GAAP Checklist

U.S.
Generally Accepted Accounting Principles Compliance Checklist

December 2008
Audit Tax Consulting Financial Advisory
Company Name: Prepared By: Reviewed By:
Period: Date: Date:
General This checklist summarizes accounting and disclosure requirements set forth in AICPA Accounting Research Bulletins (ARB), Accounting Principles Board Opinions (APB), FASB Statements of Financial Accounting Standards (FASB), FASB Staff Positions (FSP), FASB Interpretations (FIN), FASB Statement 133 Implementation Issues (DIG), FASB Technical Bulletins (FTB), AICPA Statements of Position (SOP), EITF Issues (EITF), and AICPA Accounting Interpretations (AIN). The information in this checklist reflects pronouncements that are effective as of December 31, 2008. You should also consider pronouncements issued or effective subsequently that may be applicable to the financial statements. You should also consider other professional literature, such as Audit and Accounting Guides (AG). Use of This Checklist The checklist may be used to assist in considering compliance with those pronouncements. It is not a substitute for your understanding of such pronouncements and the exercise of your judgment. You are presumed to have a thorough understanding of the pronouncements and should refer to the text of the pronouncements, as necessary, in considering particular items in this checklist. The items in this checklist are referenced to the applicable sections of Accounting Standards, Current Text, 2008/2009 edition, published by the Financial Accounting Standards Board. The items in this checklist are also referenced to the original pronouncements listed in the first paragraph. This checklist is provided solely for your intended use and should not be provided to any other person or entity. Deloitte & Touche LLP is not, by means of this checklist, rendering accounting or other professional advice or services. This checklist is not a substitute for professional advice or services, nor should it be used as the basis for any decision or action that may affect your business. Deloitte & Touche LLP shall not be responsible for any loss sustained by any person who relies on this checklist.
Table of Contents (linked)

Page A06 ACCOUNTING CHANGES ESTIMATES (12/08) ....................................................................................... 7 A06 ACCOUNTING CHANGES ESTIMATES (12/08) ....................................................................................... 7 A06 ACCOUNTING CHANGES PRINCIPLES (12/08) ...................................................................................... 7 A06 ACCOUNTING CHANGES PRINCIPLES (12/08) .................................................................................... 10 A50 ASSET RETIREMENT OBLIGATIONS (12/08) ............................................................................................. 21 B05 BALANCE-SHEET CLASSIFICATION: CURRENT ASSETS AND CURRENT LIABILITIES (12/08) ........................................................................................................................................................................ 22 B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF OBLIGATIONS THAT ARE CALLABLE BY THE CREDITOR (12/08)................................................................................................................... 23 B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED (12/08) ..................................................................................... 24 B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) .................................................................................. 26 B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) .................................................................................. 29 C08 CAPITAL STOCK: CAPITAL TRANSACTIONS (12/08)............................................................................... 30 C11 CAPITAL STOCK: DIVIDENDS-IN-KIND (12/08)......................................................................................... 32 C11 CAPITAL STOCK: DIVIDENDS-IN-KIND (12/08)......................................................................................... 33 C20 CAPITAL STOCK: STOCK DIVIDENDS AND STOCK SPLITS (12/08) ...................................................... 33 C23 CAPITAL STOCK: TREASURY STOCK (12/08) .......................................................................................... 34 C23 CAPITAL STOCK: TREASURY STOCK (12/08) .......................................................................................... 36 C24 CAPITAL STRUCTURE: DISCLOSURES (12/08) ........................................................................................ 36 C25 CASH FLOWS STATEMENT (12/08) ............................................................................................................ 38 C28 FINANCIAL REPORTING AND CHANGING PRICES (12/08)...................................................................... 50 C32 COMMITMENTS: LONG-TERM OBLIGATIONS (12/08) ............................................................................. 51 C38 COMPENSATION TO EMPLOYEES: DEFERRED COMPENSATION AGREEMENTS (12/08) ........................................................................................................................................................................ 52 C44 COMPENSATION TO EMPLOYEES: PAID ABSENCES (12/08) ................................................................ 54 C44 COMPENSATION TO EMPLOYEES: PAID ABSENCES (12/08) ................................................................ 55 C51 CONSOLIDATION (12/08) ............................................................................................................................. 55 C59 CONTINGENCIES (12/08) ............................................................................................................................ 67 C59 CONTINGENCIES (12/08) ............................................................................................................................ 71 C67 CONTRIBUTIONS (12/08) ............................................................................................................................. 75 C67 CONTRIBUTIONS (12/08) ............................................................................................................................. 78 D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) ........................................................................................................................................................................ 80
Note: Where identical titles are listed, accounting compliance sections are listed first, followed by the related disclosure compliance section. 3
D10 DEBT: INDUCED CONVERSION OF CONVERTIBLE DEBT (12/08) ......................................................... 87 D18 DEBT: PRODUCT FINANCING ARRANGEMENTS (12/08)........................................................................ 88 D40 DEPRECIATION (12/08) ............................................................................................................................... 89 D40 DEPRECIATION (12/08) ............................................................................................................................... 90 F25 FINANCIAL INSTRUMENTS: DISCLOSURE (12/08) .................................................................................. 91 F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) ...................................................................................... 93 F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) ...................................................................................... 96 F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) .................................................................................. 100 F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) .................................................................................. 108 F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) ....................................................................................................................................................... 115 F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) ....................................................................................................................................................... 120 F43 FINANCIAL STATEMENTS: COMPARATIVE FINANCIAL STATEMENTS (12/08) .................................. 122 G80 GUARANTEES (12/08) ............................................................................................................................... 122 G80 GUARANTEES (12/08) ............................................................................................................................... 129 I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) ...................................................................................................................................................................... 131 I17 INCOME STATEMENT PRESENTATION: EXTRAORDINARY ITEMS (12/08) ......................................... 136 I22 INCOME STATEMENT PRESENTATION: UNUSUAL OR INFREQUENT ITEMS (12/08) ........................ 137 I27 ACCOUNTING FOR INCOME TAXES (12/08) ............................................................................................. 138 I27 ACCOUNTING FOR INCOME TAXES (12/08) ............................................................................................. 165 I50 INSURANCE COSTS (12/08) ....................................................................................................................... 172 I50 INSURANCE COSTS (12/08) ....................................................................................................................... 173 I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) ................................................................. 176 I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) ................................................................. 180 I69 ADDITIONAL NOTES (12/08) ....................................................................................................................... 181 I69 INTEREST: IMPUTATION OF AN INTEREST COST (12/08) ..................................................................... 183 I78 INVENTORY (12/08) ..................................................................................................................................... 183 I78 INVENTORY (12/08) ..................................................................................................................................... 185 IN6 INSURANCE INDUSTRY: FINANCIAL GUARANTEE INSURANCE CONTRACTS (12/08) ..................... 186 L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) .................................................................................. 189 L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) .................................................................................. 206 L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) ................................................................................. 208 L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) ................................................................................. 226 L20 LENDING ACTIVITIES (12/08) .................................................................................................................... 229 L20 LENDING ACTIVITIES (12/08) .................................................................................................................... 233 L35 LIABILITIES: EXTINGUISHMENTS (12/08) ............................................................................................... 234 4
L35 LIABILITIES: EXTINGUISHMENTS (INCLUDING MODIFICATIONS OR EXCHANGES OF DEBT INSTRUMENTS) (12/08) ............................................................................................................................... 237 N35 NONMONETARY TRANSACTIONS (12/08) ............................................................................................... 239 N35 NONMONETARY TRANSACTIONS (12/08) ............................................................................................... 241 P16 PENSION COSTS (12/08) ........................................................................................................................... 241 P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) ..................................................................................................... 264 P32 POSTEMPLOYMENT BENEFITS (12/08) ................................................................................................... 297 P32 POSTEMPLOYMENT BENEFITS (12/08) ................................................................................................... 298 Q15 QUASI-REORGANIZATIONS (12/08) ......................................................................................................... 298 R10 REAL ESTATE TRANSACTIONS (12/08) ................................................................................................... 299 R36 RELATED PARTIES (12/08) ....................................................................................................................... 301 R36 RELATED PARTIES (12/08) ....................................................................................................................... 302 R50 RESEARCH AND DEVELOPMENT (12/08) ............................................................................................... 304 R50 RESEARCH AND DEVELOPMENT (12/08) ............................................................................................... 308 R70 RETAINED EARNINGS (12/08) .................................................................................................................. 309 R70 RETAINED EARNINGS (12/08) .................................................................................................................. 309 R75 REVENUE RECOGNITION (12/08)............................................................................................................. 309 R75 REVENUE RECOGNITION (12/08)............................................................................................................. 318 T10 TAXES: REAL AND PERSONAL PROPERTY TAXES (12/08) ................................................................. 324 V18 VALUATION: USE OF VALUATION ALLOWANCES (12/08) .................................................................... 324 COEXISTING FINANCIAL STATEMENTS (12/08) ................................................................................................. 325 OTHER COMPREHENSIVE BASIS OF ACCOUNTING (12/08) ............................................................................ 325 PUBLIC ENTERPRISES (12/08) ............................................................................................................................. 326 FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) .................................................. 355 FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) .................................................. 359 INVESTMENTS: EQUITY METHOD (12/08) .......................................................................................................... 361 INVESTMENTS: EQUITY METHOD (12/08) .......................................................................................................... 366 BUSINESS COMBINATIONS (12/08) ...................................................................................................................... 368 BUSINESS COMBINATIONS (12/08) ...................................................................................................................... 386 TROUBLED DEBT RESTRUCTURINGS (12/08) .................................................................................................... 399 OIL AND GAS PRODUCING ACTIVITIES (12/08) .................................................................................................. 399 OIL AND GAS PRODUCING ACTIVITIES (12/08) .................................................................................................. 403 OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) ................................................................................. 404 C04 CONSTRUCTION-TYPE CONTRACTS (12/08) ......................................................................................... 414 C05 RENEGOTIATION (12/08) ........................................................................................................................... 420 CONSTRUCTION-TYPE CONTRACTS (12/08)...................................................................................................... 420 C05 RENEGOTIATION (12/08) ........................................................................................................................... 424 5
DEVELOPMENT STAGE ENTERPRISES (12/08) .................................................................................................. 425 DEVELOPMENT STAGE ENTERPRISES (12/08) .................................................................................................. 425 PREFERRED STOCK (12/08) ................................................................................................................................. 426 PREFERRED STOCK (12/08) ................................................................................................................................. 429 STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) .............................................. 432 STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) .............................................. 470 RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) ............................................................................ 482 R55 RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) ................................................................ 486 REGULATED OPERATIONS (12/08) ...................................................................................................................... 487 REGULATED OPERATIONS (12/08) ...................................................................................................................... 498 SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) ................................................. 499 SOFTWARE REVENUE RECOGNITION AND COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED (12/08) ....................................................................................... 538 ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08)............................................................ 538 ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08)............................................................ 575 FAIR VALUE MEASUREMENTS (12/08) ................................................................................................................ 593 FAIR VALUE MEASUREMENTS (12/08) ................................................................................................................ 600 THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) .............................................. 608 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08)..................................................................... 612 I08 IMPAIRMENTS (12/08) ................................................................................................................................. 645 IMPAIRMENT OF A LONG-LIVED ASSET TO BE HELD AND USED (12/08) ....................................................... 645 IMPAIRMENT OF A LOAN (12/08) .......................................................................................................................... 651 I08 IMPAIRMENTS (12/08) ................................................................................................................................. 658 IMPAIRMENT OF LONG-LIVED ASSETS TO BE HELD AND USED (12/08)........................................................ 658 IMPAIRMENT OF A LOAN (12/08) .......................................................................................................................... 659 DEBT AND EQUITY SECURITIES (12/08) ............................................................................................................. 660 DEBT AND EQUITY SECURITIES (12/08) ............................................................................................................. 674 D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) .......................................................................................... 681 REPORTING COMPREHENSIVE INCOME (12/08) ............................................................................................... 688 GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) ..................................................................................... 691 GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) ..................................................................................... 700 COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) .............................................................. 703 COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) .............................................................. 710 SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08)...................................................................... 711
Accounting: A06 ACCOUNTING CHANGES ESTIMATES (12/08) A. Reporting a Change in Accounting Estimate 1. Are the effects of changes in accounting estimates accounted for either in (a) the period of change, if the change affects that period only, or (b) the period of change and future periods, if the change affects both? [FASB 154.19] 2. Are changes in accounting estimates that are effected in whole or in part by a change in accounting principle reported as a change in an estimate? [NOTE: This is necessary because changes of this type often are related to the continuing process of obtaining additional information and revising estimates and, therefore, are considered changes in estimates.] [FASB 154.20] 3. Is the change in accounting estimate that is effected as a change in accounting principle justifiable on the basis that it is preferable? [FASB 154.21]
Yes
No
NA Comments/References
Disclosure: A06 ACCOUNTING CHANGES ESTIMATES (12/08) 1. If a change in an accounting estimate affects several future periods, is its effect on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), and any related per-share amounts of the current period disclosed? [FASB 154.22] 2. If a change in an accounting estimate has no material effect in the period of change, but is reasonably certain to materially affect later periods, is the change disclosed whenever the financial statements of the period of change are presented? [FASB 154.22]
Yes
No
Accounting: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) A. Reporting a Change in Accounting Principle 1. If there have been any changes in generally accepted accounting principles from those previously adopted, is the change (a) required by a newly issued accounting pronouncement or (b) justified on the basis that the new
Yes
No
NA
Comments/References
Accounting: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) principle is preferable? Preferability among accounting principles is determined on the basis of whether the new principle constitutes an improvement in financial reporting. [FASB 154.5, 12-.14] 2. If the change in accounting is to adopt a new pronouncement, did the method of the change follow the required (allowed) method stated in the new pronouncement? Were the disclosures required by the new pronouncement provided? 3. A method of accounting that was previously adopted for a type of transaction or event which is being terminated or which was a single, nonrecurring event in the past should not be changed. Has the entity not changed an accounting method previously adopted for a type of transaction or event that is being terminated or that was a single, nonrecurring event in the past? [FASB 154.13] 4. If a change in accounting principle has occurred, has it been applied through retrospective application of the new accounting principle to all prior periods unless it is impracticable to do so? (Note: Paragraph 11 of FASB 154 sets forth the conditions that must be met to assert impracticability.) [FASB 154.7] 5. Has the retrospective application been accounted for as follows: [FASB 154.7] a. The cumulative effect of the change to the new accounting principle on periods prior to those presented has been reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented? b. An offsetting adjustment, if any, has been made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period? c. Financial statements for each individual prior period presented have been adjusted to reflect the periodspecific effects of applying the new accounting principle? 6. If the cumulative effect of applying a change in accounting principle to all prior periods can be determined, but it was impracticable to determine the period-specific effects of that change on all prior periods presented, was the cumulative effect of the change to the
Yes
No
NA
Comments/References
Accounting: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) new accounting principle applied to the carrying amounts of assets and liabilities as of the beginning of the earliest period to which the new accounting principle can be applied? [FASB 154.8] a. Was an offsetting adjustment, if any, made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period? [FASB 154.8] 7. If it was impracticable to determine the cumulative effect of applying a change in the accounting principle to any prior period, was the new accounting principle applied as if the change was made prospectively as of the earliest date practicable? [FASB 154.9] 8. Were only the direct effects of a change in accounting principle, including any related income tax effects, included in the retrospective application? [FASB 154.10] a. If indirect effects were actually incurred and recognized, were they reported in the period in which the accounting change was made? [FASB 154.10] 9. If a change in an accounting principle was made in an interim period, was it reported by retrospective application? a. Was the impracticability exception not applied to prechange interim periods of the fiscal year in which the change is made? b. If retrospective application to prechange interim periods was determined to be impracticable, was the desired change made as of the beginning of a subsequent fiscal year? [FASB 154.15] 10. If an accounting change results in financial statements that are, in effect, the statements of a different reporting entity, was the change retrospectively applied to the financial statements of all prior periods presented to show financial information for the new reporting entity for those periods? [FASB 154.23] a. Were previously issued interim financial information presented on a retrospective basis? b. Was the amount of interest cost previously
Yes
No
NA
Comments/References
Accounting: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) capitalized through application of FASB 58 not changed when retrospectively applying the accounting change to the financial statements of prior periods?
Yes
No
NA
Comments/References
Disclosure: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) A. Justification for a Change in Accounting Principle 1. If the reason for the change in accounting principle is to adopt a new pronouncement, were the disclosures required by the new pronouncement provided? B. Reporting a Change in Accounting Principle or in the Entity 1. If the entity had a change in accounting principle (including a change in estimate effected by a change in accounting principle) is the following information disclosed in the financial statements in the period in which the change is made: [FASB 154.17] a. The nature of and reason for the change in accounting principle, including an explanation of why the newly adopted accounting principle is preferable? b. The method of applying the change? c. A description of the prior-period information that has been retrospectively adjusted, if any? d. The effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), any other affected financial statement line item, and any affected per-share amounts for the current period and any prior periods retrospectively adjusted? [Presentation of the effect on financial statement subtotals and totals other than income from continuing operations and net income (or other appropriate captions of changes in the applicable net assets or performance indicator) is not required.] e. The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented? f. If retrospective application to all prior periods is
Yes
No
10
Disclosure: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) impracticable, disclosure of the reasons therefor, and a description of the alternative method used to report the change? 2. If indirect effects of a change in accounting principle are recognized is the following disclosed: a. A description of the indirect effects of a change in accounting principle, including the amounts that have been recognized in the current period, and the related per-share amounts, if applicable? b. Unless impracticable, the amount of the total recognized indirect effects of the accounting change and the related per-share amounts, if applicable, that are attributable to each prior period presented? 3. In the fiscal year in which a new accounting principle is adopted, did the entity disclose for interim periods after the date of adoption the effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), and related per-share amounts, if applicable, for those post-change interim periods? [FASB 154.18] 4. If a public company that regularly reports interim information makes an accounting change during the fourth quarter of its fiscal year and does not report the data specified in paragraph 30 of Opinion No. 28 (as amended) has the entity disclosed in a separate fourth quarter report or its annual report the effects of the accounting change on interim-period results in a note to the annual financial statements for the fiscal year in which the change is made? [FASB 154.22] C. Materiality [NOTE: Companies registered with the SEC or contemplating registering with the SEC should ensure compliance with the provisions of SAB 99.] 1. If a change in accounting principle has no material effect in the period of change but is reasonably certain to have a material effect in later periods, are the disclosures required by paragraph 17(a) of FASB 154 provided whenever the financial statements of the period of change are presented? [FASB 154.17] D. Change in Reporting Entity 1. When there has been a change in reporting entity, do the financial statements of the period of the change describe
Yes
No
11
Disclosure: A06 ACCOUNTING CHANGES PRINCIPLES (12/08) the nature of the change and the reason for it? [FASB 154. 24] a. If a change in reporting entity occurs, has the effect of the change on income before extraordinary items, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), and any related per share amounts been disclosed for all periods presented? [FASB 154.24] b. If a change in reporting entity does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods, has the nature of and reason for the change been disclosed whenever the financial statements of the period of change are presented? [FASB 154.24] A06 REPORTING A CORRECTION OF AN ERROR (12/08) 1. If the financial statements are restated to correct an error, did the entity disclose that its previously issued financial statements have been restated, along with a description of the nature of the error? [FASB 154.26] 2. Has the entity disclosed (a) the effect of the correction on each financial statement line item and any per-share amounts affected for each prior period presented (b) the cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position, as of the beginning of the earliest period presented? [FASB 154.26] 3. In the case of public registrants, has the guidance in SEC Staff Accounting Bulletin ("SAB") 108 been considered? SAB 108 provides guidance to consider the effects of prior-year misstatement in quantifying current-year misstatements. SAB 108 states that registrants should use both a balance-sheet ("iron curtain") and an income statement (rollover) approach when quantifying and evaluating the materiality of a misstatement. [NOTE: See Section A35 "Adjustments of Financial Statements for Prior Periods, for additional disclosures."]
Yes
No
Disclosure: A10 ACCOUNTING POLICIES (12/08) 1. If financial statements purport to present fairly financial position, cash flows, and results of operations in
Yes
No
12
Disclosure: A10 ACCOUNTING POLICIES (12/08) accordance with generally accepted accounting principles, is a description of all significant accounting policies of the reporting entity included as an integral part of the financial statements? [APB 22.08] 2. Disclosure of accounting policies is particularly useful if given in a separate Summary of Significant Accounting Policies preceding the notes to the financial statements or as the first note. Does the disclosure of accounting policies encompass important judgments about the appropriateness of principles relating to recognition of revenue and allocation of asset costs to current and future periods, in particular those accounting principles and methods that materially affect the determination of financial position, cash flows, or results of operations (such as basis of consolidation, investments in marketable equity securities, depreciation methods, amortization of intangibles, inventory pricing, and recognition of profit on long-term construction-type contracts, stock-based compensation, derivative financial instruments, shipping and handling costs) and involve: [APB 22.12-.13, .15] a. Selection from existing acceptable alternatives? b. Principles and methods peculiar to the industry in which the reporting entity operates, even if they are predominantly followed in that industry? c. Unusual or innovative applications of generally accepted accounting principles and, as applicable, of principles and methods peculiar to the industry in which the reporting entity operates? [NOTE: Financial statement disclosure of accounting policies should not duplicate details (e.g., composition of inventories or of plant assets) presented elsewhere as part of the financial statements. In some cases, the disclosure of accounting policies should refer to related details presented elsewhere as part of the financial statements (e.g., changes in accounting policies during the period should be described with cross-reference to the disclosure required by FASB Statement No. 154, Accounting Changes and Error Corrections.] [FASB 154, paragraph C3]
Yes
No
13
Accounting: A31 ADDITIONAL PAID-IN CAPITAL (12/08) 1. Is capital surplus, however created, not used to relieve income of the current or future years of charges that would otherwise be made there against? [ARB 43, Ch. 1A.02] [NOTE: This rule might be subject to the exception that where, upon reorganization, a reorganized enterprise would be relieved of charges that would be made against income if the existing enterprise were continued, it might be regarded as permissible to accomplish the same result without reorganization provided the facts were as fully revealed and the actions as formally approved by the shareholders as in reorganization. Refer to the Quasi Reorganization guidance.]
