in calculating the fair value Adjust the carrying value of hedged item for changes in fair value during the hedge period

    53. Hedging Project - Major Changes Measuring and Reporting Ineffectiveness in Cash Flow Hedges Compare change in fair value of the actual derivative and the present value of the cumulative change in expected future cash flows on the hedged transaction For example, an entity could compare the change in fair value of the actual derivative with the change in fair value of a derivative that would mature on the date of the forecasted transaction, be priced at market, and provide cash flows that would exactly offset the hedged cash flows The difference would be reported in earnings as ineffectiveness Nonperformance risk must be considered when calculating the fair value of the derivative hedging instrument Permitted to use the same credit adjustment in the derivative that would exactly offset the hedged cash flows as used in the actual derivative

    54. Hedging Project - Major Changes Measuring and Reporting Ineffectiveness in Cash Flow Hedges Hedging with purchased options When a purchased option contract is used as the hedging instrument to provide only one-sided protection, a purchased option derivative that would mature on the date of the forecasted transaction and provide cash flows that would exactly offset the one-sided change in the hedged cash flows could be used for calculating ineffectiveness. Ineffectiveness can be measured using all changes in the options cash flows

    55. Hedging Project - Major Changes Measuring and Reporting Ineffectiveness in Cash Flow Hedges Hedging groups of transactions first 100M in sales for January Compare actual derivative to derivative that settles within a reasonable period of time of cash flows on forecasted transactions Reasonable if the difference in forward rates between that derivative and derivative(s) that would exactly offset cash flows is minimal

    56. Hedging Project - Major Changes Disclosures For hedged items in fair value hedges - table showing amount reported in balance sheet, Statement 133 adjustment, Other fair value adjustments, amount excluding those adjustments Hedging interest rate risk in issued debt how hedging derivative(s) changes maturity and interest rate on debt

    57. Disclosures about Credit Derivatives Background There is a current focus on credit default swaps given turmoil in credit markets Estimated notional amount of outstanding CDS was $43 trillion in June 2007 On actively traded names CDS volume is substantially greater than outstanding debt making it difficult to settle contracts When Delphi defaulted - $28 billion outstanding CDS against $5.2 billion of bonds

    58. Disclosures about Credit Derivatives Objectives Improve disclosures about credit derivatives and guarantees to help users better understand their impact on an entitys financial position, financial performance, and cash flows Close the gap in GAAP Align recognition/measurement and disclosures in same standards

    59. Disclosures about Credit Derivatives Gap in GAAP FIN 45 requires disclosures by guarantors for guarantees within its scope, which includes some, but not all, credit derivatives S133 CDS for which the party purchasing the protection owns the referenced obligation are within the scope of FIN 45s disclosure requirements S133 CDS for which the party purchasing the protection does not own the referenced obligation are not within the scope of FIN 45s disclosure requirements Project would amend S133 and FIN 45 to result in the disclosure requirements for all S133 credit derivatives being included in S133

    60. Disclosures about Credit Derivatives Proposed Disclosures Disclosures for Sellers of Credit Derivatives: The nature of the credit derivative, including the approximate term of the credit derivative, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the credit derivative (for example, the current credit risk of the referenced obligation). The maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative. That maximum potential amount of future payments shall not be reduced by the effect of any amounts that may possibly be recovered under recourse or collateralization provisions in the credit derivative (which are addressed below). If the terms of the credit derivative provide for no limitation to the maximum potential future payments under the credit derivative, that fact shall be disclosed. If the seller is unable to develop an estimate of the maximum potential amount of future payments under the credit derivative, the seller shall disclose the reasons why it cannot estimate the maximum potential amount.

    61. Disclosures about Credit Derivatives Proposed Disclosures Disclosures for Sellers of Credit Derivatives Cont: The fair value of the credit derivative. The nature of (1) any recourse provisions that would enable the seller to recover from third parties any of the amounts paid under the credit derivative and (2) any assets held either as collateral or by third parties that, upon the occurrence of any specified pre-agreed event or condition under the credit derivative, the seller can obtain and liquidate to recover all or a portion of the amounts paid under the credit derivative. The seller shall indicate, if estimable, the approximate extent to which the proceeds from liquidation of those assets would be expected to cover the maximum potential amount of future payments under the credit derivative. In its estimate of potential recoveries, the seller of credit protection should consider the effect of any purchased credit protection with an identical underlying(s).

    62. Disclosures about Credit Derivatives Next Steps Exposure Draft of an FSP expected to be issued in Q2 2008. Final FSP expected to be issued in Q3 2008 Effective for fiscal years and interim periods beginning after November 15, 2008 (same as S161)

    63. Transfers of Financial Assets Objectives Simplify the guidance on accounting for transfers of financial assets in Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Improve consistency and transparency in financial reporting Next steps Issue Exposure Draft in third quarter 2008