Yes
No
Disclosure: A35 ADJUSTMENTS OF FINANCIAL STATEMENTS FOR PRIOR PERIODS (12/08) 1. Are only items of profit or loss related to the correction of an error in the financial statements of a prior period reported as prior-period adjustments? [NOTE: Certain accounting changes are applied retroactively with the financial statements restated for all prior periods presented (see A06 Accounting Changes, question B.2.)] [FASB 16.11 (as amended by FASB 109)] 2. If there are prior-period adjustments: [APB 9] a. Are the resulting effects (both gross and net of applicable income tax) on the net income of prior periods disclosed in the annual report for the year in which the adjustments are made? [APB 9.26] b. If financial statements are presented only for a single period, are the effects of the restatement on the balance of retained earnings at the beginning of the period and on net income of the immediately preceding period disclosed? [APB 9.26] c. If financial statements for more than one period are presented, are the effects disclosed for each period included in the statements (including the amounts of income tax applicable to the prior-period adjustments)? [APB 9.26]
Yes
No
14
Disclosure: A35 ADJUSTMENTS OF FINANCIAL STATEMENTS FOR PRIOR PERIODS (12/08) [NOTE: When comparative statements are presented (including historical statistical type summaries), corresponding adjustments shall be made of the amounts of net income, its components, retained earnings balances, and other affected balances for all of the periods presented to reflect the retroactive application of the prior period adjustments.] [APB 9.18] d. Are the reported amounts of net income (and the components thereof), as well as other affected items, restated appropriately with disclosure in the first historical or statistical summary of financial data published after the adjustments? [APB 9.27] 3. Have the following disclosures been made in interim financial reports about an adjustment related to prior interim periods of the current fiscal year? In financial reports for the interim period in which the adjustment occurs: a. The effect on income from continuing operations, net income, and related per share amounts for each prior interim period of the current fiscal year b. Income from continuing operations, net income, and related per share amounts for each prior interim period restated in accordance with paragraph 14 of FASB 16. [FASB 16.15]
Yes
No
15
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) A. Obligation 1. For entities that have adopted FASB 157 Has the entity recognized the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made? [NOTE: Asset retirement obligations are required to be measured at fair value. The "probable" approach for liability recognition under FASB 5 and FIN 14 should not be used, and therefore recording the "low end of a range" is not acceptable. Statement 157 should be followed for fair value measurements.] [FASB 143.03-.05, FASB 157] [Is the asset retirement obligation conditional on a future event whereby the timing and (or) method of settlement may or may not be within the control of the entity? In such circumstances an asset retirement obligation would be reasonably estimable if (a) it is evident that the fair value of the obligation is embodied in the acquisition price of the asset, (b) an active market exists for the transfer of the obligation, or (c) sufficient information exists to apply an expected present value technique.] [FIN 47.4] 1a. For entities that have adopted FASB 157 Has the entity used expected present value technique to estimate the fair value of a liability for an asset retirement obligation? [FASB 143.08 as amended by FASB 157] 1b. For entities that have adopted FASB 157 Has the entity discounted the expected cash flows using a creditadjusted risk-free rate? [FASB 143.08 as amended by FASB 157] 2. If any incremental liability is incurred in a subsequent reporting period, has a separate layer been measured at fair value and recognized as an additional layer of the original liability? [FASB 143.10] B. Recognition and Allocation of an Asset Retirement Cost 1. Upon initial recognition of a liability for an asset retirement obligation, has the entity capitalized the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability? [FASB 143.11] 2. Has the entity allocated its asset retirement cost to expense using a systematic and rational allocation method over its useful life? [FASB 143.11]
Yes
No
16
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) C. Asset Impairment 1. In applying the provisions of FASB 144: [FASB 143.12] a. Has the entity included capitalized asset retirement costs in the carrying amount of the asset being tested for impairment? b. Have the estimated future cash flows related to the liability for an asset retirement obligation that has been recognized in the financial statements been excluded from (a) the undiscounted cash flows used to test the asset for recoverability and (b) the discounted cash flows used to measure the asset's fair value? c. If the fair value of the asset is based on a quoted market price and that price considers the costs that will be incurred in retiring that asset, has the quoted market price been increased by the fair value of the asset retirement obligation for purposes of measuring impairment? D. Subsequent Recognition and Measurement 1. In periods subsequent to initial measurement, has the entity recognized period-to-period changes in the liability for an asset retirement obligation resulting from (a) the passage of time and (b) revisions to either the timing or the amount of the original estimate of undiscounted cash flows? [FASB 143.13] 2. If an entity recognized period-to-period changes in the liability for an asset retirement obligation, has the entity measured and incorporated changes due to the passage of time into the carrying amount of the liability before measuring changes resulting from a revision to either the timing or amount of estimated cash flows? [FASB 143.13] 3. If an entity recognized period-to-period changes in the liability for an asset retirement obligation due to the passage of time: [FASB 143.14] a. Has the entity applied an interest method of allocation to measure the amount of the liability at the beginning of the period? b. Has the entity used a credit-adjusted risk-free rate that existed when the liability, or portion thereof, was initially measured to measure the change? c. Has the entity recognized an increase in the carrying
Yes
No
17
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) amount of the liability as an expense classified as an operating item in the statement of income (e.g., accretion expense shall not be considered interest cost for the purposes of applying FASB 34)? 4. If an entity recognized period-to-period changes in the liability for an asset retirement obligation due to changes resulting from revisions to the timing or amount of the original estimate of undiscounted cash flows: [FASB 143.15] a. Has the increase or decrease in (a) the carrying amount of the liability for an asset retirement obligation and (b) the related asset retirement cost been capitalized as part of the carrying amount of the related long-lived asset? b. Have upward revisions in the amount of undiscounted estimated cash flows been discounted using the current credit-adjusted risk-free rate? c. Have downward revisions in the amount of undiscounted estimated cash flows been discounted using the credit-adjusted risk-free rate that existed when the original liability was recognized? (1) If the entity cannot identify the prior period to which the downward revision relates, was the weighted-average credit-adjusted risk-free rate used to discount the downward revision to estimated future cash flows? d. Has the entity adjusted the amount of asset retirement cost allocated to expense in the period of change if the change affects that period only or in the period of change and future periods if the change affects more than one period as required by APB 20.31 for a change in estimate? e. Adjustments of capitalized asset retirement costs will affect subsequent depreciation of the related asset. Will such adjustments be depreciated on a prospective basis? E. Effects of Funding and Assurance Provisions 1. For a previously recognized asset retirement obligation, have the changes in funding and assurance provisions not had an effect on the initial measurement or accretion of that liability? The changes in funding and assurance provisions may affect the credit-adjusted risk-free rate used to discount upward revisions in undiscounted cash
Yes
No
18
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) flows for that obligation. [FASB 143.16] 2. Have the costs associated with complying with funding or assurance provisions been accounted for separately from the asset retirement obligation? [FASB 143.16] F. Leasing Transactions 1. If the entity is a lessee, have the obligations in connection with leased property, whether imposed by a lease agreement or by a party other than the lessor, that meet the definition of either minimum lease payments or contingent rentals in FASB 13.05 been accounted for by the entity (lessee) in accordance with the requirements of FASB 13 (as amended)? [FASB 143.17] 2. If the entity is a lessee, have the obligations in connection with leased property, whether imposed by a lease agreement or by a party other than the lessor, that are legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, or development and (or) the normal operation of a long-lived asset, but do not meet the definition of either minimum lease payments or contingent rentals in FASB 13.05, been accounted for by the entity (lessee) in accordance with the requirements of FASB 143? [FASB 143.17] 3. If the entity is a lessor, have the obligations in connection with leased property that are legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, or development and (or) the normal operation of a long-lived asset, been accounted for by the entity (lessor) in accordance with the requirements of FASB 143? [FASB 143.18] G. Rate-Regulated Entities 1. If the requirements in FASB 71 are met, has the regulated entity recognized a regulatory asset or liability for differences in the timing of recognition of the period costs associated with asset retirement obligations for financial reporting pursuant to FASB 143 and rate-making purposes? [FASB 143.20] 2. Has the regulated entity included the capitalized amount of an asset retirement cost in the assessment of impairment of long-lived assets? [FASB 143.21] 3. Has the regulated entity applied FASB 90, Regulated Enterprises Accounting for Abandonments and Disallowances of Plant Costs, to the asset retirement cost
Yes
No
19
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) related to the long-lived asset that has been closed or abandoned? [FASB 143.21] H. European Union Electronic Waste Obligations [NOTE: The guidance contained in FSP 143-1 should be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country.] 1. If the entity is a commercial user of historical waste equipment as defined by Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the "Directive"), has the entity recorded an asset retirement obligation related to their responsibility under the Directive? [FSP 143-1.4] 2. If the entity is a commercial user of historical waste equipment and has settled the historical waste equipment obligation by transferring it to the seller of replacement equipment, has the entity determined the portion of the total amount paid to the producer that relates to the transfer of the obligation and reduced the value of the newly acquired asset accordingly? [FSP 143-1.6] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 89-13, Accounting for the Cost of Asbestos Removal This Issue discusses whether costs incurred to treat asbestos (1) within a reasonable time period after a property with a known asbestos problem is acquired, or (2) in an existing property, should be capitalized as part of the cost of the property subject to an impairment test for that property or be expensed. Subsequent to the adoption of FASB 143, this consensus does not apply to obligations for asbestos removal that are within the scope of FASB 143. 90-8, Capitalization of Costs to Treat Environmental Contamination This Issue discusses whether, in general, environmental contamination treatment costs should be charged to expense. Those costs may be capitalized if recoverable but only if any one of the following criteria is met: a. The costs extend the life, increase the capacity, or improve the safety or efficiency of property owned by the company. b. The costs mitigate or prevent environmental
Yes
No
20
Accounting: A50 ASSET RETIREMENT OBLIGATIONS (12/08) contamination that has yet to occur and that otherwise may result from future operations or activities. In addition, the costs improve the property compared with its condition when constructed or acquired, if later. c. The costs are incurred in preparing for sale that property currently held for sale. Subsequent to the adoption of FASB 143, this consensus does not apply to obligations for environmental contamination treatment costs that are within the scope of FASB 143. 95-23, The Treatment of Certain Site Restoration/Environmental Exit Costs When Testing a LongLived Asset for Impairment The Task Force reached a consensus that whether those environmental exit costs that have not been recognized as a liability for accounting purposes should be included in the undiscounted expected future cash flows used to test a long-lived asset for recoverability under FASB 144 depends on management's intent with respect to the asset.
Yes
No
Disclosure: A50 ASSET RETIREMENT OBLIGATIONS (12/08) 1. Has the entity disclosed the following information about its asset retirement obligations: [FASB 143.22] a. A general description of the asset retirement obligations and the associated long-lived assets? b. The fair value of assets that are legally restricted for purposes of settling asset retirement obligations? c. A reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligations showing separately the changes attributable to (a) liabilities incurred in the current period, (b) liabilities settled in the current period, (c) accretion expense, and (d) revisions in estimated cash flows, whenever there is a significant change in one or more of those four components during the reporting period? d. If the fair value of an asset retirement obligation cannot be reasonably estimated, that fact and the reasons therefor? 2. Upon adoption of FASB Interpretation No. 47,
Yes
No
21
Disclosure: A50 ASSET RETIREMENT OBLIGATIONS (12/08) Accounting for Conditional Asset Retirement Obligations, has the entity provided the following disclosures: [FIN 47.11] a. Disclosures required under APB Opinion No. 20, Accounting Changes, paragraphs 19(c), 19(d), and 21, and b. The pro-forma liability for asset retirement obligations as if the Interpretation had been applied for the beginning of the earliest year presented and at the end of all years presented?
Yes
No
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CURRENT ASSETS AND CURRENT LIABILITIES (12/08) 1. Is the classification of current assets and current liabilities logical and consistent in the circumstances (i.e., 12 months from the balance sheet unless the operating cycle of the entity is longer such as for tobacco or lumber businesses)? [ARB 43, Ch. 3A, 5,7] 2. Are assets that are restricted for use other than current operations, designated for expenditure in the acquisition or construction of noncurrent assets, or designated for long-term obligations appropriately classified as noncurrent? [ARB 43, Ch. 3A6] 3. Are investments in securities (e.g., stocks, bonds, notes, commercial paper) classified as current unless they are restricted as to disposal, held for purposes of control, affiliation, or other continuing business advantage, or management intends to hold those investments for the long-term? [FASB 115.17, 117.11, 12, 135.4; ARB 43, Ch. 3A.6] 4. Is such restriction or intention disclosed in the financial statements? [ARB 43 Ch 3A.6; FASB 117.11] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include a Subjective Acceleration Clause and a Lock-Box Arrangement This Issue is whether borrowings outstanding under a revolving credit agreement that includes both a subjective acceleration clause and a requirement to maintain a lock-box arrangement, whereby remittances from the
Yes
No
22
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CURRENT ASSETS AND CURRENT LIABILITIES (12/08) borrower's customers reduce the debt outstanding, are considered short-term obligations. This Issue does not apply to lock-box arrangements that are maintained at the discretion of the borrower. 88-15, Classification of Subsidiary's Loan Payable in Consolidated Balance Sheet when Subsidiary's and Parent's Fiscal Years Differ The issue is whether a loan payable that is not current under the subsidiary's fiscal year end but is under the parent (reporting) entity's year end should be classified as current or non-current. 86-30, Classification of Obligations When a Violation is Waived by the Creditor The issue is whether the waiver of the lender's rights resulting from the violation of a covenant with the retention of the periodic covenant tests represents, in substance, a grace period. 86-5, Classifying Demand Notes with Repayment Terms The issue is how debt with certain repayment terms (demand notes) should be (1) reported in a classified balance sheet and (2) disclosed in the maturities of long-term obligations. D-61, Classification by the Issuer of Redeemable Instruments That Are Subject to Remarketing Agreements This Issue addresses classification of debt under the following scenario: (1) the debt has a long-term maturity, (2) the debt holder may redeem or put the bond on short notice, (3) the issuer has a remarketing agreement that states that the agent will make its best effort to remarket the bond when redeemed, and (4) the debt is secured by a short-term letter of credit that provides protection to the debt holder in the event that the redeemed debt cannot be remarketed. D-23, Subjective Acceleration Clauses and Debt Classification This Issue addresses whether FASB Technical Bulletin No. 79-3, Subjective Acceleration Clauses in Long-term Debt Agreements, and FASB Statement No. 6, Classification of Short-term Obligations Expected to be Refinanced, are inconsistent in their treatment of subjective acceleration clauses in debt agreements.
Yes
No
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF OBLIGATIONS THAT ARE CALLABLE BY THE CREDITOR (12/08)
Yes
No
23
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF OBLIGATIONS THAT ARE CALLABLE BY THE CREDITOR (12/08) 1. Are obligations that, at the balance-sheet date, (1) are, by their terms, due on demand or will be due on demand within one year (or operating cycle, if longer), even though liquidation may not be expected within that period or (2) are or will be callable by the creditor either because of the debtor's violation of a debt agreement provision at the balance-sheet date makes the obligation callable or because the violation, if not cured within a specified grace period, will make the obligation callable, classified as current liabilities unless one of the following conditions are met: [FASB 78.05] a. The creditor has waived or subsequently lost the right to demand repayment for more than one year (or operating cycle, if longer) from the balance-sheet date, or b. For long-term obligations containing a grace period within which the debtor may cure the violation, it is probable that the violation will be cured within that period thus preventing the obligation from becoming callable? 2. If an obligation that meets the condition described in question (1)b. above is classified as a long-term liability, (or, in the case of an unclassified balance sheet, is included as a long-term liability in the disclosure of debt maturities), do the notes to the financial statements disclose the circumstances surrounding the violation and probable cure? [FASB 78.05]
Yes
No
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED (12/08) 1. Are short-term obligations excluded from current liabilities only if the enterprise both intends to refinance the short-term obligation on a long-term basis and demonstrates the ability to consummate the refinancing in either of the following ways: [FASB 6.09-.11] a. After the balance-sheet date but before the balance sheet is issued, a long-term obligation or equity securities have been issued for the purpose of
Yes
No
24
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED (12/08) refinancing the short-term obligation on a long-term basis; or b. Before the balance sheet is issued, the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long-term basis on terms that are readily determinable, and all of the following conditions are met: (1) The new agreement does not expire within one year (or operating cycle, if longer) from the balance-sheet date and during that period the agreement is not cancelable by the lender, prospective lender, or investor (and obligations incurred under the agreement are not callable during that period) except for a violation of a provision with which compliance is objectively determinable or measurable. Financing agreements cancelable for violation of a provision that requires a subjective judgment (e.g., "a material adverse change" or "failure to maintain satisfactory operations") do not comply with this condition. (2) No violation of any provision in the financing agreement exists at the balance-sheet date or has occurred thereafter but prior to the issuance of the balance sheet (unless a waiver has been obtained). (3) The lender, prospective lender, or investor is expected to be financially capable of honoring the agreement? 2. If a short-term obligation is to be excluded from current liabilities pursuant to the criteria identified in question (1) above, is the amount of the short-term obligation to be excluded from current liabilities calculated in accordance with paragraph 12 of FASB 6? [FASB 6.12] 3. If a short-term obligation is excluded from current liabilities pursuant to question (1), do the notes to the financial statements include a general description of the financing agreement and the terms of any new obligation incurred or expected to be incurred or equity securities issued or expected to be issued as a result of a refinancing? [FASB 6.15]
Yes
No
25
Disclosure: B05 BALANCE-SHEET CLASSIFICATION: CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED (12/08) 4. If a short-term obligation is repaid after the balance-sheet date and subsequently a long-term obligation or equity securities are issued whose proceeds are used to replenish current assets before the balance sheet is issued, is the short-term obligation included in current liabilities at the balance-sheet date? [FASB 6.14, FIN 8.03] 5. Is a total of current liabilities presented in classified balance sheets? [FASB 6.15] 6. Have borrowings outstanding under a revolving credit agreement that have all of the following characteristics been classified as short-term obligations? [EITF 95-22] a. The revolving credit agreement includes a subjective acceleration clause b. The revolving credit agreement includes a requirement to maintain a lock-box arrangement, whereby remittances from the borrower's customers reduce the debt outstanding c. There is no other agreement in place to refinance the obligation after the balance-sheet date on a long-term basis.
Yes
No
Accounting: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) 1. Are related assets and liabilities offset in the balance sheet only when all of the following conditions are met: [FIN 39.05] a. Each of two parties owes the other determinable mounts b. The reporting party has the right to set off the amount owed with the amount owed by the other party c. The reporting party intends to set off [NOTE: this condition does not apply to certain contracts described in questions 3 and 4 below] d. The right of setoff is enforceable at law? [NOTE: Although FIN 39 provides general guidance related to the offsetting of assets and liabilities in the balance sheet, various accounting pronouncements specify
Yes
No
26
Accounting: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) accounting treatments in circumstances that result in offsetting or in a presentation in a statement of financial position that is similar to the effect of offsetting. FIN 39 does not modify the accounting treatment in the particular circumstances prescribed by the pronouncements listed in paragraph 7 of FIN 39, e.g., FASB 13, FASB 87, FASB 106, FASB 109, etc.] [FIN 39.07] 2. Except for certain contracts described in question 4 below, if any of the conditions in question 1 above are not met for forward, interest rate swap, currency swap, option, and other conditional or exchange contracts: [FIN 39.08] a. Is the fair value of contracts in a loss position not offset against the fair value of contracts in a gain position? b. Are amounts recognized as accrued receivables related to such contracts not offset against amounts recognized as accrued payables? 3. Are the amounts recognized as payables under repurchase agreements and amounts recognized under reverse repurchase agreements offset only when all of the conditions of paragraph 3 of Interpretation 41 are met? [FIN 41.3] [NOTE: The enterprise's choice to offset or not must be applied consistently. Resulting net receivables and net payables should not be offset against each other in the statement of financial position.] [FIN 41.3] 4. If forward, interest rate swap, currency swap, option, and other conditional or exchange contracts are executed with the same counterparty under a master netting arrangement, the fair value amounts recognized for such contracts may be offset without regard to the condition in question (1)c. above. Has the reporting entitys choice to offset or not under the provisions of this section been applied
Yes
No
consistently? [FIN 39.10]

5. In the balance-sheet presentation, are government securities or other assets offset against the tax liability or other amount owing to the government only if it is clear that the purchase of securities acceptable for payment of taxes was, in substance, an advance payment of taxes due in the relatively near future? [APB 10.07] Are unearned discounts (other than cash or quantity discounts and the like), finance charges, and interest
27
6.
Accounting: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) included in the face amount of receivables shown as a
Yes
No
deduction from the related receivables? [APB 6.14; ARB 43, Chapter 3A.10]
Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? D-43, Assurance That a Right of Setoff Is Enforceable in a Bankruptcy Under FASB Interpretation No. 39 - This Issue addresses the application of paragraph 5(d) of FIN 39, Offsetting of Amounts Related to Certain Contracts, which requires that the right of setoff be enforceable by law. If the entity has adopted FSP No. FIN 39-1, effective for fiscal years beginning after November 15, 2007 (early application permitted), the following questions should be substituted and/or added for the respective questions above. 7. If any of the conditions in question 1 above are not met for derivative instruments, has the entity not: a. Offset the fair value of contracts in a loss position against the fair value of contracts in a gain position? b. Offset amounts recognized as accrued receivables
against amounts recognized as accrued payables? [FIN 39.08]

8. If derivative instruments are executed with the same counterparty under a master netting arrangement, the fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) may be offset without regard to the condition in question (1)c. above. Has the reporting entity: a. Made an accounting policy decision to offset fair value amounts or not? b. Applied this choice consistently? c. Not offset fair value amounts recognized for derivatives without also offsetting fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral? [NOTE: This question only applies when an entity's policy is to offset.] d. Continued to offset derivative instruments even when the amounts recognized for the right to reclaim cash
28
Accounting: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) collateral or the obligation to return cash collateral are not fair value amounts? [NOTE: This question only applies when an entity's policy is to offset.] [FIN
Yes
No
39.10, 10A, 10B as amended/added by FSP No. FIN 39-1]

9. If the fair value recognized for some contracts include an accrual component for the periodic unconditional receivables and payables that result from the contract has the entity not offset the accrual component included therein for contracts executed with the same counterparty under a master netting arrangement. [FIN 39.10 as amended by FSP No. FIN 39-1]
Disclosure: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) If the entity has adopted FSP No. FIN 39-1, effective for fiscal years beginning after November 15, 2007 (early application permitted), the following question should answered. 1. If derivative instruments are executed with the same counterparty under a master netting arrangement, the fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative instrument(s) may be offset without regard to whether the reporting entity intends to set off. Has the reporting entity: a. Disclosed its accounting policy? b. Disclosed the amounts recognized at the end of each reporting period for the right to reclaim cash collateral or the obligation to return cash collateral as prescribed by paragraph 10B of FIN 39? [NOTE: Paragraph 10B applies to entities whose policy is to net. A reporting entity that has made an accounting policy decision to offset fair value amounts shall (i) Separately disclose amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral that have been offset against net derivative positions in accordance with this interpretation
Yes
No
29
Disclosure: B10 BALANCE-SHEET DISPLAY: OFFSETTING (12/08) (ii) Separately disclose amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements that have not been offset against net derivative position. A reporting entity that has made an accounting policy decision to not offset fair value amounts shall separately disclose the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements.
Yes
No
Accounting: C08 CAPITAL STOCK: CAPITAL TRANSACTIONS (12/08) 1. Have the following transactions been properly excluded from the determination of net income: [APB 9.28] a. Adjustments, charges, or credits resulting from transactions in the company's own capital stock? b. Transfers to and from accounts properly designated as appropriated retained earnings (such as generalpurpose contingency reserves or provisions for replacement costs of fixed assets)? c. Adjustments made pursuant to a quasi-reorganization? 2. If capital stock is issued nominally for the acquisition of property and it appears that at about the same time, and pursuant to a previous agreement or understanding, some portion of the stock so issued is donated to the enterprise, is the par value of the stock nominally issued for the property not treated as the cost of that property? 3. As per 2 above, if the stock so donated is subsequently sold, have the proceeds not been treated as a credit to additional paid-in capital of the enterprise? [ARB 43-Ch. 1A.6] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 01-6, The Meaning of "Indexed to a Company's Own Stock This Issue relates to whether certain instruments are considered issued for accounting purposes by the issuer or the holder. This Issue also relates to whether certain instruments
Yes
No
30
Accounting: C08 CAPITAL STOCK: CAPITAL TRANSACTIONS (12/08) are considered indexed to a company's own stock within the meaning of EITF Issue 00-19 and FASB 133 for the issuer. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock This Issue addresses how freestanding contracts that are indexed to, and potentially settled in, a company's own stock should be classified and measured by the company. 98-2, Accounting by a Subsidiary or Joint Venture for an Investment in the Stock of Its Parent Company or Joint Venture Partner This Issue addresses (1) how a subsidiary should account for an investment in the stock of its parent company in the separate financial statements of the subsidiary and (2) how a joint venture should account for an investment in the stock of its joint venture partner in the separate financial statements of the joint venture. 85-1, Classifying Notes Received for Capital Stock Reporting the note as an asset is generally not appropriate, except in very limited circumstances when there is substantial evidence of ability and intent to pay within a reasonably short period of time. The SEC requires that public companies report notes received in payment for the enterprise's stock as a deduction from shareholders' equity.
Yes
No
Disclosure: C08 CAPITAL STOCK: CAPITAL TRANSACTIONS (12/08) 1. If both financial position and results of operations are presented, is disclosure made in separate statements, or in the basic financial statements or notes thereto, of changes in: [APB 12.10] a. The separate accounts comprising stockholders' equity (in addition to retained earnings)? b. The number of shares of equity securities during at least the most recent annual fiscal period and any subsequent interim period presented? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock This Issue addresses how freestanding contracts that are indexed to, and potentially settled in, a company's own stock
Yes
No
31
Disclosure: C08 CAPITAL STOCK: CAPITAL TRANSACTIONS (12/08) should be classified and measured by the company. 98-2, Accounting by a Subsidiary or Joint Venture for an Investment in the Stock of Its Parent Company or Joint Venture Partner This Issue addresses (1) how a subsidiary should account for an investment in the stock of its parent company in the separate financial statements of the subsidiary and (2) how a joint venture should account for an investment in the stock of its joint venture partner in the separate financial statements of the joint venture. D-98, Classification and Measurement of Redeemable Securities This Issue addresses classification and measurement of securities subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. Paragraphs 37 and 38 were added to Topic D-98 to address the impact of paragraph 8(f) of FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. The SEC staff previously had not objected to liability classification on the balance sheet for certain financial instruments (or host contracts) that meet the conditions for temporary equity classification under ASR 268 and Topic D-98. Paragraph 38 states that the SEC staff will no longer accept liability classification for financial instruments (or host contracts) that meet the conditions for temporary equity classification under ASR 268 and Topic D98. As a consequence, the fair value option may not be applied to any financial instrument (or host contract) that meets the conditions for temporary equity classification under ASR 268 and Topic D-98. The measurement guidance in Topic D-98 applies to these financial instruments. The SEC staff announcement in paragraph 38 should be applied prospectively to all affected financial instruments (or host contracts) that are entered into, modified, or otherwise subject to a remeasurement (new basis) event in the registrant's first fiscal quarter beginning after September 15, 2007. FASB Statement No. 150, Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity, should also be considered when addressing certain financial instruments with characteristics of both liabilities and equity.
Yes
No
Accounting: C11 CAPITAL STOCK: DIVIDENDS-IN-KIND (12/08) 1. If the entity was an issuer of a dividend-in-kind (i.e.,
Yes
No
32
Accounting: C11 CAPITAL STOCK: DIVIDENDS-IN-KIND (12/08) transfer of a nonmonetary asset to a stockholder), was it recorded at the fair value of the asset(s) distributed with gain(s) or loss(es) recognized on the disposition of the asset? [APB 29.18] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 01-2, Interpretations of APB Opinion No. 29 Among other issues, this EITF addresses (1) whether the enterprise should report the distribution at book value as a spin-off or at fair value as a dividend-in-kind if the book value of the loans receivable, which may be either the recorded investment in the receivable or the carrying amount of the receivable, is in excess of their fair value, and (2) how the recipient should record the transaction.
Yes
No
Disclosure: C11 CAPITAL STOCK: DIVIDENDS-IN-KIND (12/08) 1. If the entity was an issuer of a dividend-in-kind during a period, do the financial statements disclose: [APB 29.28] a. The nature of the transaction? b. The basis of accounting for the asset(s) distributed? c. The gain(s) and/or loss(es) recognized on the asset(s) distributed?
Yes
No
Accounting: C20 CAPITAL STOCK: STOCK DIVIDENDS AND STOCK SPLITS (12/08) 1. Are stock dividends and stock splits involving issuance by the company (if other than a closely held company) of additional shares in ratios of less than 20 to 25 percent of the previously outstanding shares accounted for by the issuer by transferring from retained earnings to the category of permanent capitalization (represented by the capital stock and capital surplus accounts) an amount equal to the fair value of the additional shares issued? [ARB 43, Ch. 7B.10, .13, .15] 2. If the subsidiary enterprise has capitalized retained earnings arising since acquisition, by means of a stock dividend or otherwise, do the retained earnings in the consolidated financial statements reflect the accumulated
Yes
No
33
Accounting: C20 CAPITAL STOCK: STOCK DIVIDENDS AND STOCK SPLITS (12/08) earnings of the consolidated group not distributed to the shareholders of, or capitalized by, the parent company? [ARB 51, Ch. 18]
Yes
No
Accounting: C23 CAPITAL STOCK: TREASURY STOCK (12/08) 1. Are gains or losses on treasury stock transactions accounted for as capital transactions and not as income transactions? [ARB 43, Ch. 1B (as amended by APB 6)] a. Is the gain on sales of treasury stock not previously accounted for as constructively retired credited to additional paid-in capital? b. Have the losses been charged to additional paid-in capital to the extent that previous net "gains" from sales or retirements of the same class of stock are included therein or otherwise charged to retained earnings? [APB 6.12(b)] 2. Has the entity not treated the dividends on treasury stock as a credit to the income account of the entity? 3. If treasury stock has been retired or purchased for constructive retirement (with or without an intention to retire the stock formally in accordance with applicable laws): [APB 6.12a] a. Is any excess of purchase price over par or stated value either appropriately allocated between capital surplus and retained earnings or charged entirely to retained earnings? b. Is any excess of par or stated value over purchase price credited to capital surplus? 4. Is the cost of treasury stock acquired for purposes other than retirement (formal or constructive) or when ultimate disposition has not yet been decided either (a) shown as a deduction from the total of capital stock, capital surplus, and retained earnings, or (b) accorded the accounting treatment appropriate for retired stock? [APB 6.12b] 5. In states where laws govern the circumstances under which a corporation may acquire its own stock and prescribe the accounting treatment: a. Does the accounting treatment conform with applicable law? [APB 6.13]
Yes
No
34
Accounting: C23 CAPITAL STOCK: TREASURY STOCK (12/08) 6. Where treasury stock has been acquired at a price significantly in excess of the current market price of the shares: a. Has a determination been made whether the purchase price includes amounts attributable to stated or unstated rights, privileges, or agreements in addition to the capital stock? [FTB 85-6.03] b. If the purchase price includes amounts attributable to elements (as discussed in 6a above) other than the capital stock, have (1) amounts attributable to those elements been accounted for according to their substance and (2) amounts attributable to the fair value of the treasury shares (measured at the date the major terms of the agreement to purchase the shares are reached) been accounted for as the cost of those shares? [FTB 85-6.03] c. If no elements in addition to the capital stock have been identified, has the entire purchase price been accounted for as the cost of the treasury shares? [FTB 85-6.03] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 85-2, Classification of Costs Incurred in a Takeover Defense This Issue addresses whether takeover defense costs should be classified as an extraordinary item. This Issue also addresses an enterprise's purchase of treasury shares in a takeover attempt. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested This Issue addresses the accounting for deferred compensation arrangements in which amounts earned by an employee are invested in the stock of the employer and placed in a "rabbi trust," including implications on the earnings per share computation. 99-7, Accounting for an Accelerated Share Repurchase Program An entity should account for an accelerated share purchase program as two separate transactions: (a) as shares of common stock acquired in a treasury stock transaction recorded on the acquisition date and (b) as a forward contract indexed to its own common stock.
Yes
No
35
Disclosure: C23 CAPITAL STOCK: TREASURY STOCK (12/08) 1. In states where laws govern the circumstances under which a corporation may acquire its own stock and prescribe the accounting treatment, are restrictions imposed by those state laws regarding acquisition of stock, the availability of retained earnings for payment of dividends, or other effects of a significant nature disclosed? [APB 6.13] 2. Where treasury stock has been acquired at a price significantly in excess of the current market price of the shares and a portion of the purchase price is attributable to stated or unstated rights, privileges, or agreements, is the portion of the purchase price allocated to those elements and the accounting treatment for such amounts disclosed? [FTB 85-6.3] Disclosure: C24 CAPITAL STRUCTURE: DISCLOSURES (12/08) 1. Has the entity explained, in summary form within its financial statements, the pertinent rights and privileges of the various securities outstanding, including the following? [NOTE: The term "securities" is defined as "the evidence of debt or ownership or a related right and includes options and warrants as well as debt and stock" per paragraph 2(a) of FASB 129.] [FASB 129.04] a. Dividend and liquidation preferences b. Participation rights contractual rights of security holders to receive dividends or returns from the security issuer's profits, cash flow, or returns on investments c. Call prices and dates d. Conversion or exercise prices or rates and pertinent dates e. Sinking fund requirements f. Unusual voting rights g. Significant terms of contracts to issue additional shares h. Mandatory redemption requirements? [NOTE: Disclosure clarified by FSP FASB 150-3]
Yes
No
Yes
No
36
2. Has the entity disclosed within its financial statements the number of shares issued upon conversion, exercise, or satisfaction of required conditions during at least the most recent annual fiscal period and any subsequent interim period presented? [FASB 129.05] 3. If the entity issued preferred stock (or other senior stock) that has a preference in involuntary liquidation considerably in excess of the par or stated value of the shares, has the liquidation preference of the stock (the relationship between the preference in liquidation and the par or stated value of the shares) been disclosed in the equity section of the statement of financial position in the aggregate, either parenthetically or in short, rather than on a per-share basis or through disclosure in the notes? [NOTE: The term "preferred stock" is defined as a security that has preferential rights compared to common stock per paragraph 2(c) of FASB 129.] [FASB 129.06] 4. Has the entity disclosed the following within its financial statements (either on the face of the statement of financial position or in the notes there to): a. The aggregate or per-share amounts at which preferred stock may be called or is subject to redemption through sinking-fund operations or otherwise? b. The aggregate and per-share amounts of arrearages in cumulative preferred dividends? [FASB 129.07] 5. If the entity issued redeemable stock, has disclosure been made of the amount of redemption requirements, separately by issue or combined, for all issues of capital stock that are redeemable at fixed or determinable prices on fixed or determinable dates in each of the five years following the date of the latest statement of financial position presented? [FASB 129.08] 6. If the entity issued contingently convertible securities, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the computation of diluted earnings per share in accordance with FASB Statement No. 128, Earnings per Share, has the entity disclosed the significant quantitative and qualitative terms of the conversion features of the contingently convertible security, including: [FSP FASB 129-1.3] a. Events or changes in circumstances that would cause the contingency to be met and any significant features necessary to understand the conversion rights and the timing of those rights.
37
b. The conversion price and the number of shares into which the security is potentially convertible. c. Events or changes in circumstances, if any, that could adjust or change the contingency, conversion price, or number of shares, including significant terms of those changes. d. The manner of settlement upon conversion and any alternative settlement methods. 7. Has the entity disclosed whether shares that would be issued if the contingently convertible securities were converted are included in the calculation of diluted EPS, and the reasons why or why not? [FSP FASB 129-1.4] 8. Has the entity disclosed information about derivative transactions entered into in connection with the issuance of the contingently convertible securities, including the terms of those derivative transactions (including the terms of settlement), how those transactions relate to the contingently convertible securities and the number of shares underlying the derivatives? [FSP 129-1.5] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock This Issue relates to how freestanding contracts that are indexed to, and potentially settled in, a company's own stock should be classified and measured by the company.
Disclosure: C25 CASH FLOWS STATEMENT (12/08) A. General 1. If the financial statements of the entity (a business enterprise or not-for-profit organization) report both financial position and results of operations, is a separate "statement of cash flows" also presented for each period for which results of operations are provided? [FASB 95.03] 2. Does the statement of cash flows separately report the net cash provided or used during the period from the enterprise's activities in each of three classifications: operating, investing, and financing? [FASB 95.06, .14, .26] 3. Are separate disclosures made of the effects of investing and financing transactions that affect the enterprise's
Yes
No
38
Disclosure: C25 CASH FLOWS STATEMENT (12/08) financial position but do not directly affect cash flows during the period (i.e., "noncash" transactions)? [FASB 95.06, .32] 4. Is a reconciliation of net income and net cash flow from operating activities provided? [FASB 95.06] 5. Does the statement use descriptive terms such as "cash" or "cash and cash equivalents" rather than ambiguous terms such as "funds" [FASB 95.07] and are the total amounts of cash and cash equivalents at the beginning and end of the period shown in the statement of cash flows the same amounts as similarly titled line items or subtotals shown in the statements of financial position as of those dates? [FASB 95.07] 6. Are items included as cash equivalents limited to shortterm, highly liquid investments that are both: [FASB 95.08-.09, footnote 2] a. Readily convertible to known amounts of cash? b. So near to their maturity that they present insignificant risk of changes in value because of changes in interest rates? [NOTE: Generally, only investments with original maturities of three months or less qualify as cash equivalents. Items commonly considered to be cash equivalents are Treasury bills, commercial paper, money market funds, and (for an enterprise with banking operations) federal funds sold.] 7. Not all investments that qualify as cash equivalents are required to be treated as cash equivalents. Has the entity disclosed its policy for determining which items are treated as cash equivalents? [FASB 95.10] 8. If a change is made in the policy for determining which short-term, highly liquid investments are treated as cash equivalents, has it been accounted for as a change in accounting principle by restating financial statements for earlier years presented for comparative purposes? [FASB 95.10] 9. Are gross amounts of cash receipts and payments shown separately for all items on the cash flow statement except for the following items (for which cash receipts and payments during the period are permitted (but not required) to be reported net): [FASB 95.31] a. Cash and cash equivalents [FASB 95.11]
Yes
No
39
Disclosure: C25 CASH FLOWS STATEMENT (12/08) b. Items for which the enterprise is substantively holding or disbursing cash on behalf of its customers (such as demand deposits of a bank and customer accounts payable of a broker-dealer) [FASB 95.12] c. Items for which turnover is quick, their amounts are large, and their maturities are short (such as investments (other than cash equivalents), loans receivable, and debt providing that the original maturity of the asset or liability is three months or less) [FASB 95.13] d. Cash flows stemming from credit card receivables of financial services operations [FASB 95 footnote 3] e. If the indirect method is used for presentation of cash flows from operating activities, items presented as operating cash receipts and payments. [FASB 95.28, 75, footnote 16] f. Banks, savings institutions, and credit unions cash flows stemming from (a) deposits placed with other financial institutions and withdrawals of deposits, (b) time deposits accepted and repayments of deposits, and (c) loans made to customers and principal collections of loans. [FASB 95.13A]
Yes
No
[NOTE: When banks, savings institutions, and credit unions constitute part of a consolidated enterprise, net amounts of cash receipts and cash payments for deposit or lending activities of those enterprises shall be reported separate from gross amounts of cash receipts and cash payments for other investing and financing activities of the consolidated enterprise.] [FASB 95.13A] B. Investing Cash Flows 1. Do cash inflows from investing activities include all: [FASB 95.16] a. Collections or sales of loans made by the enterprise other than loans that were originated or purchased specifically for resale and are carried at market value or at lower of cost or market value? [NOTE: Cash receipts from sales of loans that were acquired as investments, not specifically acquired for resale shall be classified as investing cash inflows, regardless of a change in the purpose for holding those loans.] [FASB 102.9] b. Collections or sales of other entities' debt instruments
40
Disclosure: C25 CASH FLOWS STATEMENT (12/08) that were purchased by the enterprise other than those instruments that are (1) included as cash equivalents, (2) debt instruments acquired specifically for resale and carried at market value in a trading account, and (3) securities classified as trading securities? [NOTE: Cash receipts from sales or maturities of debt securities classified as available-for-sale or held-tomaturity shall be classified as investing cash flows and reported gross.] [FASB 102.8, 115.18] c. Sales of other entities' equity instruments and returns of investment in those instruments other than those receipts from sales or returns of investment related to (1) equity instruments acquired specifically for resale and carried at market value in a trading account and (2) securities that are classified as trading securities? [NOTE: Cash receipts from sales of equity securities classified as available-for-sale shall be classified as investing cash flows and reported gross.] [FASB 102.8, 115.18] d. Sales of property, plant and equipment and other productive assets? e. Proceeds from insurance settlements that are directly related to a source of an investing cash inflow (for example insurance proceeds received on a building that is damaged or destroyed)? [FASB 95 footnote 5] 2. If the entity has adopted FASB 159, the following questions should be substituted for questions 1b and 1c above, respectively: a. Collections or sales of other entities' debt instruments that were purchased by the enterprise other than those instruments that are (1) included as cash equivalents, and (2) debt instruments acquired specifically for resale and carried at market value in a trading account? [NOTE: Cash receipts resulting from sales of securities classified as trading securities shall be classified pursuant to FASB 95 (as amended) based on the nature and purpose for which the securities were acquired and, if classified as investing activities, reported gross. Cash receipts from sales or maturities of debt securities classified as available-for-sale or held-to-maturity shall be classified as investing cash flows and reported gross.] [FASB 102.8, 115.18]
Yes
No
41
Disclosure: C25 CASH FLOWS STATEMENT (12/08) b. Sales of other entities' equity instruments and returns of investment in those instruments other than those receipts from sales or returns of investment related to equity instruments acquired specifically for resale and carried at market value in a trading account? [NOTE: Cash receipts resulting from sales of securities classified as trading securities shall be classified pursuant to FASB 95 (as amended) based on the nature and purpose for which the securities were acquired and, if classified as investing activities, reported gross. Cash receipts from sales of equity securities classified as available-for-sale shall be classified as investing cash flows and reported gross.] [FASB 102.8, 115.18] 3. Do cash outflows for investing activities include all: [FASB 95.17] a. Disbursements for loans made by the enterprise other than those originated or acquired specifically for resale and carried at market value or at lower of cost or market value? [FASB 102] b. Payments to acquire other entities' debt instruments other than (1) those included as cash equivalents, (2) debt instruments acquired specifically for resale and carried at market value in a trading account, and (3) securities classified as trading securities? [NOTE: Cash payments to acquire debt securities classified as available-for-sale or held-to-maturity shall be classified as investing cash flows and reported gross for each security classification in the statement of cash flows.] [FASB 102.8, 115.18] c. Payments to acquire other entities' equity instruments other than (1) equity instruments acquired specifically for resale and carried at market value in a trading account and (2) securities that are classified as trading securities? [NOTE: Cash payments to acquire equity securities classified as available-for-sale shall be classified as investing cash flows.] [FASB 102.8, 115.18] d. Payments at the time of purchase or soon before or after purchase to acquire property, plant and equipment and other productive assets (including capitalized interest)? [FASB 95.17, footnotes 6and 7]
Yes
No
42
Disclosure: C25 CASH FLOWS STATEMENT (12/08) 4. If the entity has adopted FASB 159, the following questions should be substituted for questions 3b and 3c above, respectively: b. Payments to acquire other entities' debt instruments other than (1) those included as cash equivalents and (2) debt instruments acquired specifically for resale and carried at market value in a trading account? [NOTE: Cash payments resulting from purchases of securities classified as trading securities shall be classified pursuant to FASB 95 (as amended) based on the nature and purpose for which the securities were acquired and, if classified as investing activities, reported gross. Cash payments to acquire debt securities classified as availablefor-sale or held-to-maturity shall be classified as investing cash flows and reported gross for each security classification in the statement of cash flows.] [FASB 102.8, 115.18] c. Payments to acquire other entities' equity instruments other than equity instruments acquired specifically for resale and carried at market value in a trading account? [NOTE: Cash payments resulting from purchases of securities classified as trading securities shall be classified pursuant to FASB 95 (as amended) based on the nature and purpose for which the securities were acquired and, if classified as investing activities, reported gross. Cash payments to acquire equity securities classified as available-for-sale shall be classified as investing cash flows and reported gross.] [FASB 102.8, 115.18] C. Financing Cash Flows 1. Do cash inflows from financing activities include all: [FASB 95.19] a. Proceeds from issuing equity instruments? b. Proceeds from issuing bonds, mortgages, notes, and other short- or long-term borrowings? c. Receipts from contributions and investment income that by donor stipulation are restricted for the purposes of acquiring, constructing, or improving property, plant, equipment, or other long-lived assets or establishing or increasing a permanent endowment or term endowment?
Yes
No
43
Disclosure: C25 CASH FLOWS STATEMENT (12/08) d. Proceeds received (whether at inception or over the term of the derivative instrument) from derivative instruments that include financing elements at inception (other than a financing element inherently included in an at-the-market derivative instrument with no prepayments)? e. Cash retained as a result of the tax deductibility of increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services that is recognizable for financial reporting purposes. For this purpose, excess tax benefits shall be determined on an individual award (or portion thereof) basis? 2. Do cash outflows for financing activities include all: [FASB 95.20] a. Payments of dividends or other distributions to owners, including outlays to reacquire the enterprise's equity instruments? b. Repayment of amounts borrowed? c. Other principal payments to creditors who have extended long-term credit? (Most principal payments on seller-financed debt directly related to a purchase of property, plant, and equipment or other productive assets are financing cash outflows.) [FASB 95 footnote 8] d. Distributions (whether at inception or over the term of the derivative instrument) to counterparties of derivative instruments that include financing elements at inception (other than a financing element inherently included in an at-the-market derivative instrument with no prepayments)? D. Operating Cash Flows 1. Are all cash flows that are not defined as investing or financing activities in paragraphs .15.20 of FASB 95 included in cash flows from or for operating activities including: [FASB 95.21.23] a. Cash receipts from sales of goods or services, including receipts from collection or sale of accounts and both short- and long-term notes receivable from customers arising from those sales? b. Cash receipts from returns on loans, other debt instruments of other entities, and equity securities
Yes
No
44
Disclosure: C25 CASH FLOWS STATEMENT (12/08) interest and dividends? c. Cash payments to acquire materials for manufacture or goods for resale, including principal payments on accounts and both short-term and long-term notes payable to suppliers for those materials or goods? d. Cash payments to other suppliers and employees for other goods or services? e. Cash payments to governments for taxes, duties, fines, and other fees or penalties? f. Cash payments to lenders and other creditors for interest?