    64. Transfers of Financial Assets Recent Board Decisions Remove the concept of the qualifying SPE (QSPE) Derecognition Statement 140 Consolidation Interpretation 46(R), Consolidation of Variable Interest Entities Amend the derecognition model Maintain the existing Statement 140 derecognition model with modifications to paragraphs 9(a) and 9(c) and the full removal of paragraph 9(b) Transfers of portions of financial assets are eligible for derecognition only when it is a participating interest A participating interest has the following characteristics: It represents an ownership interest in an individual financial asset. All cash flows received from the asset are divided among the participating interests in proportion to the share of ownership. Cash flows allocated to a servicer as compensation for servicing activities based on market terms shall not be included in that determination. Participating interest holders have no recourse, other than standard representations and warranties, to the transferor or to each other, and no participating interest holder is subordinated to another. Neither the transferor nor any participating interest holder has the right to pledge or exchange the entire financial asset in which they own a participating interest. A participating interest has the following characteristics: It represents an ownership interest in an individual financial asset. All cash flows received from the asset are divided among the participating interests in proportion to the share of ownership. Cash flows allocated to a servicer as compensation for servicing activities based on market terms shall not be included in that determination. Participating interest holders have no recourse, other than standard representations and warranties, to the transferor or to each other, and no participating interest holder is subordinated to another. Neither the transferor nor any participating interest holder has the right to pledge or exchange the entire financial asset in which they own a participating interest.

    65. Transfers of Financial Assets Recent Board Decisions, continued Interests in the transferred financial assets that continue to be held by the transferor represent proceeds of the transfer when sale accounting is achieved All proceeds of the transfer must be recognized at fair value Enhanced Disclosures

    66. Interaction between Statement 140 and Interpretation 46(R) Elimination of the QSPE concept in Statement 140 will remove the scope exception in Interpretation 46(R) Removal of the scope exception for QSPEs will result in a significant increase in the population of entities subject to Interpretation 46(R) Transfers of Financial Assets / Interpretation 46(R)

    67. Interpretation 46(R) Recent Board Decisions Continuous Reconsideration Events Enhanced Disclosures Current Deliberations Assessment of the design of the VIE Determination of the Primary Beneficiary Begin with a qualitative assessment to determine the variable interest that has (1) power to direct matters that significantly impact the activities of the VIE, and (2) the right to receive benefits from the VIE along with the obligation to potentially absorb the related risks If the qualitative assessment is inconclusive, perform an expected loss calculation using the current expected loss model

    68. Proposed FSP EITF 03-6-1, EPS Guidance for Share Based Payments with Dividends Rights to dividends or dividend equivalents (whether paid or unpaid) on unvested share-based payment awards that would provide a non-contingent transfer of value to the holder of the share-based payment award constitute participation rights Therefore, should be included in the computation of basic EPS pursuant to the two-class method Effective date fiscal years beginning after December 15, 2008 Transition method - retrospective Likely to be issued around June 20Likely to be issued around June 20

    69. FSP ARB 43-a, Amendment of the Inventory Provisions of Chapter 4 of ARB No. 43 Objective Amends ARB No. 43 to require that inventories included in an entitys trading activities be initially and subsequently measured at fair value with changes in fair value recognized in earnings. Scope This FSP applies to inventory (as defined in ARB 43) which (1) are held for sale in the ordinary course of business, (2) are in process of production for such sale, or (3) are to be currently consumed in the production of goods or services to be available for sale. New disclosures required Proposed effective date is FY beginning after November 15, 2008 Proposed transition method is a cumulative adjustment to opening R/E

    70. Proposed EITF Issue 07-5, Whether an Instrument is Indexed to an Entitys Own Stock Issue addresses the first part of the scope exception in paragraph 11(a) of Statement 133: 11(a) scope exception specifies that a contract that is both (1) indexed to its own stock and (2) classified in stockholders equity is not a derivative under that statement Objective The objective of this Issue is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity's own stock.

    71. Proposed EITF Issue 07-5 Evaluate whether an equity-linked instrument (or embedded feature) is indexed to the entitys own stock using the following two-step approach Step 1: Evaluate the instruments contingent exercise provisions, if any Carries forward existing guidance on contingencies in EITF 01-6 Step 2: Evaluate the instruments settlement provisions Fixed shares for fixed strike price would be considered indexed to entitys own stock If not fixed-for-fixed, still considered indexed to own stock if only variables that affect settlement amount are inputs to fair value of a fixed-for-fixed forward or option on equity shares

    72. Proposed EITF Issue 07-5

    73. Proposed EITF Issue 07-5

    74. Proposed EITF Issue 07-5 Application to equity-linked instruments (or embedded features) with foreign currency elements Not indexed to own stock if strike price is not in issuers functional currency Currency in which underlying shares are traded does not affect whether the instrument is indexed to entitys own stock Consistent with proposed DIG Issue C21 Market-based employee stock option valuation instruments would be subject to the guidance in this Issue Proposed effective date FY beginning after 12/15/08 Proposed transition method - cumulative-effect adjustment to the opening balance of R/E

    75. Other Proposed EITF Issues Consensuses-for-exposure reached Issue 08-3, Accounting by Lessees for Nonrefundable Maintenance Deposits Issue 08-4, Transition Guidance for Conforming Changes to EITF Issue No. 98-5, 'Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios Other current EITF agenda items Issue 08-1, Revenue Recognition for a Single Unit of Accounting Issue 08-2, Lessor Revenue Recognition for Maintenance Services

    76. Proposed FSP 144-a, Discontinued Operations Definition of Discontinued Operations FASB and IASB agreed to a converged definition of discontinued operations A component that has been (or will be) disposed of and meets the definition of an operating segment would be reported as a discontinued operation Additional financial information to be presented in the notes for all components that have been (or will be) disposed of Exposure draft expected in second quarter 2008

    77. Questions?