Yes
No
g. Cash that would have been paid for income taxes if increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services recognizable for financial reporting purposes also had not been deductible in determining taxable income? (This is the same amount reported as a financing cash inflow pursuant to paragraph 19(e) of FASB 95.) h. Cash receipts or payments resulting from purchases and sales of (1) securities classified as trading securities, (2) securities and other assets acquired specifically for resale and carried at market value in a trading account, and (3) loans acquired specifically for resale and carried at market value or at the lower of cost or market value? [FASB 95 footnote 8c, 102.8-9, 115.18] All other cash receipts and cash payments that do not stem from transactions defined as investing or financing activities, such as amounts received or paid to settle lawsuits, proceeds from insurance settlements not directly related to investing or financing activities, cash contributions to charities, and refunds from suppliers or to customers? If the entity has adopted FASB 159, the following question should be substituted for question 1h above: h. Cash receipts or payments resulting from purchases and sales of (1) securities and other assets acquired specifically for resale and carried at market value in a trading account, and (2) loans acquired specifically for resale and carried at market value or at the lower of cost or market value? [FASB 95 footnote 8c, 102.8-9, 115.18]
45
i.
Disclosure: C25 CASH FLOWS STATEMENT (12/08) E. Classification and Presentation 1. Is each cash receipt or payment classified according to its nature without regard to whether it stems from an item intended as a hedge of another item? [NOTE: Cash flows from a derivative instrument that is accounted for as a fair value hedge or a cash flow hedge under FASB 133 (as amended), may be classified in the same category as the cash flows from the items being hedged provided that the derivative instrument does not include an other-than-insignificant financing element at inception, other than a financing element inherently included in an at-the-market derivative instrument with no prepayments (that is, the forward points in an at-themoney forward contract) and that the accounting policy is disclosed. If the derivative instrument includes an otherthan-insignificant financing element at inception, all cash inflows and outflows of the derivative instrument shall be considered cash flows from financing activities by the borrower. If for any reason hedge accounting for an instrument that hedges an identifiable transaction or event is discontinued, then any cash flows subsequent to the date of discontinuance shall be classified consistent with the nature of the instrument.] [FASB 95 footnote 4] 2. Are cash receipts and payments that have aspects of more than one class of cash flows (e.g., a cash payment may pertain to an item that could be considered either inventory or a productive asset) appropriately classified depending on the activity that is likely to be the predominant source of cash flows for the item? For example, the acquisition and sale of equipment to be used by the enterprise or rented to others generally are investing activities. However, equipment sometimes is acquired or produced to be used by the enterprise or rented to others for a short period and then sold. In those circumstances, the acquisition or production and subsequent sale of those assets should be considered operating activities. [FASB 95.24] 3. If the enterprise has foreign currency transactions or foreign operations, has the reporting currency equivalent of foreign currency cash flows been computed using either the exchange rates in effect at the time of the cash flows or an appropriately weighted average exchange rate for the period if that produces substantially the same result? [FASB 95.25]
Yes
No
46
Disclosure: C25 CASH FLOWS STATEMENT (12/08) 4. Does the statement report the effect of exchange rate changes on cash balances held in foreign currencies as a separate part of the reconciliation of the change in cash and cash equivalents during the period? [FASB 95.25] F. Direct Method 1. If, in reporting cash flows from operating activities, the enterprise reports major classes of gross cash receipts and gross cash payments and the net cash flow from operating activities (i.e., using the direct method), does it, at a minimum, separately report the following: [FASB 95.27] a. Cash collected from customers, including lessees, licensees, and the like? b. Interest and dividends received? (Interest and dividends that are donor restricted for long-term purposes as noted in paragraphs 18 and 19(c) of FASB 95 (as amended) are not considered part of operating cash receipts.) c. Other operating cash receipts, if any? d. Cash paid to employees and other suppliers of goods or services, including suppliers of insurance, advertising, and the like? e. Interest paid? f. Income taxes paid and, separately, the cash that would have been paid for income taxes if increases in the value of equity instruments issued under share-based payment arrangements that are not included as a cost of goods or services recognizable for accounting purposes also had not been deductible in determining taxable income (paragraph 19(e) of FASB 95)?
Yes
No
g. Other operating cash payments, if any? 2. If the direct method is used, has a reconciliation of net income (if a business enterprise) or change in net assets (if a not-for-profit organization) to net cash flow from operating activities been provided in a separate schedule? [FASB 95.29-.30]
47
Disclosure: C25 CASH FLOWS STATEMENT (12/08) G. Indirect Method 1. If the indirect (or reconciliation) method of presenting net cash flow from operating activities is used, has net income (if a business enterprise) or change in net assets (if a notfor-profit organization) been adjusted for the effects of: [FASB 95.28] a. All deferrals and accruals of either past or expected future operating cash receipts and payments, such as changes during the period in inventory, deferred income, receivables, and payables? b. All items whose cash effects are investing or financing cash flows (e.g., depreciation, discontinued operations, gains or losses on sales of property, plant, and equipment, and gains or losses on extinguishment of debt)? 2. If the indirect method is used, has the reconciliation of net income (or change in net assets) to net cash flow from operating activities been included either: [FASB 95.30] a. Within the statement of cash flows, with all adjustments to net income (or change in net assets) clearly identified as reconciling items? b. In a separate schedule, with the statement of cash flows reporting only the net cash flow from operating activities? 3. If the indirect method is used, has disclosure of amounts of interest paid (net of amounts capitalized) and income taxes paid during the period been provided? H. Other 1. Regardless of whether the direct or indirect method is used, does the reconciliation of net income (if a business enterprise) or change in net assets (if a not-for-profit organization) to net cash flow from operating activities separately report all major classes of reconciling items including, at a minimum, separate reporting of changes during the period in receivables pertaining to operating activities, in inventory, and in payables pertaining to operating activities? [FASB 95.29] 2. Is information about all investing and financing activities of an enterprise during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period reported in related disclosures, either in narrative, in a schedule, or on the
Yes
No
48
Disclosure: C25 CASH FLOWS STATEMENT (12/08) face of the statement? Examples include: a. Converting debt to equity b. Acquiring assets by assuming directly related liabilities (such as purchasing a building by incurring a mortgage to the seller) c. Obtaining an asset by entering into a capital lease d. Obtaining an asset through gift e. Noncash exchanges of assets and liabilities [FASB 95.32] 3. For transactions that are part cash and part noncash, has only the cash portion been reported in the body of the statement of cash flows? [FASB 95.32] 4. Do the financial statements not report an amount of cash flow per share? [FASB 95.33] 5. If the enterprise chooses to report separately operating cash flows of discontinued operations, has it been done consistently for all periods affected? [NOTE: Separate disclosure of cash flows pertaining to extraordinary items or discontinued operations reflected in operating, investing, and financing activities is not required.] [FASB 95, footnote 10] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 02-6, Classification in the Statement of Cash Flows of Payments Made to Settle an Asset Retirement Obligation within the Scope of FASB Statement No. 143 This Issue addresses how cash payments made upon settlement of an asset retirement obligation, recorded under FASB 143, should be classified in the statement of cash flows. The consensus reached is that such payments should be classified as operating activities. 95-13, Classification of Debt Issue Costs in the Statement of Cash Flows This Issue addresses whether cash payments for debt issue costs should be classified as financing or operating activities in the statement of cash flows. The consensus reached is that such payments should be classified as financing activities.
Yes
No
49
Accounting: C28 FINANCIAL REPORTING AND CHANGING PRICES (12/08) 1. Are current cost amounts of inventory and property, plant, and equipment measured as follows: [FASB 89.16] a. Inventory at current cost or lower recoverable amount at the measurement date? b. Property, plant, and equipment at the current cost or lower recoverable amount of the assets' remaining service potential at the measurement date? c. Resources used on a partly completed contract at current cost or lower recoverable amount at the date of use on or commitment to the contract? 2. Does an enterprise that presents the minimum information required by the appendix to FASB 89 measure income from continuing operations on a current cost basis as follows: [FASB 89.32] a. Cost of goods sold at current cost or lower recoverable amount at the date of sale or at the date on which resources are used on or committed to a specific contract? b. Depreciation, depletion, and amortization expense of property, plant, and equipment on the basis of the average current cost of the assets' service potential or lower recoverable amount during the period of use? 3. Do enterprises that do not have significant foreign operations or that use the dollar as the functional currency for all significant foreign operations use the CPI-U to restate current costs into units of constant purchasing power? [FASB 89.36] 4. Are the effects of general inflation on current cost information for operations measured in a foreign functional currency measured either (a) after translation and based upon the CPI-U (the translate-restate method) or (b) before translation and based on a broad-based measure of the change in the general purchasing power of the functional currency (the restate-translate method). [FASB 89.37] 5. Is the same method used for all operations measured in functional currencies other than the dollar and for all periods presented? [FASB 89.37] 6. Is the purchasing power gain or loss on net monetary items the net gain or loss determined by restating in units of constant purchasing power the opening and closing
Yes
No
50
Accounting: C28 FINANCIAL REPORTING AND CHANGING PRICES (12/08) balances of, and transactions in, monetary assets and monetary liabilities? [FASB 89.40]
Yes
No
Disclosure: C32 COMMITMENTS: LONG-TERM OBLIGATIONS (12/08) 1. If the enterprise has unconditional purchase obligations that are not recorded on the balance sheet and that (a) are noncancelable or cancelable only (1) upon the occurrence of some remote contingency or (2) with the permission of the other party or (3) if a replacement agreement is signed between the same parties or (4) upon payment of a penalty in an amount such that continuation of the agreement appears reasonably assured, (b) were negotiated as part of arranging financing for the facilities that will provide the contracted goods or services or for costs related to those goods or services, and (c) have a remaining term in excess of one year, do the financial statements disclose: [NOTE: Disclosures of similar or related unconditional purchase obligations may be combined.] [FASB 47.06-.07] a. The nature and term of the obligation(s)? b. The amount of the fixed and determinable portion of the obligation(s) as of the date of the latest balance sheet presented in the aggregate and, if determinable, for each of the five succeeding fiscal years? c. The nature of any variable components of the obligation(s)? d. The amounts purchased under the obligation(s) (e.g., the take-or-pay or throughput contract) for each period for which an income statement is presented? [NOTE: Disclosure of the amount of imputed interest necessary to reduce the unconditional purchase obligation(s) to present value is encouraged but not required.] [FASB 47.08] 2. Do the financial statements disclose the following regarding recorded unconditional purchase obligations and long-term borrowings for each of the five years following the date of the latest balance sheet presented: [FASB 47.09-.10] a. The aggregate amount of payments for unconditional purchase obligations that meet the criteria pursuant to
Yes
No
51
Disclosure: C32 COMMITMENTS: LONG-TERM OBLIGATIONS (12/08) question (1) above and that have been recognized on the enterprise's balance sheet? b. The combined aggregate amount of maturities and sinking fund requirements for all long-term borrowings?
Yes
No
Accounting: C38 COMPENSATION TO EMPLOYEES: DEFERRED COMPENSATION AGREEMENTS (12/08) 1. If the entity has deferred compensation contracts with individual employees (other than contracts that, if taken together, are equivalent to a postretirement income plan or a postretirement health or welfare benefit plan), are the estimated amounts to be paid under each contract accounted for individually on an accrual basis in accordance with the terms of the underlying contract? [APB 12.6]: a. To the extent the terms of the contract attribute all or a portion of the expected future benefits to an individual year of the employee's service, are the costs of those benefits recognized in that year? b. To the extent the terms of the contract attribute all or a portion of the expected future benefits to a period of service greater than one year, are the costs of those benefits accrued over the period of the employee's service in a systematic and rational manner such that at the end of that period the aggregate amount accrued shall equal the then-present value of the benefits expected to be provided to the employee, any beneficiaries, and covered dependents in exchange for the employee's service to that date? [NOTE: The amounts accrued periodically shall result in an accrued amount at the full eligibility date (as defined in FASB 106) equal to the then present value of all of the future benefits expected to be paid.] If elements of both current and future services are present, only the portion applicable to the current services should be accrued. [APB 12.6A] 2. If the deferred compensation contract provides for periodic payments to employees or their surviving spouse for life, with a provision for a minimum lump-sum settlement in the event of the early death of one or all of
Yes
No
52
Accounting: C38 COMPENSATION TO EMPLOYEES: DEFERRED COMPENSATION AGREEMENTS (12/08) the beneficiaries, is the estimated amount of future payments to be made under such contracts accrued over the period of active employment from the time the contract is entered into? [NOTE: The amounts accrued periodically should result in an accrued amount at the full eligibility date (as defined in FASB 106) equal to the then-present value of all of the future benefits expected to be paid.] [APB 12.7] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements This Issue addresses whether an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either FASB 106 or APB 12 if the employer has agreed to maintain a life insurance policy during the employees retirement or provide the employee with a death benefit based on the substantive agreement with the employee. This Issue also addresses how an employer should recognize and measure the asset in a collateral assignment split-dollar life insurance arrangement. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements This Issue addresses whether the postretirement benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in accordance with either FASB 106 or APB Opinion 12 upon entering into such an arrangement. The Issue also addresses, for an endorsement split-dollar life insurance arrangement within the scope of this Issue, whether an employer should recognize a liability for future benefits in accordance with FASB 106 (if, in substance, a postretirement benefit plan exists) or APB 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested This Issue addresses the accounting for deferred compensation arrangements where amounts earned by an employee are invested in the stock of the employer and placed in a rabbi trust. Specifically, the Issue addresses (1) whether the rabbi trust should be consolidated in the financial statements of the employer; (2) how the investment in the employer stock should be recorded; (3) whether and, if so, how changes in the value of the employer stock held as a trust
Yes
No
53
Accounting: C38 COMPENSATION TO EMPLOYEES: DEFERRED COMPENSATION AGREEMENTS (12/08) asset and the deferred compensation obligation should be recorded; and (4) the impact on the accounting for assets held by the rabbi trust and deferred compensation obligation if the employer elects to diversify into nonemployer securities.
Yes
No
Accounting: C44 COMPENSATION TO EMPLOYEES: PAID ABSENCES (12/08) 1. Is a liability for employees' compensation for future absences accrued if all of the following conditions are met: [FASB 43.06] a. The employer's obligation relating to employees' rights to receive compensation for future absences is attributable to employees' services already rendered, b. The obligation relates to rights that vest or accumulate, c. Payment of the compensation is probable, and d. The amount can be reasonably estimated? [NOTE: Vested rights are those for which the employer has an obligation to make payment even if an employee terminates; thus, they are not contingent on an employees future service. Accumulate means that earned but unused rights to compensated absences may be carried forward to one or more periods subsequent to that in which they are earned even though there may be a limit to the amount that can be carried forward.] If an employer meets conditions a, b, and c above and does not accrue a liability because condition d is not met, has that fact been disclosed? 2. Has the entity considered anticipated forfeitures while accruing a liability for employees compensated absences? [FASB 43.12] Has the entity complied with the following Issue discussed by the Emerging Issues Task Force, when applicable? 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 This Issue addresses an employee's right to a compensated absence under a sabbatical or other similar benefit arrangement (a) that requires the completion of a minimum service period and (b) in which the benefit does not increase with additional years of
Yes
No
54
Accounting: C44 COMPENSATION TO EMPLOYEES: PAID ABSENCES (12/08) service accumulates pursuant to paragraph 6(b) of FASB 43 for arrangements in which the individual continues to be a compensated employee and is not required to perform duties for the entity during the absence.
Yes
No
Disclosure: C44 COMPENSATION TO EMPLOYEES: PAID ABSENCES (12/08) 1. If a liability is not accrued because the amount of the liability cannot be reasonably estimated, is that fact disclosed? [FASB 43.06]
Yes
No
Disclosure: C51 CONSOLIDATION (12/08) Historically, consolidation guidance has been provided by Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51), as amended and interpreted. ARB 51 is based on the premise that stockholders control the entity by virtue of their voting rights, and that consolidation is appropriate when a controlling financial interest exists ("voting interests" model). In December 2003, the FASB issued FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities (FIN 46R). FIN 46R establishes consolidation criteria for entities for which a controlling financial interest is achieved through arrangements that do not involve voting interests ("variable interest" model). Therefore, in order to determine whether an interest in an entity should be consolidated, BOTH the FIN 46R model (Section A below) and the ARB 51 model (Section B below) must be considered, in that order.
Yes
No
55
Disclosure: C51 CONSOLIDATION (12/08) A. FIN 46R (Variable Interest Model) [NOTE: In May 2007, the FASB issued Staff Position (FSP) No. FIN 46R-7, Application of FASB Interpretation No. 46I to Investment Companies, to address application of FIN 46R by an entity that accounts for its investments in accordance with the specialized accounting guidance in the AICPA Audit and Accounting Guide, Investment Companies. The FSP amends the scope exception within paragraph 4(e) of FIN 46R to specify that those investments accounted for at fair value in accordance with the specialized guidance in the AICPA Audit and Accounting Guide, Investment Companies, are not subject to consolidation according to the requirements of FIN 46R. [NOTE: In December 2008, the FASB issued Staff Position (FSP) No. FAS 140-4 and FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, to require additional disclosures that are intended to provide greater transparency to financial statement users about a transferors continuing involvement with transferred financial assets and an enterprises involvement with variable interest entities and qualifying SPEs. The FSP amends FIN 46R to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE.] 1. Has the company identified all explicit and implicit variable interests that it holds? [FIN 46R.2c, Appendix B, FSP FIN 46R-5, and FSP FIN 46R-6] 2. If it is apparent that the company's variable interest is not significant and the company, its related parties, and de facto agents (as defined in paragraph 16 of FIN 46R) did not participate significantly in the design or redesign of the entity, has the entity not been evaluated under FIN 46R but rather under Section B below? [FIN 46R.6]
Yes
No
56
Disclosure: C51 CONSOLIDATION (12/08) 3. Scope Exceptions a. If the entity meets any of the scope exceptions in FIN 46R, has consolidation of the entity not been evaluated under FIN 46R but rather under Section B below? [FIN 46R.4, .36] b. If the entity has historically been scoped out under the "information out" exception to apply FIN 46R, has the company made an effort to obtain the information necessary to apply FIN 46R? [FIN 46R.4g, .41] c. If the entity is scoped out under the "information out" exception in paragraph 4(g), and the company subsequently obtains the information necessary to apply FIN 46R, have the provisions of FIN 46R been applied? [FIN 46R.37, .41] d. If the entity initially qualifies for the "business" scope exception in paragraph 4(h) (in which case the company would initially evaluate consolidation of the entity under Section B below), has the company applied the provisions of FIN 46R in subsequent periods if the entity no longer qualifies for the scope exception in paragraph 4(h)? [FIN 46R.4(h), footnote 2] 4. If the entity meets the definition of a variable interest entity ("VIE") (i.e., the answer to ANY of questions 4a through 4c below is "yes"), has consolidation of the entity been evaluated under FIN 46R? [NOTE: If the entity is not a VIE, skip to Section B below.] a. Is the total "equity investment at risk" (as defined in paragraphs 5a(1) through 5a(4)) not sufficient to finance the entity's activities without additional subordinated financial support? Has the evaluation of qualitative and quantitative considerations, as defined in paragraphs 9 and 10 to demonstrate the sufficiency of "equity investment at risk," been performed? [FIN 46R.2b, .2e, .5a, .8-.13] [FSP FIN 46R-2] b. As a group, do the holders of the equity investment at risk lack ANY one of the following three characteristics: (1) The direct or indirect ability through voting or similar rights to make decisions about the entity's activities that have a significant effect on the success of the entity? [FIN 46R.5b(1)] [FSP FIN 46R-3]
Yes
No
57
Disclosure: C51 CONSOLIDATION (12/08) (2) The obligation to absorb the expected losses of the entity? [FIN 46R.5b(2), .8, and Appendix A] [FSP FIN 46R-2] (3) The right to receive the expected residual returns of the entity? [FIN 46R.5b(3), .8, and Appendix A] [FSP FIN 46R-2] c. Are the voting rights of some investors not proportional to their obligation to absorb expected losses and/or their right to receive expected residual returns, AND do substantially all of the entity's activities either involve or are they conducted on behalf of the investor that has disproportionately few voting rights? [FIN 46R.5c] 5. If the entity is a development stage enterprise, has the guideline for initial application (as prescribed in paragraph 11) of the Interpretation been applied? [FIN 46R.11] 6. Has the initial determination of whether an entity is a VIE been made on the date the company becomes involved with the entity, based on the circumstances on that date? [FIN 46R.6] 7. Has the initial determination of whether an entity is a VIE been reconsidered if specified events (as defined in 7a-d) occur? [FIN 46R.7] 8. If the company has a variable interest in specified assets of a VIE (such as a guarantee or subordinated residual interest), has consideration been given to whether the interest should be viewed as a variable interest in the entity or as a variable interest in specified assets, which shall be deemed as such only if the fair value of the specified assets is more than half of the total fair value of the entitys assets (with attendant effects on the determination of expected losses, adequacy of equity at risk, and identification of the primary beneficiary)? [FIN 46R.12] 9. If the company has a variable interest in specified assets of a VIE, has consideration been given to whether a portion of the entity should be treated as a separate VIE (i.e., a "silo")? [FIN 46R.13] [FSP FIN 46R-1] 10. Has the company considered whether it is the primary beneficiary ("PB") of the VIE, including consideration of variable interests held by its related parties and de facto agents? [FIN 46R.14, .16-.17]
Yes
No
58
Disclosure: C51 CONSOLIDATION (12/08) 11. Has the initial determination of whether the company is the PB been made at the time the company becomes involved with the entity, and has that determination been reconsidered if specified events occur? [FIN 46R.15] 12. Measurement when the company is the PB a. Have the required initial and ongoing measurement principles been followed? [FIN 46R.18-.22] b. Are fees or other sources of income or expense between the company and a consolidated VIE eliminated against the related expense or income of the VIE, and is the resulting effect of that elimination on the net income or expense of the VIE attributed to the PB (and not to noncontrolling interests) in the consolidated financial statements? [FIN 46R.22] 13. If the company is the PB and consolidates a VIE, do the financial statements disclose: a. The nature, purpose, size, and activities of the VIE? [FIN 46R.23(a) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C4(d) for public companies] b. The carrying amount and classification of consolidated assets that are collateral for the VIE's obligations? [FIN 46R.23(b) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C5(a) for public companies] c. Lack of recourse if creditors (or beneficial interest holders) of a consolidated VIE have no recourse to the general credit of the PB? [FIN 46R.23(c) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C5(b) for public companies]
Public companies only: d.
Yes
No
Terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, that could require the company to provide financial support to the VIE? [FSP FAS 140-4 & FIN 46(R)-8, paragraph C5(c)]
e. The carrying amount and classification of the VIEs consolidated assets and liabilities? [FSP FAS 140-4 & FIN 46(R)-8, paragraph C5(a)] 14. If the company holds a significant variable interest in a VIE (for public companies this includes the sponsor of the VIE) but is not the PB, does it disclose:
59
Disclosure: C51 CONSOLIDATION (12/08) a. The nature of its involvement with the VIE and when that involvement began? [FIN 46R.24(a) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C4(d) for public companies] b. The nature, purpose, size and activities of the VIE? [FIN 46R.24(b) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C4(d) for public companies] c. The company's maximum exposure to loss as a result of its involvement with the VIE? [FIN 46R.24(c) for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C6(b) for public companies]
Public companies only:
Yes
No
d. The carrying amount and classification of the assets and liabilities in the companys statement of financial position that relate to the companys variable interest in the VIE? [FSP FAS 140-4 & FIN 46(R)-8 paragraph C6(a)] e. A tabular comparison of the carrying amount of the liabilities recorded related to the VIE and the companys maximum exposure to loss as a result of its involvement with the VIE? [FSP FAS 140-4 & FIN 46(R)-8, paragraph C6(c)] f. Information about any liquidity arrangements, guarantees and/or other commitments by third parties that may affect the fair value or risk of the companys variable interest in the VIE is encouraged. [FSP FAS 140-4 & FIN 46(R)-8, paragraph C6(d)]
15. If the company is the PB of a VIE, holds a significant variable interest in a VIE or is a sponsor that holds a variable interest in a VIE, do the financial statements disclose: [FSP FAS 140-4 & FIN 46(R)-8, paragraph C4] a. The companys methodology for determining whether the enterprise is (or is not) the PB? b. Any changes in the consolidation conclusion related to the VIE in the most recent financial statements? c. Whether the company has provided financial or other support to the VIE that it was not previously contractually required to provide, including (1) type and amount of support and (2) the primary reasons for providing the support?
60
Disclosure: C51 CONSOLIDATION (12/08) 16. If the company is a nonpublic company, have the disclosures required by FASB 140 about a VIE been included in the same note to the financial statements as the information required by FIN 46R? [FIN 46R.25] If the company is a public company, and the disclosures have been provided in more than one note to the financial statements, has the company provided a cross reference to the other notes? [FSP FAS 140-4 & FIN 46(R)-8 paragraph C8] 17. If the company does not apply FIN 46R to one or more VIEs or potential VIEs created before December 31, 2003 because, after making an exhaustive effort, it is unable to obtain the information necessary to (1) determine whether the entity is a VIE, (2) determine whether the company is the VIE's PB, or (3) perform the accounting required to consolidate the VIE, does it disclose: [FIN 46R.4g, .26 for nonpublic companies and FSP FAS 140-4 & FIN 46(R)-8, paragraph C8 for public companies] a. The number of entities to which FIN 46R is not being applied and the reason why the information required to apply FIN 46R is not available? b. The nature, purpose, size (if available), and activities of the entity(ies) and the nature of the company's involvement with the entity(ies)? c. The company's maximum exposure to loss because of its involvement with the entity(ies)? d. The amount of income, expense, purchases, sales, or other measure of activity between the company and the entity(ies) for all periods presented? (If it is not practicable to present that information for prior periods that are presented in the first set of financial statements for which this requirement applies, the information for those prior periods is not required.)
Yes
No
18. If the company is (1) a sponsor of a VIE that holds a variable interest in a qualifying SPE but was not the transferor of the financial assets to the qualifying SPE or (2) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of the financial assets to the qualifying SPE, do the financial statements disclose: [FSP FAS 140-4 & FIN 46(R)-8, paragraph D3] a. The nature, purpose, size, and activities of the
61
Disclosure: C51 CONSOLIDATION (12/08) qualifying SPE? b. The carrying amount and classification of the assets and liabilities recognized in the statement of financial position related to the companys involvement with the qualifying SPE? c. Terms of arrangements that could require the company to provide financial support to the qualifying SPE, considering explicit written arrangements, communications between the company and the qualifying SPE or its beneficial interest holders, and unwritten arrangements that are customary in similar relationships between the company and the qualifying SPE or its beneficial interest holders? d. The company's maximum exposure to loss as a result of its involvement with the qualifying SPE? e. Whether the company has provided financial or other support to the qualifying SPE that it was not previously contractually required to provide, including (1) type and amount of support and (2) the primary reasons for providing the support? B. ARB 51 (Voting Interests Model) 1. Does the company consolidate all entities in which it has a controlling financial interest through a direct or indirect ownership of a majority voting interest, except for those described in Item 2 below? [ARB 51.2, .3] 2. Does the company exclude from consolidation majorityowned subsidiaries in circumstances where: a. Control does not rest with the majority owner, such as when a subsidiary is in legal reorganization, in bankruptcy, or operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary? [ARB 51.2] b. Minority shareholders have, either individually or in the aggregate, rights to effectively participate in significant decisions that would be expected to be made in the "ordinary course of business?" (Effective participation means the ability to block significant decisions proposed by the investor who has a majority voting interest.) [EITF 96-16]
Yes
No
62
Disclosure: C51 CONSOLIDATION (12/08) 3. In deciding upon a consolidation policy, has the company considered what financial presentation is most meaningful in the circumstances and has it followed in the consolidated financial statements principles of inclusion or exclusion which most clearly exhibit the financial position and results of operations of the company? For example, does the company not consolidate those entities in which it does not hold the majority voting interest, except for circumstances in which a parent-subsidiary relationship exists by means other than record ownership of voting stock? [Reg. S-X, Rule 3A-02] [EITF 97-2] 4. Does the subsidiary's fiscal period correspond closely to the parent's fiscal period (usually a difference of not more than three months is acceptable)? [ARB 51.4] 5. If a parent and subsidiary have different fiscal periods that do not differ by more than three months, is the effect of intervening events that materially affect the financial position or results of operations disclosed or otherwise recognized? [ARB 51.4] 6. Do the consolidated statements or notes disclose the consolidation policy followed? [ARB 51.5] 7. Are intercompany balances and transactions eliminated in the preparation of consolidated statements? [ARB 51.6, .14] 8. Is earned surplus or deficit of a purchased subsidiary at the date of acquisition excluded from consolidated retained earnings? [ARB 51.9] 9. When a subsidiary is purchased during the year, is the subsidiary's income prorated, either (a) by including the subsidiary in the consolidation as though it had been acquired at the beginning of the year and the preacquisition earnings applicable to each block of stock deducted at the bottom of the consolidated income statement, or (b) by including in the consolidated statement only the subsidiary's revenue and expenses subsequent to the date of acquisition? [ARB 51.11] [NOTE: Although ARB 51 states that method (a) is preferable, especially where there are several dates of acquisition of blocks of shares during the year, prevalent U.S. GAAP practice utilizes method (b) (see, for example, FASB 141.49).] 10. Are shares of the parent held by a subsidiary appropriately treated in the consolidated balance sheet as stock not
Yes
No
63
Disclosure: C51 CONSOLIDATION (12/08) outstanding (treasury stock)? [ARB 51.13] 11. Are losses applicable to the minority interest in a subsidiary that exceed the minority interest in the equity capital of the subsidiary charged against the majority interest (that is, minority interest is not an asset on the balance sheet), as there is no obligation of the minority interest to make good such losses? [ARB 51.15] 12. If income taxes have been paid on intercompany profits or assets remaining within the group, have such taxes been deferred or have the intercompany profits to be eliminated in consolidation been appropriately reduced? [ARB 51.17] 13. If the subsidiary has capitalized the earned surplus arising since acquisition by means of a stock dividend or otherwise, has paragraph 18 of ARB 51 been considered? [ARB 51.18] 14. In circumstances in which combined financial statements may be more meaningful than separate statements, have paragraphs 22 and 23 of ARB 51 been considered? [ARB 51.22-.23] 15. In the circumstances in which parent-company statements may be needed in addition to the consolidated statements, has paragraph 24 of ARB 51 been considered? [ARB 51.24] 16. Do the notes to the consolidated financial statements disclose stocks of subsidiary companies pledged as collateral to indebtedness of the parent or subsidiary? [SAB Topic 5J] 17. For fiscal years beginning on or prior to December 15, 2005, if the company is the sole general partner (GP) in a limited partnership, that existed prior to June 29, 2005 and for which the partnership agreements have not been modified, has the company considered whether rights (such as those summarized below) held by the limited partners (LPs) are sufficient to preclude consolidation of the limited partnership by the GP? [FSP SOP 78-9-1] [EITF 98-6] [EITF 04-05] a. The nature of any rights held by the LPs to remove the GP ("kick-out" rights). b. "Important rights" or "participating rights" held by LPs that permit them to block certain actions by the GP, such as related to the acquisition or disposal of assets, approval of annual operating and capital
Yes
No
64
Disclosure: C51 CONSOLIDATION (12/08) budgets, etc. 18. If the company is a general partner (GP) in a limited partnership that was formed after June 29, 2005, has the company considered whether rights (such as those summarized below) held by the limited partners (LPs) are sufficient to preclude consolidation of the limited partnership by the GP? [EITF 04-05] [FSP SOP 78-9-1] a. The substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or b. Substantive participating rights. 19. For periods beginning with the first reporting period in fiscal years beginning after December 15, 2005, if the company is a general partner (GP) in a limited partnership, has the company considered whether rights (such as those summarized below) held by the limited partners (LPs) are sufficient to preclude consolidation of the limited partnership by the GP? [EITF 04-05] [FSP SOP 78-9-1] a. The substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or b. Substantive participating rights. 20. For entities impacted by the guidance in FSP SOP 78-9-1 (the "FSP"), has the entity applied the appropriate transition method as described in paragraphs 7-10 of FSP SOP 78-9-1? [NOTE: FSP SOP 78-9-1, Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 045, eliminates the concept of "important rights" in paragraph .09 of SOP 78-9, Accounting for Investments in Real Estate Ventures, and replaces it with the concepts of "kick-out rights" and "substantive participating rights" as defined in Issue 04-5. The FSP also amends paragraph .07 of SOP 78-9 to be consistent with the revised paragraph .09.] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-9, Reporting a Change in (or the Elimination of) a Previously Existing Difference between the Fiscal Year-End of a Parent Company and That of a Consolidated Entity or between the Reporting Period of an Investor and That of an Equity Method Investee The Issue is how a parent should recognize the effect of a change to (or the elimination of) an
Yes
No
65
Disclosure: C51 CONSOLIDATION (12/08) existing difference between the parent's reporting period and the reporting period of a consolidated entity or between the reporting period of an investor and the reporting period of an equity method investee. 96-16, Investor's Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights FASB 94 affirms that consolidation is appropriate when one entity has a controlling financial interest in another entity and that the usual condition for a controlling financial interest is ownership of a majority voting interest, but the Statement acknowledges that in some circumstances control does not rest with the majority owner. In some instances, the powers of a shareholder with a majority voting interest to control the operations or assets of the investee are restricted in certain respects by approval or veto rights granted to the minority shareholder ("minority rights"). Those minority rights may have little or no impact on the ability of a shareholder with a majority voting interest to control the investee's operations or assets, or, alternatively, those rights may be so restrictive as to call into question whether control rests with the majority owner. EITF 96-16 provides guidance for determining whether control rests with a shareholder with a majority voting interest if specific minority rights are granted to the minority shareholder. 84-42, Push-Down of Parent Company Debt to a Subsidiary The issue is whether parent company debt used to finance the acquisition of a subsidiary should be pushed down to the subsidiary's financial statements in cases in which the parent company intends to push down the new basis of assets and liabilities to the subsidiary's separate financial statements. The Task Force was unable to reach a consensus on this issue. On December 30, 1987, the SEC staff issued SAB 73, which addresses the treatment of parent-company debt in the separate financial statements of a subsidiary when such debt was incurred in connection with or otherwise related to the acquisition of the subsidiary in a purchase transaction. SAB 73 states that for circumstances in which the subsidiary subsequently files a registration statement in connection with a public offering of its stock or debt, the parent company's debt, related interest expense, and allocable debt issue costs should be reflected in the subsidiary's financial statements included in the public offering if (1) the subsidiary is to assume the debt of the parent, either presently or in a planned transaction in the future, (2) the proceeds of a debt or equity offering of the subsidiary will be used to retire all or a part of the parent company's debt, or (3) the subsidiary guarantees or
Yes
No
66
Disclosure: C51 CONSOLIDATION (12/08) pledges its assets as collateral for the parent company's debt. 84-23, Leveraged Buyout Holding Company Debt This Issue deals with how the separate financial statements of a company acquired in a leveraged buyout should be presented if substantially all of the assets or stock of the acquired company are pledged to secure borrowings of a separate corporation that owns the stock of the company. No consensus was reached. The status section of this Issue provides references to other literature that address this matter.
Yes
No
Accounting: C59 CONTINGENCIES (12/08) 1. Has an estimated loss from a loss contingency been accrued by a charge to income if both of the following conditions are met: [FASB 5.08] a. Information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements, and b. The amount of the loss can be reasonably estimated? [NOTE: The use of the term "probable" in 1(a) above is not intended to mean virtually certain to occur, rather, the future event or events are likely to occur.] [FASB 5.03; FASB 114.49] 2. If condition (a) in question 1 above is met and the reasonable estimate of the loss is a range: [FIN 14.03] a. If some amount within the range appears at the time to be a better estimate than any other amount within the range, has that amount been accrued? b. If no amount within the range is a better estimate than any other amount, has the minimum amount in the range been accrued? 3. Has no accrual for loss been made for general or unspecified business risks which do not meet the conditions for accrual in question 1 above? [FASB 5.14] 4. Have costs or losses not been charged to an appropriation of retained earnings, and has no part of the appropriation been transferred to income? [FASB 5.15]
Yes
No
67
Accounting: C59 CONTINGENCIES (12/08) 5. For reporting entities involved with potential environmental remediation: [SOP 96-1] a. If the underlying cause of an environmental remediation liability is the past or present ownership or operation of a site, or the contribution or transportation of waste to a site, at which remedial actions must take place, and if the underlying cause occurred on or before the date of the financial statements, has the entity recognized the liability in the financial statements when the conditions in question 1 above have been met? [SOP 96-1.105.107] b. If (1) litigation has commenced or a claim or an assessment has been asserted or if commencement of litigation or assertion of a claim or assessment is probable, and (2) the reporting entity is associated with the site, has the outcome of such litigation, claim, or assessment been presumed to be unfavorable? [SOP 96-1.109] c. Has the entity reasonably estimated its environmental remediation liability after examining the following factors: [SOP 96-1.110] The extent and types of hazardous substances at a site; The range of technologies that can be used for remediation; Evolving standards of what constitutes acceptable remediation; The number and financial condition of other potentially responsible parties (PRPs) and the extent of their responsibility for the remediation; and The appropriate costs to be included, (1) incremental direct costs of the remediation effort and (2) costs of compensation and benefits for those employees who are expected to devote a significant amount of time directly to the remediation effort, to the extent of the time expected to be spent directly on the remediation effort? [SOP 96-1.124]
Yes
No
68
Accounting: C59 CONTINGENCIES (12/08) d. Does the entity recognize that recording a liability should not be precluded simply because (1) certain components of the liability may not be reasonably estimable during the early stages of the remediation process or (2) there are uncertainties relating to the entity's share of an environmental remediation liability? [SOP 96-1.114-.116] e. Has consideration been given to the fact that certain stages of a remediation effort or process and of PRP involvement provide benchmarks that should be considered when evaluating the probability that a loss has been incurred and the extent to which any loss is reasonably estimable? [SOP 96-1.118] f. Has consideration been given to recognition benchmarks for a Superfund remediation liability per paragraph 119 of SOP 96-1? [SOP 96-1.119]
Yes
No
g. Once an entity has determined that an environmental remediation liability should be accrued, does the liability include the entity's allocable share of the liability for a specific site and its share of amounts related to the site that will not be paid by other PRPs or the government? [SOP 96-1.121] h. Have the following issues been considered in making the appropriate measurement of an entity's remediation liability: [SOP 96-1.122-139] (1) Costs that should be included in the measurement? (2) Whether the measurement should consider the effects of expected future events or developments, including discounting considerations? (3) How the measurement should be affected by the existence of other PRPs? (4) How the measurement should be affected by potential recoveries? i. If there is any potential recovery of contingent losses recognized in the financial statements: [SOP 961.140] (1) Has an asset been recognized only when realization of the claim for recovery of a loss is probable?
69
Accounting: C59 CONTINGENCIES (12/08) (2) Has the amount of an environmental remediation liability been determined independently from any potential claim for recovery? j. For any changes in estimates of the entity's remediation liability, including revisions to the entity's estimate of its share of the liability due to negotiation or identification of other PRPs, have these changes been accounted for as changes in estimates, in consonance with APB No. 20, Accounting Changes? [SOP 96-1.117]
Yes
No
6. If the entity has withdrawn from a multiemployer plan, and such withdrawal gives rise to an obligation that is either probable or reasonably estimable, including a required increase in the entity's contributions to the fund to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage, have the provisions of FASB 5 been applied? [FASB 87.70; FASB 106.83] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? D-77, Accounting for Legal Costs to Be Incurred in Connection With a Loss Contingency This Issue relates to the accounting for legal costs expected to be incurred in connection with a FASB No. 5, Accounting for Contingencies, loss contingency. The Task Force declined to add this Issue to its agenda. The SEC Observer noted that the SEC staff would expect a registrant's accounting policy to be applied consistently and that APB Opinion No. 22, Disclosure of Accounting Policies, requires disclosure of material accounting policies and the methods of applying those policies. 00-26, Recognition by a Seller of Losses on Firmly Committed Executory Contracts This Issue relates to whether a seller, or service provider, under a firmly committed executory contract that requires the seller to deliver goods or services to the counterparty in the future for specified consideration should recognize a loss under the contract and how the loss should be measured. Note that the Task Force did not reach a consensus on this Issue. 99-14, Recognition by a Purchaser of Losses on Firmly Committed Executory Contracts This Issue relates to whether a purchaser under a firmly committed executory contract should recognize an impairment of its remaining contractual right asset under the contract and how that
70
Accounting: C59 CONTINGENCIES (12/08) impairment loss should be measured if the purchaser will continue to use the asset or service to be received under the contract. Note that the Task Force did not reach a consensus on this Issue. 98-9, Accounting for Contingent Rent This Issue relates to how a lessor should account for contingent rental income that is based on future specified targets and how a lessee should account for contingent rental expense that is based on future specified targets. 90-8, Capitalization of Costs to Treat Environmental Contamination This Issue address whether environmental contamination treatment costs should be capitalized or charged to expense. See the Status sections of this Issue as more recent accounting literature may currently address certain aspects of this issue and/or accounting for costs of asbestos removal. 89-13, Accounting for the Cost of Asbestos Removal This Issue addresses (1) whether the costs incurred to treat asbestos when a property with a known asbestos problem is acquired should be capitalized or charged to expense, (2) whether the costs incurred to treat asbestos in an existing property should be capitalized or charged to expense, and (3) if it is deemed appropriate to charge asbestos treatment costs to expense, whether they should be reported as an extraordinary item. See the Status section of this Issue as more recent accounting literature may currently address one or more of these questions and/or accounting for costs of asbestos removal.
Yes
No
Disclosure: C59 CONTINGENCIES (12/08) 1. Do the financial statements disclose the nature of an accrual made and the amount accrued, where such disclosure is necessary for the financial statements not to be misleading? [FASB 5.09] 2. If no accrual was made for a loss contingency because one or both of the conditions described in FASB 5.08 are not met, or if an exposure to loss exists in excess of the amount accrued, and if there is at least a reasonable possibility that a loss (including unasserted claims or assessments for which it is considered probable that a claim will be asserted) or an additional loss may have been incurred, do the financial statements disclose the nature of the contingency and an estimate of the possible
Yes
No
71
Disclosure: C59 CONTINGENCIES (12/08) loss or range of loss or state that an estimate cannot be made? [FASB 5.10] 3. Have disclosures similar to those in question 2 above been made concerning impairment of an asset or incurrence of a liability after the date of the financial statements, but before the financial statements are issued, if such disclosure is deemed necessary to keep the financial statements from being misleading? [FASB 5.11] 4. If there is a guarantee, normally with the right to proceed against an outside party, do the financial statements disclose: [FASB 5.12] [See also compliance section G80, Guarantees, for additional accounting and disclosure requirements related to guarantees.] a. The nature and amount of the guarantee even though the possibility of loss may be remote? (Such disclosures also apply to indirect guarantees of indebtedness of others.) b. If estimable, the value of any recovery that could be expected to result, such as from proceedings against an outside party? 5. If a portion of retained earnings is appropriated for loss contingencies, has it been shown within the stockholders' equity section of the balance sheet and has it been clearly identified as an appropriation of retained earnings? [FASB 5.15] 6. If there are contingencies that might result in gains, do the financial statements not reflect such gain contingencies prior to their realization, and is adequate disclosure made with care exercised to avoid misleading implications as to the likelihood of realization? [FASB 5.17] 7. Do the financial statements disclose: [FASB 5.18] a. Unused letters of credit? b. Assets pledged as security for loans? c. Commitments, such as those for plant acquisition or obligations to reduce debts, maintain working capital, or restrict dividends? d. Long-term leases? e. Pension plans? f. The existence of cumulative preferred stock dividends in arrears?
Yes
No
72
Disclosure: C59 CONTINGENCIES (12/08) 8. If there is any potential recovery of contingent losses recognized in the financial statements, have the gross amounts of probable loss and related recovery, even if the net amount of the two is not considered material, been disclosed in the financial statements, where such disclosure is necessary for the financial statements not to be misleading? [SAB Topic 5-Y, Question 1] [NOTE: In general, an entity is precluded from offsetting in the balance sheet a contingent liability associated with environmental remediation with the potential insurance recoveries. Refer to SOP 96-1 and SAB Topic 5-Y for further guidance. The guidance in FIN 39 should be considered when determining the appropriate balancesheet classification of contingent liabilities and related insurance recoveries.] 9. Do the financial statements include disclosures about the risks and uncertainties existing as of the date of the financial statements (including and in addition to those that involve contingencies covered by FASB 5) in the following areas: [SOP 94-6.08] a. Nature of operations, including a description of the major products or services the reporting entity sells or provides, the relative importance of its operations in each business and the basis for the determination (i.e., assets, revenues, earnings) if the entity operates in more than one business, and its principal markets, including the locations of those markets? [Disclosures about the nature of operations need not be quantified; relative importance could be conveyed by use of terms such as predominantly, about equally, or major and other.] [SOP 94-6.10] b. Use of estimates in the preparation of the financial statements? [SOP 94-6.11] c. Certain significant estimates when known information available prior to issuance of the financial statements indicates that (1) it is at least reasonably possible that the estimate of the effect on the financial statements of a condition, situation, or set of circumstances that existed at the financial statement date will change in the near term due to one or more future confirming events, and (2) the effect of the change would be material to the financial statements? [If these criteria are met, the disclosure should indicate the nature of the uncertainty and include an indication that it is at least reasonably possible that a change in the estimate
Yes
No
73
Disclosure: C59 CONTINGENCIES (12/08) will occur in the near term. If these criteria are not met as a result of a risk-reduction technique, disclosure of the uncertainty and risk-reduction technique is encouraged but not required.] [SOP 946.12-.19] d. Current vulnerability due to certain concentrations, including known group concentrations, when based on information known to management prior to issuance of the financial statements (1) the concentration exists at the date of the financial statements, (2) the concentration makes the enterprise vulnerable to the risk of a near-term severe impact, and (3) it is at least reasonably possible that the events that could cause the severe impact will occur in the near term? [Includes concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor, or contributor; concentrations in revenue from particular products, services, or fund-raising events; concentrations in the available sources of supply of materials, labor, or services, or of licenses or other rights used in the entity's operations; and concentrations in the market or geographic area in which an entity conducts its operations.] [SOP 946.20-.23] 10. For concentrations that involve labor subject to collective bargaining agreements, requiring disclosure in question (9d) above, does the disclosure include both the percentage of the labor force covered by collective bargaining agreements and the percentage of the labor force covered by collective bargaining agreements that will expire within one year? [SOP 94-6.24] 11. Has the entity considered the disclosure and display requirements of paragraphs 143153 of SOP 96-1 with respect to: a. Balance sheet display? [SOP 96-1.143-.146] b. Income statement display? [SOP 96-1.147-.150] c. Disclosure of accounting principles? [SOP 96-1.151.153] 12. For concentrations that involve operations located outside of the entity's home country, requiring disclosure in question (9d) above, does the disclosure include the carrying amounts of net assets and the geographic areas in which they are located?
Yes
No
74
Disclosure: C59 CONTINGENCIES (12/08) 13. For entities with recorded accruals for environmental remediation loss contingencies, have the following been disclosed: [SOP 96-1.161] a. The nature and amount of the accruals, if such disclosure is necessary for the financial statements to not be misleading? b. If any portion of the accrued obligation is discounted, the undiscounted amount of the obligation and the discount rate used in the present value determination? c. If the criteria in SOP 94-6 are met, an indication that it is at least reasonably possible that a change in the estimate will occur in the near term? 14. For entities with reasonably possible loss contingencies, including reasonably possible loss exposures in excess of accrued amounts, have the following been disclosed: [SOP 96-1.162] a. The nature and possible loss exposure of the contingency, or the fact that an estimate cannot be made? b. If the criteria in SOP 94-6 are met, an indication that it is at least reasonably possible that a change in the estimate will occur in the near term? 15. Has the entity considered additional nonrequired disclosures that could be useful to the financial statement user's understanding of the entity's financial statements? [SOP 96-1.163, 170]
Yes
No
Accounting: C67 CONTRIBUTIONS (12/08) 1. Are contributions received (other than contributed services and contributed collection items provided for in FASB 116.09, .11) recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received? [FASB 116.08] 2. Are contributions received and contributions made measured at their fair values? [FASB 116.08, .18-.20] a. If there is a major uncertainty about the existence of value in the form of future economic benefit or service potential with respect to an item received or
Yes
No
75
Accounting: C67 CONTRIBUTIONS (12/08) given, is the contribution not recognized? [FASB 116.19] b. If a present value technique is used to measure the fair value of unconditional promises to give cash, are subsequent accruals of the interest element accounted for as contribution income by donees and contribution expense by donors? [FASB 116.20] [NOTE 1: FASB 157 amends paragraphs 19 and 20 of FASB 116. Entities should follow the fair value measurement guidance in FASB 157, including Appendix B of FASB 157, which contains guidance on the use of present value techniques.] [NOTE 2: For fiscal years beginning after June 15, 2002, Derivatives Implementation Group ("DIG") No. B35, Embedded Derivatives: Application of Statement 133 to a Not-for-Profit Organization's Obligation Arising from an Irrevocable Split-Interest Agreement, is required to be implemented.] 3. Are contributed services recognized only if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation? [FASB 116.09] 4. Are contributions of works of art, historical treasures, and similar assets that are added to collections not recognized as revenues or gains if they meet all of the following conditions: [FASB 116.11] a. The collection items are held for public exhibition, education, or research in furtherance of public service rather than financial gain? b. The collection items are protected, kept unencumbered, cared for, and preserved? c. The collection items are subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections? 5. If collections are capitalized, are contributed collection items recognized as revenues or gains? [FASB 116.13] 6. Has a not-for-profit organization distinguished between contributions received with permanent restrictions, those received with temporary restrictions, and those received without donor-imposed restrictions? [FASB 116.14]
Yes
No
76
Accounting: C67 CONTRIBUTIONS (12/08) a. Are contributions with donor-imposed restrictions reported as restricted support that increases permanently restricted net assets or temporarily restricted net assets? b. Are contributions without donor-imposed restrictions reported as unrestricted support that increases unrestricted net assets? 7. Are receipts of unconditional promises to give with payments due in future periods reported as restricted support unless explicit donor stipulation or circumstances surrounding the receipt make clear that the donor intended it to be used to support activities of the current period? [FASB 116.15] 8. Are gifts of long-lived assets received without stipulations about how long the donated asset must be used reported as restricted support if the organization's accounting policy implies a time restriction that expires over the useful life of the donated assets? [FASB 116.16] a. If the organization's accounting policy implies time restrictions, is the time restriction also applied to longlived assets acquired with gifts of cash or other assets restricted for those acquisitions? 9. Does the not-for-profit organization recognize the expiration of a donor-imposed restriction on a contribution in the period the restriction expires? [FASB 116.17] 10. Are contributions made recognized as expenses in the period made and as decreases of assets or increases in liabilities depending on the form of the benefits given? [FASB 116.18] 11. Are unconditional promises to give that are expected to be collected or paid in less than one year measured at net realizable value? [FASB 116.21] 12. Are conditional promises to give (which depend on the occurrence of a specified future or uncertain event to bind the promissor) recognized when the conditions on which they depend are substantially met (i.e., when the conditional promise becomes unconditional)? [FASB 116.22] 13. Is a transfer of assets with a conditional promise to contribute them accounted for as a refundable advance until the conditions have been substantially met? [FASB 116.22]
Yes
No
77
Disclosure: C67 CONTRIBUTIONS (12/08) 1. If the entity received contributed services, do the financial statements describe the programs or activities for which the services were used, including the nature and extent of contributed services received for the period and the amount recognized as revenues for the period? [FASB 116.10] [NOTE: Entities are encouraged to disclose the fair value of contributed services received but not recognized as revenues.] [FASB 116.10] 2. Are gifts of long-lived assets received without stipulations about how long the donated asset must be used reported as restricted support if the organization's accounting policy implies a time restriction that expires over the useful life of the donated assets? [FASB 116.16] a. Is the organization's accounting policy disclosed? 3. Are expirations of donor-imposed restrictions that simultaneously increase one class of net assets and decrease another (reclassifications) reported separately from other transactions? [FASB 116.17] 4. Do recipients of unconditional promises to give disclose the following: [FASB 116.24] a. The amounts of promises receivable in less than one year, in one to five years, and in more than five years? b. The amount of the allowance for uncollectible promises receivable? 5. Do recipients of conditional promises to give disclose the following: [FASB 116.25] a. The total of the amounts promised? b. A description and amount for each group of promises having similar characteristics? 6. If the entity has not recognized and capitalized collections, are the following reported on the face of the statement of activities, separately from revenues, expenses, gains, and losses: [FASB 116.26] a. Costs of collection items purchased as a decrease in the appropriate class of net assets? b. Proceeds from sale of collection items as an increase in the appropriate class of net assets? c. Proceeds from insurance recoveries of lost or
Yes
No
78
Disclosure: C67 CONTRIBUTIONS (12/08) destroyed collection items as an increase in the appropriate class of net assets? 7. If the entity capitalized its collections prospectively, does it report the proceeds from sales and insurance recoveries of items not previously capitalized separately from revenues, expenses, gains, and losses? [FASB 116.26] 8. If the entity does not recognize and capitalize its collections or capitalizes collections prospectively, does the entity disclose: [FASB 116.27] a. Its collections, including their relative significance? b. Its accounting and stewardship policies for its collections? c. For items not capitalized that are deaccessed during the period: (1) Description of the items given away, damaged, destroyed, lost, or otherwise deaccessed during the period, or (2) The fair value of the deaccessed items? d. A line item on the face of the statement of financial position that refers to the disclosures required above and is dated if the collections are capitalized prospectively?
Yes
No
79
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) 1. If debt securities have been issued with nondetachable conversion features and the embedded conversion feature needs to be separately accounted for as a derivative under FASB 133: [FASB 133.12 for bifurcation criteria refer to Model Audit Program for Derivatives, Section VII, Test Embedded Derivatives] a. Is a portion of the proceeds allocated to the embedded derivative (conversion option) based on the fair value of the conversion option (i.e., "with and without method")? b. Is any discount resulting from the allocation of proceeds to the embedded derivative reflected as a charge to interest expense over the appropriate period using the effective interest method? 2. If debt securities have been issued with nondetachable conversion features, and the embedded conversion feature does not need to be accounted for separately under FASB 133: a. If the conversion feature was "at-the-money" or "outof-the-money" at the commitment date (as defined in EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF 00-27)), and the conversion price would not change upon the occurrence of a triggering event not controlled by the issuer (i.e., it is a noncontingent conversion option), have the securities been accounted for solely as debt? [APB 14.12] b. If the conversion feature is a contingent conversion option (i.e., the ability to convert or the conversion price would change upon the occurrence of a triggering event not controlled by the issuer), and the most favorable conversion price (for the investor), assuming there are no changes to the current circumstances except for the passage of time, is "atthe-money" or "out-of-the-money" at the commitment date, have the securities been accounted for solely as debt? [APB 14.12]
Yes
No
80
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) c. If the conversion feature was "in-the-money" at the commitment date (a "beneficial conversion feature"), or if the conversion feature is a contingent conversion option (i.e., the ability to convert or the conversion price would change upon the occurrence of a triggering event not controlled by the issuer), and the most favorable conversion price (for the investor), assuming there are no changes to the current circumstances except for the passage of time, is "inthe-money" at the conversion date: (1) Is a portion of the proceeds allocated to the beneficial conversion feature equal to the intrinsic value of that feature (but not more than total proceeds received from the debt security issued with that feature) using the terms most favorable to the investor assuming there are no changes to the current circumstances except for the passage of time? (2) Is the portion that is allocated to the beneficial conversion feature accounted for as paid-in capital? (3) Is any discount resulting from the allocation of proceeds to the beneficial conversion feature amortized as interest expense over the appropriate period using the effective interest method? (4) In situations in which the instrument incorporates a multistep discount, is the cumulative amortization of the discount at any balance sheet date equal to the greater of (a) the amount derived using the effective yield method based on the conversion terms most beneficial to the investor or (b) the amount of discount which the investor could obtain if conversion occurred at that balance sheet date?
Yes
No
81
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) d. If the conversion feature is a contingent conversion option (i.e., the ability to convert or the conversion price would change upon the occurrence of a triggering event not controlled by the issuer), and the triggering event requires changes to the current circumstances and the most favorable conversion price (for the investor), assuming the change in circumstances, is in-the-money, is the intrinsic value of the contingent conversion not recognized until and unless the triggering event occurs? EITF 00-27, provides guidance on accounting for convertible securities with beneficial conversion features or contingently adjustable conversion ratios. Some of the issues addressed in EITF 00-27 include: How to determine the effective conversion price if the convertible instrument is issued in conjunction with detachable warrants, For instruments with contingent conversion options: (a) how to determine what is the "initial" conversion price, and what is the "contingent" conversion price, and (b) how to account for a contingent conversion feature that will reset the conversion price based on changes in the price of the underlying common stock, When a commitment date should occur for purposes of determining the fair value of the issuer's common stock to be used to measure the intrinsic value of an embedded conversion option, What is the appropriate period to accrete (amortize) the discount resulting from the allocation of proceeds relating to a beneficial conversion feature, How to apply EITF 98-5 if the terms of a contingent conversion option do not permit the number of shares that would be received upon conversion if the contingent event occurs to be calculated at the commitment date, How to apply EITF 98-5 when a beneficial conversion option terminates after a specified time period and then the instrument is mandatorily redeemable,
Yes
No
82
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) How to account for a convertible instrument that is issued to a provider of goods or services, How to account for convertible instruments that are issued as paid-in-kind (PIK) interest or dividends, How to account for the issuance of a convertible instrument that is issued as a repayment of a nonconvertible instrument at the maturity of the nonconvertible instrument. 3. If debt securities (convertible or not) have been issued with detachable stock purchase warrants: [APB 14.16] a. Is a portion of the proceeds allocated to the warrants based on the relative fair value of the two securities at the time of issuance? b. Is the portion that is allocated to the warrants accounted for as paid-in capital (assuming the requirements for classification as equity pursuant to EITF 00-19 and FASB 150 are met)? 4. If nonconvertible debt securities (or convertible debt securities for which the conversion option is not required to be bifurcated under FASB 133) have been issued with nondetachable stock purchase warrants and the debt security must be surrendered in order to exercise the warrant: [APB 14.16] a. Have the securities been accounted for solely as debt? [APB 14.12] Has the entity complied with the following FSP issued by the FASB, when applicable? FSP No. EITF 00-19-2, Accounting for Registration Payment Arrangements FSP provides a scope exception for registration payment arrangements and further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-7, Issuer's Accounting for a Previously Bifurcated
Yes
No
83
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities The Issue is how an issuer should account for a previously bifurcated conversion option in a convertible debt instrument if that conversion option no longer meets the bifurcation criteria in FASB 133. 06-6, Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments This Issue addresses (1) how a modification of a debt instrument (or an exchange of debt instruments) that affects the terms of an embedded conversion option should be considered in the issuer's analysis of whether debt extinguishment accounting should be applied and (2) accounting for a modification of a debt instrument (or an exchange of debt instruments) that affects the terms of an embedded conversion option when extinguishment accounting is not applied. 05-8, Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature This Issue addresses: (1) whether the issuance of convertible debt with a beneficial conversion feature results in a basis difference for purposes of applying FASB 109; (2) if the issuance of convertible debt with a beneficial conversion feature results in a basis difference, whether that basis difference is a temporary difference under FASB 109; (3) if the issuance of convertible debt with a beneficial conversion feature results in a temporary difference under FASB 109, whether recognition of the deferred tax liability for the temporary difference of the convertible debt should be recorded as an adjustment to additional paid-in capital or through the recording of a deferred charge by analogy to the accounting model in Example 4 of Issue No. 98-11, Accounting for Acquired Temporary Differences in Certain Purchase Transactions That Are Not Accounted for as Business Combinations. 05-2, The Meaning of "Conventional Convertible Debt Instrument" in Issue No. 00-19 This Issue addresses (1) whether the exception to the requirements of paragraphs 12 33 of Issue 00-19 for "conventional convertible debt instruments" should be removed or further clarified, (2) whether a contingency related to the exercise of the conversion option should impact the assessment of whether an instrument is "conventional" for evaluating the exception in paragraph 4 of Issue 00-19, and (3) whether convertible preferred stock with a mandatory redemption date can qualify
Yes
No
84
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) for the exception included in paragraph 4 of Issue 00-19. 05-1, Accounting for the Conversion of an Instrument That Became Convertible upon the Issuer's Exercise of a Call Option This Issue addresses the issuance of equity securities to settle a debt instrument that was not otherwise currently convertible but became convertible upon the issuer's exercise of a call option when the issuance of equity securities is pursuant to the instrument's original conversion terms. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share This Issue addresses when the dilutive effect of contingently convertible instruments should be included in diluted earnings per share computations. 03-7, Accounting for the Settlement of the Equity-Settled Portion of a Convertible Debt Instrument That Permits or Requires the Conversion Spread to Be Settled in Stock (Instrument C of Issue No. 90-19 This Issue addresses how the issuer should account for the partial cash-based and partial stock-based settlement of a debt instrument structured in the form of Instrument C as described in Issue 90-19, Convertible Bonds With Issuer Option to Settle for Cash Upon Conversion. 02-15, Determining Whether Certain Conversions of Convertible Debt to Equity Securities Are within the Scope of FASB Statement No. 84 This Issue addresses whether FASB 84 applies when the "offer" for consideration in excess of the original conversion terms is made by the debt holder rather than the debtor, including (a) circumstances in which a third party purchases the debt securities in the open market (at a significant discount from face value) and approaches the debtor to increase the conversion terms of the debt and (b) circumstances in which the offer to induce conversion is not extended to all debt holders. 00-9, Classification of a Gain or Loss from a Hedge of Debt That Is Extinguished This Issue addresses (1) how the component of the gain or loss resulting from a prior adjustment of the debt's carrying amount for a fair value hedge should be classified in the income statement when that debt is extinguished, (2) how the component of other comprehensive income resulting from a cash flow hedge of debt should be classified in the income statement when the debt is extinguished and 3) how the component of other comprehensive income resulting from a cash flow hedge of the forecasted debt transaction should be classified in the income statement when the forecasted debt transaction occurs
Yes
No
85
Accounting: D10 DEBT: CONVERTIBLE DEBT AND DEBT WITH STOCK PURCHASE WARRANTS (12/08) and the debt is subsequently extinguished. 99-1, Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary This Issue addresses (1) how debt issued by a consolidated subsidiary that is convertible into that subsidiary's stock should be accounted for in the consolidated financial statements and (2) how debt issued by a parent company that is convertible into the stock of a consolidated subsidiary should be accounted for in the consolidated financial statements. [NOTE: See the Status section of this Issue.] 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion A company issues a debt instrument that is convertible into a fixed number of common shares. Upon conversion, the issuer is either required or has the option to satisfy all or part of the obligation in cash. This Issue addresses three types of instruments: Instrument A, Instrument B, and Instrument C. The terms upon conversion vary depending on the type as follows: (A) the issuer must satisfy the obligation entirely in cash based on the fixed number of shares multiplied by the stock price on the date of conversion (the conversion value); (B) the issuer may satisfy the entire obligation in either stock or cash equivalent to the conversion value; or (C) the issuer must satisfy the accreted value of the obligation (the amount accrued to the benefit of the holder exclusive of the conversion spread) in cash and may satisfy the conversion spread (the excess conversion value over the accreted value) in either cash or stock. This Issue addresses (1) whether the initial balance-sheet treatment by the issuer should provide for separate or combined accounting for the conversion feature and debt obligation, (2) how the issuer should account for the excess conversion spread over the accreted value, and (3) how each instrument should be treated in earnings-per-share computations. [NOTE: See the Status section of this Issue.]
Yes
No
86
Accounting: D10 DEBT: INDUCED CONVERSION OF CONVERTIBLE DEBT (12/08) This section covers all induced conversions of convertible debt to equity securities, regardless of the party that initiates the offer or whether the offer relates to all debt holders, that meet both of the following (a) conversion occurs pursuant to changed conversion privileges that are exercisable only for a limited period of time, and (b) conversion includes the issuance of all of the equity securities issuable pursuant to conversion privileges included in the terms of the debt at issuance for each debt instrument that is converted. The changed terms may involve (a) a reduction of the original conversion price, (b) issuance of warrants or other securities not provided for in the original conversion terms, or (c) payment of cash or other consideration to those debt holders that convert during the specified time period. [FASB 84.02, EITF 02-15] 1. With respect to induced conversions of convertible debt, are the following requirements met: a. Has an expense been recognized, equal to the fair value of all securities and other consideration transferred in the transaction in excess of the fair value of all securities issuable pursuant to the original conversion terms? (The expense should not be reported as an extraordinary item.) [FASB 84.03] b. Has the fair value of the securities or other consideration given been measured as of the date the inducement offer is accepted by the convertible debt holder? (Normally, this is the date of actual conversion or the date the debt holder enters into a binding agreement to do so.) [FASB 84.04] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 02-15, Determining Whether Certain Conversions of Convertible Debt to Equity Securities Are within the Scope of FASB Statement No. 84 This Issue addresses whether FASB 84 applies when the "offer" for consideration in excess of the original conversion terms is made by the debt holder rather than the debtor, including (a) circumstances in which a third party purchases the debt securities in the open market (at a significant discount from face value) and approaches the debtor to increase the conversion terms of the debt and (b) circumstances in which the offer to induce conversion is not extended to all debt holders.
Yes
No
87
Accounting: D10 DEBT: INDUCED CONVERSION OF CONVERTIBLE DEBT (12/08) 85-17, Accrued Interest upon Conversion of Convertible Debt This Issue addresses (1) whether interest expense should be accrued or imputed to the date of conversion when such forfeiture occurs and (2) if interest is accrued through the date of conversion, how the forfeited interest should be recorded upon conversion of the debt instrument.
Yes
No
Accounting: D18 DEBT: PRODUCT FINANCING ARRANGEMENTS (12/08) Product financing arrangements covered by FASB 49 are those for which products were either produced by or originally purchased by the enterprise (sponsor) and sold to another entity or purchased by another entity on behalf of the sponsor. The financing arrangement should also have both of the following characteristics (a) requires the sponsor to purchase the product, a substantially identical product, or processed goods of which the product is a component at specified prices which are not subject to change except from fluctuations due to finance and holding costs and (b) the payments that the other entity will receive on the transaction are established by the financing arrangement, and the amounts to be paid by the sponsor will be adjusted, as necessary, to cover substantially all fluctuations in costs incurred by the other entity in purchasing and holding the product (including interest). The characteristic of predetermined prices in condition (a) also is present if any of the following circumstances exists: The specified prices in the financing arrangement are in the form of resale price guarantees under which the sponsor agrees to make up any difference between the specified price and the resale price for products sold to third parties The sponsor is not required to purchase the product but has an option to purchase the product, the economic effect of which compels the sponsor to purchase the product; for example, an option arrangement that provides for a significant penalty if the sponsor does not exercise the option to purchase The sponsor is not required by the agreement to purchase the product but the other entity has an option
Yes
No
88
Accounting: D18 DEBT: PRODUCT FINANCING ARRANGEMENTS (12/08) whereby it can require the sponsor to purchase the product. [FASB 49.05] 1. For product financing arrangements meeting the above criteria, has the sponsor: [FASB 49.08] a. Recorded a liability at the time the proceeds were received from the other entity? b. Not recorded the transaction as a sale and not removed the covered product from the balance sheet? 2. For product financing arrangements meeting the above criteria in which another entity purchases a product on a sponsor's behalf, has the sponsor recorded the asset and the related liability when the product is purchased by the other entity? [FASB 49.08] 3. Product costs, excluding processing costs, in excess of the sponsor's original production or purchase costs or the other entity's purchase cost represent financing and holding costs. Has the sponsor: [FASB 49.09] a. Accounted for such costs in accordance with its accounting policies applicable to financing and holding costs as those costs are incurred by the other entity? b. Identified separately interest costs associated with the product covered by financing arrangements and accounted for those costs in accordance with FASB 34, Capitalization of Interest Cost, as those costs are incurred by the other entity?
Yes
No
Accounting: D40 DEPRECIATION (12/08) FASB 93 requires that all not-for-profit organizations recognize depreciation on long-lived tangible assets, except for works of art and historical treasures, in generalpurpose external financial statements. [FASB 93 (as amended by FASB 99)] FASB 93 is applicable to the separately issued generalpurpose financial statements of entities or activities in the public sector, such as authorities, hospitals, colleges and universities, and pension plans. [FASB 93.02]
Yes
No
89
Accounting: D40 DEPRECIATION (12/08) 1. For not-for-profit organizations: a. Has depreciation been taken on all long-lived tangible assets except works of art and historical treasures for which verifiable evidence exists that the asset has a value worthy of preserving perpetually, and the holder has the technological and financial ability to do so and is doing so? [FASB 93.06] 2. For all entities: a. Are long-lived assets classified as held for sale that are reported at the lower of carrying amount at fair value less cost to sell not depreciated while they are held for sale? [FASB 144.34] b. Are long-lived assets to be disposed of other than by sale classified as held and used and depreciated until abandoned, exchanged, or distributed? [FASB 144.B63] c. Are the depreciation policies (i.e., depreciable basis and useful life) reviewed and adjusted, as appropriate, for assets held for use that have undergone an impairment analysis? [FASB 144.9] d. Are the depreciation policies (i.e., depreciable basis and useful life) reviewed and adjusted, as appropriate, for long-lived assets to be abandoned? [FASB 144.28]
Yes
No
Disclosure: D40 DEPRECIATION (12/08) 1 For all entities: (including not-for-profit organizations) a. Are the following disclosed in the financial statements or in the notes: [APB 12.05] (1) Depreciation expense for each period presented? (2) Balance of major classes of depreciable assets, by nature or function, at the balance-sheet date? (3) Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance-sheet date? (4) A general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets?
Yes
No
90
Disclosure: F25 FINANCIAL INSTRUMENTS: DISCLOSURE (12/08) [NOTE: At the time this checklist was issued, the FASB was discussing comments received on Proposed FASB Staff Position (FSP) 107-a, which would amend the disclosure requirements in FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to increase the comparability of information about certain financial assets that have related economic characteristics but have different reporting measurement attributes. If finalized, this FSP would be effective for interim and annual reporting periods ending after December 15, 2008. This section does not reflect these proposed changes. See the FASBs website for the status and disclosure requirements of this FSP.] [NOTE: For entities that have adopted FASB 157 FASB 157 removes paragraphs 5, 6,11, and 18-29 of Appendix A and amends paragraphs 9, 10, 30, and 31 of FASB 107. Entities should follow the fair value measurement guidance in FASB 157 items within the scope of FASB 107. This section has been updated to assume the reporting entity has adopted FASB 157.] 1. Has the enterprise disclosed in the financial statements or the accompanying notes the following: [FASB 107.10] a. The fair value and carrying value of financial instruments for which it is practicable to estimate that value in a form that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amounts relate to what is reported in the statement of financial position? [NOTE: For entities that have adopted FASB 157 For financial instruments recognized at fair value in the statement of financial position, the disclosure requirements of FASB 157 also apply.] b. The method(s) and significant assumptions used to estimate the fair value of financial instruments. [NOTE: For entities that have adopted FASB 157 For financial instruments recognized at fair value in the statement of financial position, the disclosure requirements of FASB 157 also apply.] c. Has the entity not netted the fair value of a financial instrument with the fair value of other financial
Yes
No
NA
Comments/References
91
Disclosure: F25 FINANCIAL INSTRUMENTS: DISCLOSURE (12/08) instruments (even if those instruments are of the same class or otherwise considered to be related, for example, by a risk management strategy) except to the extent that the offsetting of carrying amounts in the balance sheet is permitted under the general principles in paragraphs 5 and 6 or the exceptions for master netting arrangements in paragraph 10 of FIN 39 (see Section B10, "Balance-Sheet Display: Offsetting," of the GAAP checklist for more information) and, for amounts related to certain repurchase and reverse repurchase agreements in paragraphs 3 and 4 of FIN 41? [FASB 107.13] 2. In estimating the fair value of deposit liabilities: [FASB 107.12] a. Has the entity not taken into account the value of its long-term relationships with depositors, commonly known as core deposit intangibles? [NOTE: Core deposit intangibles are separate intangible assets and not financial instruments.] b. Has the entity disclosed the fair value of deposit liabilities with no defined maturities as the amount payable on demand at the reporting date? 3. If it is not practicable to estimate the fair value of a financial instrument or class of financial instruments, has the following been disclosed: [FASB 107.14] a. Information pertinent to estimating the fair value of that financial instrument or class of financial instruments, such as the carrying amount, effective interest rate, and maturity? b. The reasons why it is not practicable to estimate fair value? 4. For all financial instruments [NOTE: For purposes of this disclosure requirement, the term financial instruments includes derivative instruments accounted for under FASB 133,] including reinsurance receivables and prepaid insurance premiums (except (a) financial instruments of a pension plan, including plan assets, subject to FASB 87, (b) obligations for pension and other post retirement benefits, (c) postemployment benefits, employee stock options, stock purchase plans, and other forms of deferred compensation arrangements, (d) insurance contracts (other than financial guarantees and investment contracts), (e) warranty obligations and rights, and (f) unconditional
Yes
No
NA
Comments/References
92
Disclosure: F25 FINANCIAL INSTRUMENTS: DISCLOSURE (12/08) purchase obligations as defined in FASB 47), do the financial statements disclose the following regarding all significant concentrations of credit risk, whether from an individual counterparty or groups of counterparties: [FASB 107.15A,.15B (as added by FASB 133)] a. Information about the (shared) activity, region, or economic characteristic that identifies the concentration? b. The maximum amount of loss due to credit risk the entity would incur if parties to the financial instruments making up the concentration completely failed to perform according to the terms of the contracts and the collateral or other security, if any, for the amount due proved to be of no value to the entity? c. The policy of requiring collateral or other security to support financial instruments subject to credit risk, information about the entity's access to that collateral or other security, and the nature and a brief description of the collateral or other security supporting those financial instruments? d. The policy of entering into master netting arrangements to mitigate credit risk of financial instruments, information about such arrangements for which the entity is a party, and a brief description of the terms of those arrangements, including the extent to which they would reduce the maximum amount of loss due to credit risk?
Yes
No
NA
Comments/References
Accounting: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) A servicing asset (or liability) is a contract to service financial assets under which estimated future revenues from contractually specified servicing fees and other ancillary revenues are expected to more than (or not expected to) adequately compensate the servicer for performing the service. A servicing contract is either (1) undertaken in conjunction with selling or securitizing the financial assets being serviced or (2) purchased or assumed separately. [FASB 140.13, 140.13A, 140.61-64, 140.364 as amended by FASB 156] 1. For any servicing assets or liabilities resulting from
Yes
No
93
Accounting: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) transfers, does the entity recognize and initially measure at fair value, if practicable, a servicing asset or servicing liability each time an entity undertakes an obligation to service financial assets, unless it transfers the asset to a qualifying SPE in a guaranteed mortgage securitization, retains all of the resulting securities, and classifies them as debt securities held-to-maturity in accordance with FASB 115, in which case it may either separately recognize its servicing assets or servicing liabilities or report those servicing assets or servicing liabilities together with the asset being serviced? 2. Does the enterprise initially recognize servicing assets (or liabilities) at fair value, if practicable? 3. Does the enterprise use one of the two following methods to subsequently measure each class of servicing assets and liabilities: a. Amortization Method: Amortize servicing assets or liabilities in proportion to and over the period of estimated net servicing income (if servicing revenues exceed servicing costs) or net servicing loss (if servicing costs exceed servicing revenues)? b. Fair Value Measurement Method: Measure servicing assets or servicing liabilities at fair value at each reporting date? [NOTE: The election above is to be made separately for each class of servicing assets and servicing liabilities and should apply the same subsequent measurement method to each servicing asset and servicing liability in a class. Classes of servicing assets and servicing liabilities shall be identified based on (a) the availability of market inputs used in determining the fair value of servicing assets or servicing liabilities, (b) an entity's method for managing the risks of its servicing assets or servicing liabilities, or (c) both. Once established, the fair value measurement method for each class shall not be changed. If it is not practicable to initially measure a servicing asset or servicing liability at fair value, an entity should initially recognize the servicing asset or servicing liability in accordance with paragraph 71 and include it in a class subsequently measured using the amortization method.]
Yes
No
94
Accounting: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) 4. For those servicing assets and servicing liabilities measured using the amortization method, does the enterprise assess servicing liabilities for increased obligations and stratified servicing assets for impairment based on fair values at each reporting date? [NOTE: Impairments for servicing assets should be recognized through a valuation allowance by stratum.] 5. For those servicing assets and servicing liabilities measured using the fair value measurement method, does the enterprise report changes in fair value of servicing assets and servicing liabilities in earnings in the period in which the changes occur? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 02-9, Accounting for Changes That Result in a Transferor Regaining Control of Financial Assets Sold This Issue addresses (1) how the transferor should account for retained beneficial interests when the underlying assets are rerecognized under the provisions of paragraph 55 of FASB 140 because the transferor's contingent right (for example, a ROAP or other contingent call option on the transferred financial assets) becomes exercisable, including whether any gain or loss should be recognized by the transferor when paragraph 55 is applied, (2) how assets re-recognized by the transferor that were previously sold to an SPE that was formerly considered qualifying should be accounted for when the entire SPE becomes nonqualifying under the provisions of paragraph 55, including whether any gain or loss should be recognized by the transferor when paragraph 55 is applied, (3) whether under any circumstances a loan loss allowance should initially be recorded for loans that do not meet the definition of a security when they are re-recognized under the provisions of paragraph 55, (4) how re-recognition under paragraph 55 of assets sold affects the accounting for the related servicing asset, and (5) after a paragraph 55 event, how the transferor should account for its retained interest (other than the servicing asset). 95-5, Determination of What Risks and Rewards, If Any, Can Be Retained and Whether Any Unresolved Contingencies May Exist in a Sale of Mortgage Loan Servicing Rights This Issue addresses whether the inclusion of any provision that results in the seller's retention of specified risks (1) precludes recognition of a sale at the date title passes or (2) allows recognition of a sale at that date if (a) the seller can reasonably estimate, and records a liability for, the costs related to
Yes
No
95
Accounting: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) protection provisions or (b) the sales agreement provides for substantially all risks and rewards to irrevocably pass to the buyer, and the seller can reasonably estimate, and records a liability for, the minor protection provisions. 90-21, Balance Sheet Treatment of a Sale of Mortgage Servicing Rights with a Subservicing Agreement In Issue No. 87-34, Sale of Mortgage Servicing Rights with a Subservicing Agreement, the Task Force reached a consensus that income should not be recognized immediately as a result of the sale of mortgage servicing rights with a subservicing agreement. However, the Task Force agreed that a loss should be recognized currently if the transferor determines that prepayments of the underlying mortgage loans may result in performing the future servicing at a loss. This Issue addresses whether the transaction described in Issue 87-34 should be accounted for as a financing or as a sale with the gain deferred. 88-22, Securitization of Credit Card and Other Receivable Portfolios This Issue addresses (1) whether a bank should account for amounts received from transferring to investors a participating interest in the credit card receivables in the trust as a sale or as a financing transaction, (2) whether the type of liquidation method specified in the credit card securitization agreement should affect the accounting for the transfer, and (3) if the transfer is reported as a sale, how the gain or loss on the sale should be calculated. 87-34, Sales of Mortgage Servicing Rights with a Subservicing Agreement This Issue addresses whether a transfer of the mortgage servicing rights and the simultaneous agreement to provide subservicing should be reported by the transferor as a sale or a financing and, if reported as a sale, how the gain should be recognized. D-51, The Applicability of FASB Statement No. 115 to Desecuritizations of Financial Assets This Issue discusses the applicability of FASB 115 to the accounting for the desecuritization of securities into loans or other financial assets (e.g., the process by which securities are transformed into their underlying loans or other financial assets).
Yes
No
Disclosure: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) 1. Does the enterprise disclose the following for all its servicing assets and liabilities [FASB 140.17d, 140.17e
Yes
No
96
Disclosure: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraphs B11(b)(4) and B8 (a)-(c) for public companies]: a. If it is not practicable to estimate the fair value of servicing assets obtained or servicing liabilities incurred in transfers of financial assets during the period, a description of those items and the reasons why it is not practicable to estimate their fair value? b. Management's basis for determining its classes of servicing assets and servicing liabilities? c. A description of the risks inherent in servicing assets and servicing liabilities and, if applicable, the instruments used to mitigate the income statement effect of changes in fair value of the servicing assets and servicing liabilities? (Disclosure of quantitative information about the instruments used to manage the risks inherent in servicing assets and servicing liabilities, including the fair value of those instruments at the beginning and end of the period, is encouraged but not required.) d. The amount of contractually specified servicing fees, late fees, and ancillary fees earned for each period for which results of operations are presented, including a description of where each amount is reported in the statement of income? 2. Have servicing assets been reported separately from servicing liabilities on the balance sheet? [FASB 140.63 as amended by FASB 156] 3. Does the enterprise disclose the following for servicing assets and liabilities subsequently measured at fair value? [FASB 140.17f, as amended by FASB 156 for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraphs B9(a) and B8(d) for public companies]: a. For each class of servicing assets and servicing liabilities, the activity in the balance of servicing assets and the activity in the balance of servicing liabilities (including a description of where changes in fair value are reported in the statement of income for each period for which results of operations are presented) including but not limited to those items included in FASB 140.17f for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraph B9(a) for public companies?
Yes
No
97
Disclosure: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) b. A description of the valuation techniques or other methods used to estimate the fair value of servicing assets and servicing liabilities? If a valuation model is used, the description shall include the methodology and model validation procedures, as well as quantitative and qualitative information about the assumptions used in the valuation model (for example, discount rates and prepayment speeds). (An entity that provides quantitative information about the instruments used to manage the risks inherent in the servicing assets and servicing liabilities, as encouraged by paragraph 17(e)(2) of FASB 140 for nonpublic companies and paragraph B8(b) of FSP FAS 140-4 and FIN 46(R)-8 for public companies (see 1(c) above), is also encouraged, but not required, to disclose a description of the valuation techniques, as well as quantitative and qualitative information about the assumptions used to estimate the fair value of those instruments.) 4. Does the enterprise disclose the following for servicing assets and servicing liabilities subsequently amortized in proportion to and over the period of estimated net servicing income or loss and assessed for impairment or increased obligation: [FASB 140.17g as amended by FASB 156 for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraphs B10 and B8(d) for public companies]: a. For each class of servicing assets and servicing liabilities, the activity in the balance of servicing assets and the activity in the balance of servicing liabilities (including a description of where changes in the carrying amount are reported in the statement of income for each period for which results of operations are presented, including but not limited to those items included in FASB 140.17g for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraph B10(a) for public companies)? b. For each class of servicing assets and servicing liabilities, the fair value of recognized servicing assets and servicing liabilities at the beginning and end of the period if it is practicable to estimate the value? c. A description of the valuation techniques or other methods used to estimate fair value of the servicing assets and servicing liabilities? If a valuation model is used, the description shall include the methodology
Yes
No
98
Disclosure: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) and model validation procedures, as well as quantitative and qualitative information about the assumptions used in the valuation model (for example, discount rates and prepayment speeds). (An entity that provides quantitative information about the instruments used to manage the risks inherent in the servicing assets and servicing liabilities, as encouraged by paragraph 17(e)(2) of FASB 140 for nonpublic companies and FSP FAS 140-4 and FIN 46(R)-8 paragraph B8(b) for public companies (see 1(c) above), is also encouraged, but not required, to disclose a description of the valuation techniques as well as quantitative and qualitative information about the assumptions used to estimate the fair value of those instruments.) d. The risk characteristics of the underlying financial assets used to stratify recognized servicing assets for purposes of measuring impairment in accordance with paragraph 63 of FASB 140? e. The activity by class in any valuation allowance for impairment of recognized servicing assets including beginning and ending balances, aggregate additions charged and recoveries credited to operations, and aggregate write-downs charged against the allowance for each period for which results of operations are presented? 5. Does the enterprise report recognized servicing assets and servicing liabilities that are subsequently measured using the fair value measurement method in a manner that separates those carrying amounts on the face of the statement of financial position from the carrying amounts for separately recognized servicing assets and servicing liabilities that are subsequently measured using the amortization method. Has the enterprise accomplished this reporting through either (a) display of separate line items for the amounts that are subsequently measured using the fair value measurement method and amounts that are subsequently measured using the amortization method or (b) presentation of the aggregate of those amounts that are subsequently measured at fair value and those amounts that are subsequently measured using the amortization method and disclose parenthetically the amount that is subsequently measured at fair value that is included in the aggregate amount? [FASB 140.13B as amended by FASB 156]
Yes
No
99
Disclosure: F35 FINANCIAL INSTRUMENTS: SERVICING (12/08) 6. If the enterprises elects the option to subsequently measure at fair value separately recognized servicing assets and servicing liabilities existing as of the beginning of the fiscal year that the enterprise adopts FASB 156, has the difference between the fair value and the carrying amount, net of any related valuation allowance, of separately recognized servicing assets and servicing liabilities existing at the date of initial application of the subsequent fair value measurement been recorded as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year and been separately disclosed? [FASB 156.9] 7. Upon initial adoption of FASB 156, if the enterprise elects the option to reclassify available-for-sale securities to trading securities as of the beginning of the fiscal year of adoption, has the carrying amount of reclassified securities and the effect of that reclassification on the cumulative-effect adjustment been separately disclosed? [FASB 156.10] 8. If the enterprise elects the option to subsequently measure a class of separately recognized servicing assets and servicing liabilities at fair value as of the beginning of any fiscal year that begins subsequent to initial adoption of FASB 156, has the amount of the cumulative-effect adjustment been separately disclosed? [FASB 156.11]
Yes
No
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) This section addresses the accounting by a transferor and a transferee for all transfers of financial assets. Financial assets include cash, evidence of an ownership interest in an entity, or a contract that conveys to an entity a right (a) to receive cash or another financial instrument from a second entity or (b) to exchange other financial instruments on potentially favorable terms with the second entity. Typical financial assets include receivables, debt and equity securities, and direct financing and sales-type lease receivables. [FASB 140.01, 140.364] 1. Does the enterprise account for a transfer of financial assets (or all or a portion of a financial asset) as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange when all of the following conditions, indicating a surrender of
Yes
No
NA
Comments/References
100
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) control over the transferred assets, have been met: [FASB 140.09] a. Have the transferred assets been isolated from the transferor (i.e., put presumptively beyond the reach of the transferor and its creditors) even in bankruptcy or other receivership? b. Has each transferee (or, if the transferee is a qualifying SPE, each holder of its beneficial interests) obtained the right to pledge or exchange the assets (or beneficial interests) it received and no condition both constrains the transferee (or holder) from taking advantage of that right to pledge or exchange and provides more than a trivial benefit to the transferor? c. Has the transferor not maintained effective control over the transferred assets through either (1) an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity or (2) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call? 2. If a transfer of financial assets in exchange for cash or other consideration (other than beneficial interests in the transferred assets) does not meet the criteria for a sale indicated above, does the enterprise account for the transfer as a secured borrowing with pledge of collateral? [FASB 140.12] 3. Upon completion of any transfer of financial assets, (regardless of whether the transfer satisfies the condition to be accounted for as a sale) does the transferor: [FASB 140.10, as amended by FASB 156] a. Initially recognize and measure at fair value, if practicable, servicing assets and servicing liabilities that require recognition under the provisions of paragraph 13 of FASB 140?
Yes
No
NA
Comments/References
101
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) b. Allocate the previous carrying amount between the assets sold, if any, and the interests that continue to be held by the transferor, if any, based on their relative fair values at the date of transfer? c. Continue to carry in its statement of financial position any interest it continues to hold in the transferred assets, including, if applicable, beneficial interests in assets transferred to a qualifying SPE in a securitization, and any undivided interests? 4. Upon completion of a transfer of financial assets that satisfies the conditions to be accounted for as a sale, does the transferor (seller): [FASB 140.11, as amended by FASB 156] a. Derecognize all assets sold? b. Recognize all assets obtained and liabilities incurred in consideration as proceeds of the sale, including cash, put or call options held or written (e.g., guarantee or recourse obligations), forward commitments (e.g., commitments to deliver additional receivables during the revolving periods of some securitizations), swaps (e.g., provisions that convert interest rates from fixed to variable), and servicing assets and servicing liabilities, if applicable? c. Initially measure at fair value assets obtained and liabilities incurred in a sale or, if it is not practicable to estimate the fair value of an asset or a liability, apply alternative measures? [NOTE: For entities that have adopted FASB 157, entities should follow FASB 157 when determining fair value to the extent FASB's practical expedients do not apply.] d. Recognize in earnings any gain or loss on the sale? 5. Upon completion of a transfer of assets that satisfies the conditions to be accounted for as a sale, does the transferee recognize all assets obtained and any liabilities incurred and initially measure them at fair value (in aggregate, presumptively the price paid)? [FASB 140.11] 6. If it is not practicable to estimate the fair value of assets obtained, has the transferor recorded those assets at zero? If it is not practicable to estimate the fair value of liabilities, has the transferor recognized no gain on the transaction and recorded those liabilities at the greater of (1) the excess, if any, of (a) the fair values of assets
Yes
No
NA
Comments/References
102
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) obtained less the fair values of other liabilities incurred over (b) the sum of the carrying values of the assets transferred, or (2) the amount that would be recognized in accordance with FASB 5 as interpreted by FASB Interpretation 14? [FASB 140.71] 7. For interest-only strips, loans, other receivables, other interests that continue to be held by a transferor in a securitization, or other financial assets that can contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment (except for instruments that are derivatives under FASB 133), have such investments been subsequently measured similar to investments in debt securities classified as available-for-sale or trading under FASB 115? [FASB 140.14, as amended by FASB 156] [NOTE: See EITF 99-20 and FSP 115-1/124-1 concerning the determination of whether there is an other-than-temporary impairment and the measurement thereof] This section (through question 4) addresses the debtor's and lender's accounting for a collateral arrangement in a secured borrowing. A debtor may grant a security interest in certain assets to a lender (the secured party) to serve as collateral for its obligation under a borrowing, with or without recourse to other assets of the debtor. An obligor under other kinds of current or potential obligations (e.g., interest rate swaps) may also grant a security interest in certain assets to a secured party. If collateral is transferred to the secured party, the custodial arrangement is commonly referred to as a pledge. Secured parties sometimes are permitted to sell or repledge (or otherwise transfer) collateral held under a pledge. The same relationships occur, under different names, in transfers documented as sales that are accounted for as secured borrowings. The accounting for noncash collateral by the debtor (or obligor) and the secured party depends on whether the secured party has the right to sell or repledge the collateral and on whether the debtor has defaulted. [FASB 140.15] 1. If the secured party (transferee) has the right by contract or custom to sell or repledge the collateral, does the debtor (transferor) reclassify that asset and report that asset in its statement of financial position separately from other assets not so encumbered? 2. If the enterprise is the secured party (transferee) and it sells collateral pledged to it, does the enterprise recognize
Yes
No
NA
Comments/References
103
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) the proceeds from the sale and its obligation to return the collateral? 3. If the debtor (transferor) defaults under the terms of the secured contract and is no longer entitled to redeem the pledged asset, does the enterprise, if it is the debtor, derecognize the pledged asset, or if the enterprise is the secured party (transferee), does it recognize the collateral as its asset initially measured at fair value, or if it has already sold the collateral, has it derecognized its obligation to return the collateral? 4. Except as provided in 3, above, does the enterprise continue to carry the collateral as its asset if it is the debtor (transferor), or not recognize the pledged asset if it is the secured party (transferee)?
Yes
No
NA
Comments/References
Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 02-12, Permitted Activities of a Qualifying Special-Purpose Entity in Issuing Beneficial Interests under FASB Statement No. 140 This Issue addresses: 1. The extent to which a qualifying SPE (or its affiliate or agent) is permitted to determine the terms of beneficial interests issued after the inception of the qualifying SPE (a) prior to the derecognition by the transferor of the assets that the beneficial interests represent (Example (1) or (b) after derecognition by the transferor of the assets that the beneficial interests represent (Example 2), 2. If an existing SPE (or its designee or agent) determines the terms of new beneficial interests, whether the conditions requiring that a qualifying SPE's activities be "significantly limited" and "entirely specified" have a different effect on a structure that contains long-term assets and issues short-term beneficial interests (LT/ST structure, Example 2 than on a structure that contains short-term assets and issues long-term beneficial interests (ST/LT structure, Example 1), and 3. If a qualifying SPE (or its designee or agent) is permitted to determine the terms of newly issued beneficial interests as described in Issue 1, whether it would be permissible for the transferor to have the ability to direct the qualifying SPE to prepay previously issued beneficial interests with proceeds of newly issued beneficial interests.
104
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) 02-10, Determining Whether a Debtor Is Legally Released as Primary Obligor When the Debtor Becomes Secondarily Liable under the Original Obligation This Issue relates to whether a debtor has been legally released from being the primary obligor (paragraph 16(b) of FASB 140) in a payment undertaking arrangement (or similar arrangement) that purports to make the original debtor secondarily liable for the original obligation. 02-9, Accounting for Changes That Result in a Transferor Regaining Control of Financial Assets Sold This Issue addresses (1) how the transferor should account for retained beneficial interests when the underlying assets are rerecognized under the provisions of paragraph 55 of FASB 140 because the transferor's contingent right (for example, a ROAP or other contingent call option on the transferred financial assets) becomes exercisable, including whether any gain or loss should be recognized by the transferor when paragraph 55 is applied, (2) how assets re-recognized by the transferor that were previously sold to an SPE that was formerly considered qualifying should be accounted for when the entire SPE becomes nonqualifying under the provisions of paragraph 55, including whether any gain or loss should be recognized by the transferor when paragraph 55 is applied, (3) whether under any circumstances a loan loss allowance should initially be recorded for loans that do not meet the definition of a security when they are re-recognized under the provisions of paragraph 55, (4) how re-recognition under paragraph 55 of assets sold affects the accounting for the related servicing asset, and (5) after a paragraph 55 event, how the transferor should account for its retained interest (other than the servicing asset). 98-15, Structured Notes Acquired for a Specified Investment Strategy For the purpose of achieving a certain strategic investment result for an investor, structured note securities may be issued in combination with other structured note securities as a unit or a pair. This Issue addresses whether an investor should account for the two structured note securities together as a unit or account for each security separately. 92-2, Measuring Loss Accruals by Transferors for Transfers of Receivables with Recourse This Issue addresses (1) what the appropriate basis is for determining the amount of credit losses to be included in the measurement of the recourse obligation and (2) whether it is appropriate for the transferor to recognize its obligation under the recourse provision on a present value basis in complying with the requirement of
Yes
No
NA
Comments/References
105
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) paragraph 6 of FASB 77, and if so, what discount rate to use in the present-value-based measurement and how to subsequently account for the recourse obligation. 90-18, Effect of a "Removal of Accounts" Provision on the Accounting for a Credit Card Securitization This Issue addresses whether credit card securitizations with certain removal-of-accounts provisions should be recognized as sale transactions under FASB 77. 89-2, Maximum Maturity Guarantees on Transfers of Receivables with Recourse This Issue addresses whether the seller may account for the transfer of the receivables as a sale if the purchaser has an option to put the receivables back to the seller (or the seller has an option to call the receivables) at a specified future date at which the outstanding balances are expected to be minor based on the seller's estimate of prepayments but are not minor based on contractual payment terms. 88-20, Difference between Initial Investment and Principal Amount of Loans in a Purchased Credit Card Portfolio This Issue addresses (1) whether the difference between the amount paid and the sum of the balances of the credit card loans at the date of purchase (the premium) should be allocated between the loans acquired and any identifiable intangible assets acquired and (2) over what periods the amounts allocated to the loans acquired and the identifiable intangible assets acquired should be amortized. 88-22, Securitization of Credit Card and Other Receivable Portfolios This Issue addresses (1) whether a bank should account for amounts received from transferring to investors a participating interest in the credit card receivables in the trust as a sale or as a financing transaction, (2) whether the type of liquidation method specified in the credit card securitization agreement should affect the accounting for the transfer, and (3) if the transfer is reported as a sale, how the gain or loss on the sale should be calculated. 88-11, Allocation of Recorded Investment When a Loan or Part of a Loan is Sold This Issue addresses how an enterprise's recorded investment in a loan should be allocated between the portion of the loan sold (for purposes of determining the gain or loss on the sale) and the portion retained (for purposes of determining the remaining recorded investment). 87-30, Sale of a Short-Term Loan Made under a Long-Term Credit Commitment This Issue relates to whether a transfer
Yes
No
NA
Comments/References
106
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) of a short-term loan should be accounted for as a sale or as a financing. 86-8, Sale of Bad-Debt Recovery Rights A financial institution (seller) sells to a third-party buyer the right to an amount of future recoveries from loans previously written off by the seller as uncollectible. This Issue addresses whether this transaction, from the seller's perspective, represents: 1. A sale of recovery rights, with a resulting gain at the date of the transaction, 2. Recovery of previous write-offs, which would be recorded as a credit to the allowance for loan losses, 3. Borrowing secured by the potential recovery rights, which would be recorded as a liability and would not affect the income statement, or 4. Secured borrowing with a basis of repayment of principal and interest (limited to recoveries of previously written-off loans) that provides a basis for considering the amount of the transaction in computing the current year's loan-loss provision (to the extent that potential recoveries had previously not been considered). 85-40, Comprehensive Review of Sales of Marketable Securities with Put Arrangements This Issue addresses how profit or loss resulting from sales of marketable securities with put arrangements should be recognized and how the securities involved should be presented in the balance sheet. 85-25, Sale of Preferred Stocks with a Put Option A financial institution (transferor) owns perpetual preferred stocks (that is, the preferred stocks have no mandatory redemption requirement) and transfers them at their original cost, which is higher than current market value. As part of the "sale" agreement, the transferor simultaneously grants a put option to the transferee that allows the transferee to transfer the preferred stocks back to the transferor in the future at a fixed price. This Issue addresses whether the transferor should account for the transfer as a sale or as a borrowing and, if the transfer is accounted for as a borrowing, how the preferred stocks should be reported on the transferor's balance sheet. 84-5, Sale of Marketable Securities with a Put Option This Issue describes the sale of a marketable security to a thirdparty buyer, with the buyer having an option to "put" the security back to the seller at a specified future date or dates for a fixed price. Because of the put option, the seller generally receives a premium price for the security. This Issue
Yes
No
NA
Comments/References
107
Accounting: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) addresses whether the seller-transferor should account for the transfer as a sale or as a borrowing and, if the transfer is accounted for as a borrowing, whether impairment of the asset should be recognized. D-69, Gain Recognition on Transfers of Financial Assets Under FASB Statement No. 125 This Announcement reminds financial statement preparers of the requirements for recognition, measurement, and disclosure for sales or securitizations of financial assets and to assets that are retained or received or liabilities that are incurred. D-67, Isolation of Assets Transferred by Financial Institutions under FASB Statement No. 125 This Announcement is in response to technical inquiries regarding the isolation of assets transferred by financial institutions potentially subject to FDIC receivership. D-66, Effect of a Special-Purpose Entity's Powers to Sell, Exchange, Repledge, or Distribute Transferred Financial Assets under FASB Statement No. 125 This Announcement discusses the effect of a special-purpose entity's powers to sell, exchange, repledge, or distribute transferred financial assets under FASB No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. D-65, Maintaining Collateral in Repurchase Agreements and Similar Transactions under FASB Statement No. 125 This Announcement relates to whether under FASB No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a transferor has surrendered effective control if it (1) has an agreement that both entitles and obligates it to repurchase or redeem the transferred assets before their maturity (paragraph 9(c)(1)) but (2) does not maintain sufficient collateral to fund substantially all of the cost of purchasing replacement assets from others (paragraphs 27(b) and 29). D-63, Call Options "Embedded" in Beneficial Interests Issued by a Qualifying Special-Purpose Entity This Announcement discusses call options "embedded" in beneficial interests issued by a qualifying special-purpose entity (QSPE).
Yes
No
NA
Comments/References
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08)
Yes
No
108
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) [NOTE: In December 2008, the FASB issued Staff Position (FSP) No. FAS 140-4 and FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, to require public companies provide additional disclosures that are intended to provide greater transparency to financial statement users about a transferors continuing involvement with transferred financial assets.]
Nonpublic Companies:
Yes
No
1. If the entity has securitized financial assets during any period presented and accounts for that transfer as a sale, has the entity disclosed, for each major asset type (e.g., mortgage loans, credit card receivables, and automobile loans): [FASB 140.17h as amended by FASB 156] a. Its accounting policies for initially measuring the retained interests that continue to be held by the transferor, if any, and servicing assets or liabilities, if any, including the methodology (whether quoted market price, prices based on sales of similar assets and liabilities, or prices based on valuation techniques) used in determining their fair value? b. The characteristics of securitizations (a description of the transferor's continuing involvement with the transferred assets, including, but not limited to, servicing, recourse, and restrictions on interests that continue to be held by the transferor) and the gain or loss from sale of financial assets in securitizations? c. The key assumptions used in measuring the fair value of interests that continue to be held by the transferor and servicing assets or servicing liabilities, if any, at the time of securitization (including, at a minimum, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses, if applicable)? d. Cash flows between the securitization special-purpose entity (SPE) and the transferor, unless reported separately elsewhere in the financial statements or notes (including proceeds from new securitizations, proceeds from collections reinvested in revolvingperiod securitizations, purchases of delinquent or foreclosed loans, servicing fees, and cash flows received on interests that continue to be held by the transferor)?
109
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) 2. If the entity has interests that continue to be held by the transferor in financial assets that it has securitized or servicing assets or servicing liabilities relating to assets that it has securitized, at the date of the latest statement of financial position presented, has the entity disclosed, for each major asset type (e.g., mortgage loans, credit card receivables, and automobile loans)? [FASB 140.17i as amended by FASB 156] a. Its accounting policies for subsequently measuring those interests, including the methodology (whether quoted market price, prices based on sales of similar assets and liabilities, or prices based on valuation techniques) used in determining their fair value? b. The key assumptions used in subsequently measuring the fair value of those interests (including, at a minimum, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses, including expected static pool losses, if applicable)? c. A sensitivity analysis or stress test showing the hypothetical effect on the fair value of those interests (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported under item 2b, above, independently from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test? d. For the securitized assets and any other financial assets that it manages together with them, excluding securitized assets that an entity continues to service but with which it has no other continuing involvement: (1) The total principal amount outstanding, the portion that has been derecognized, and the portion that continues to be recognized in each category reported in the statement of financial position, at the end of the period? (2) Delinquencies at the end of the period? (3) Credit losses, net of recoveries, during the period? (4) Average balances during the period?
Yes
No
110
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) [NOTE: This disclosure is encouraged, but not required.] 3. Does the enterprise disclose a description of the nature of restrictions placed on assets if they have been set aside after the effective date of FASB 125 solely for satisfying scheduled payments of a specific obligation? [FASB 140.17c] 4. If it is not practicable to estimate the fair value of certain assets obtained or liabilities incurred in transfers of financial assets during the period, has the entity provided a description of those items and the reasons why it is not practicable to estimate their fair value? [FASB 140.17d] 5. If the entity has pledged collateral as part of a secured borrowing, entered into securities lending transaction, or entered into repurchase agreements during any period presented, has it disclosed: [FASB 140.17a] a. Its policy for requiring collateral or other security if the entity has entered into repurchase agreements or securities lending transactions? b. The carrying amount and classification of those assets as of the date of the latest statement of financial position presented, that the entity has pledged as collateral that are not reclassified and separately reported in the statement of financial position pursuant to paragraph 15(a) of FASB 140? c. The fair value as of the date of each statement of financial position presented of any collateral that the entity has accepted that it is permitted by contract or custom to sell or repledge and the fair value of the portion of that collateral that is has sold or repledged, and information about the sources and uses of that collateral?
Public Companies:
Yes
No
1. If the entity has accounted for the transfer of financial assets as a sale and has continuing involvement with the transferred assets, has the entity disclosed for each income statement presented: [FSP FAS 140-4 and FIN 46(R)-8 paragraph B11(a)] a. Its accounting policies for initially measuring the interests that continue to be held by the transferor, if any, and servicing assets or servicing liabilities, if any, unless such information is not required by other U.S. GAAP and is not meaningful to financial
111
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) statement user? b. The characteristics of the transfer, including a description of the transferors continuing involvement with the transferred financial assets and the gain or loss from sale of transferred financial assets? c. Cash flows between a transferee and the transferor, including proceeds from new transfers, proceeds from collections reinvested in revolving period transfers, purchases of previously transferred financial assets (or its underlying collateral), servicing fees, and cash flows received on the interests that continue to be held by the transferor, unless such information is not required by other U.S. GAAP and is not meaningful to financial statement user? 2. If the entity has accounted for the transfer of financial assets as a sale and has continuing involvement with the transferred assets, has the entity disclosed for each statement of financial position presented (unless such information is not required by other U.S. GAAP and is not meaningful to financial statement users): [FSP FAS 140-4 and FIN 46(R)-8, paragraph B11(b)] a. Qualitative and quantitative information about the transferors continuing involvement with transferred financial assets that provides financial statement users with sufficient information to assess the reasons for the continuing involvement and the risks related to the transferred financial assets to which the transferor continues to be exposed after the transfer and the extent that the transferors risk profile has changed as a result of the transfer (including, but not limited to, credit risk, interest rate risk, and other risks), including: (1) The nature, purpose, size, and activities of SPEs utilized to facilitate a transfer of financial assets, if applicable, including how the SPEs are financed? (2) The total principal amount outstanding, the amount that has been derecognized, and the amount that continues to be recognized in the statement of financial position? (3) The terms of any arrangements that could require the transferor to provide financial support (for example, liquidity arrangements and obligations to purchase assets) to the transferee
Yes
No
112
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) or its beneficial interest holders, including a description of any events or circumstances that could expose the transferor to loss? All available evidence shall be considered, including, but not limited to, explicit written arrangements, communications between the transferor and the transferee or its beneficial interest holders, and unwritten arrangements customary in similar transfers? (4) Whether the transferor has provided financial or other support during the periods presented that it was not previously contractually required to provide to the transferee or its beneficial interest holders, including when the transferor assisted the transferee or its beneficial interest holders in obtaining support and the type, amount and primary reasons for providing the support? [NOTE: Information about liquidity arrangements, guarantees and/or other commitments by third parties related to the transferred financial assets that may affect the fair value or risk of interest that continues to be held by the transferor is encouraged.] b. Its accounting policies for subsequently measuring assets or liabilities that relate to the continuing involvement with the transferred financial assets? c. The key inputs and assumptions used in measuring the fair value of assets or liabilities that relate to the transferors continuing involvement (including, at a minimum and if applicable, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses, including expected static pool losses)? d. A description of those assets obtained or liabilities incurred in a transfer of financial assets during the period where it is not practicable to estimate their fair value and the reasons why? e. A sensitivity analysis or stress test for interests that continue to be held by the transferor in financial assets, showing the hypothetical effect on the fair value of those interests, including any servicing assets or servicing liabilities, of two or more unfavorable variations from the expected levels for each key
Yes
No
113
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) assumption that is reported, independently from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test? f. Information about the asset quality of transferred financial assets and any other financial assets that it manages together with them? [NOTE: This information shall be separated between assets that have been derecognized and assets that continue to be recognized in the statement of financial position and is intended to provide financial statement users with an understanding of the risks inherent in the transferred financial assets as well as in other financial assets and liabilities that it manages together with transferred financial assets. In determining the information that should be disclosed, an entity shall consider the disclosures required by other pronouncements applicable to the transferred financial asset. For example information for receivables shall include, but is not limited to (a) delinquencies at the end of the period and (b) credit losses, net of recoveries, during the period.]
Yes
No
3. If the entity has accounted for the transfer of financial assets as secured borrowings, have they disclosed the carrying amount and classification of assets and associated liabilities recognized in the transferors statement of financial position at the end of each period presented, including qualitative information about the relationship(s) between those assets and associated liabilities? For example, if assets are restricted solely to satisfy a specific obligation, the carrying amount of those assets and associated liabilities, including a description of the nature of restrictions placed on the assets. [FSP FAS 140-4 and FIN 46(R)-8 paragraph B12] 4. If the entity has pledged collateral as part of a secured borrowing, entered into securities lending transaction, or entered into repurchase agreements during any period presented, has it disclosed: [FSP FAS 140-4 and FIN 46(R)-8 paragraph B6] a. Its policy for requiring collateral or other security if the entity has entered into repurchase agreements or securities lending transactions? b. The carrying amount and classification of those assets as of the date of the latest statement of financial position presented, that the entity has pledged as
114
Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08) collateral and the associated liabilities, including qualitative information about the relationship(s) between those assets and the associated liabilities? c. The fair value as of the date of each statement of financial position presented of any collateral that the entity has accepted that it is permitted by contract or custom to sell or re-pledge and the fair value of the portion of that collateral that is has sold or re-pledged, and information about the sources and uses of that collateral? [NOTE: Disclosures required for public companies may be reported in the aggregate for similar transfers if separate reporting of each transfer would not provide more useful information to financial statement users. A transferor shall disclose how similar transfers are aggregated. A transferor shall distinguish between transfers that are accounted for as secured borrowings and transfers that are accounted for as sales. A transferor shall further distinguish between transfers to qualifying SPEs accounted for as sales and all other transfers accounted for as sales. In determining whether to aggregate the disclosures for multiple transfers, the reporting entity shall consider quantitative and qualitative information about the characteristics of the transferred financial assets.]
Yes
No
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) A. Mandatorily Redeemable Financial Instruments
Yes
No
FASB 150 requires that mandatorily redeemable shares (such as mandatorily redeemable common or preferred stock) be classified as liabilities (and not in the "mezzanine" between liabilities and equity). It also applies to certain derivatives and other contracts that are indexed to the company's own stock and that may ultimately require the issuer to pay cash or a variable number of shares to the counterparty. Those derivatives may be classified as liabilities or assets depending upon their terms.
1. Have financial instruments issued in the form of shares that embody an unconditional obligation requiring the issuer to redeem the instrument by transferring cash or
115
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) other assets at a specified or determinable date (or dates) or upon an event certain to occur been classified as a liability (unless the redemption is required to occur only upon the liquidation or termination of the reporting entity)? [FASB 150.09, FSP FASB 150-3] 2. Have financial instruments issued in the form of shares that embody a conditional obligation to redeem the instrument by transferring cash or other assets upon an event not certain to occur been reclassified to a liability if the event occurred, the condition was resolved, or the event became certain to occur? [FASB 150.10] B. Obligations to Repurchase the Issuer's Equity Shares by Transferring Assets 3. Has any financial instrument, other than an outstanding share, that, at inception, (a) embodies an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation, and (b) requires or may require the issuer to settle the obligation by transferring assets been classified as a liability (or asset in some circumstances)? [NOTE: Examples of these contracts include physically settled forward contracts and written put options on the company's stock and warrants to acquire certain puttable shares (preferred or common) of the entity.] [FASB 150.11, FSP FASB 150-1, FSP FASB 150-5] C. Certain Obligations to Issue a Variable Number of Shares Monetary Value is defined in FASB 150 as "what the fair value of the cash, shares, or other instruments that a financial instrument obligates the issuer to convey to the holder would be at the settlement date under specified market conditions." 4. Has any financial instrument that embodies an unconditional obligation, or any financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares been classified as a liability (or asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: [FASB 150.12, FSP FASB 150-1] a. A fixed monetary amount known at inception (an example is share-settled debt)? b. Variations in something other than the fair value of
Yes
No
116
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) the issuer's equity shares (an example would be a derivative indexed to the S&P 500 that requires settlement in the issuer's shares)? c. Variations inversely related to changes in the fair value of the issuer's equity shares (an example would be a net share-settled written put option)? D. Freestanding Financial Instruments FASB 150 defines a freestanding financial instrument as "A financial instrument that is entered into separately and apart from any of the entity's other financial instruments or equity transactions, or that is entered into in conjunction with some other transaction and is legally detachable and separately exercisable." 5. Have the provisions of FASB 150 only been applied to freestanding financial instruments, including those that comprise more than one option or forward contract? [FASB 150.13, FSP FASB 150-1] 6. Where a freestanding financial instrument comprises more than one option or forward contract, have the provisions in items 1-4 above been applied to the freestanding financial instrument in its entirety? [FASB 150.13] 7. In applying the provisions of FASB 150, have nonsubstantive or minimal features been disregarded? [FASB 150.08] 8. In applying the provisions in paragraphs 9-12 of FASB 150, have freestanding financial instruments within the scope of FASB 150 not been combined with another freestanding financial instrument, unless combination is required under the provisions of FASB 133 and related guidance? [FASB 150.14] E. Embedded Features 9. Have the provisions of FASB 150 not been applied to features embedded in a financial instrument that is not a derivative in its entirety, but instead analyzed by applying other applicable guidance? [FASB 150.15] F. Scope Limitations 10. Has applying the provisions of FASB 150 not affected the timing of recognition of financial instruments issued as contingent consideration in a business combination? [FASB 150.16]
Yes
No
117
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) 11. Have financial instruments within the scope of FASB 150 that have been issued as consideration (whether contingent or noncontingent) in a business combination been classified pursuant to the requirements of FASB 150? [FASB 150.16] 12. Have the provisions of FASB 150 been applied to a freestanding financial instrument that was issued under a stock-based compensation arrangement but is no longer subject to FASB 123(R), SOP 93-6, or related guidance? [NOTE: The provisions of FASB 150 do not apply to obligations under stock-based compensation arrangements if those obligations are still accounted for under FASB 123(R), SOP 93-6, or related guidance.] [FASB 150.17, FSP FASB 150-4, FSP 123(R)-1] 13. Have the provisions of FASB 150 not been applied to registration payment arrangements within the scope of FSP EITF 00-19-2? [FASB 150.17A, FSP EITF 00-192.14] G. Presentation 14. Some entities have no equity instruments outstanding but have financial instruments in the form of shares, all of which are mandatorily redeemable financial instruments required to be classified as liabilities. Have those entities complied with the following: [FASB 150.19, FASB 150.28, FSP FASB 150-2] a. Described those instruments as shares subject to mandatory redemption in statements of financial position to distinguish those instruments from other liabilities? b. Presented payments to holders of such instruments and related accruals separately from payments to and interest due to other creditors in statements of cash flows and income? c. Disclosed the components of the liability that would otherwise be related to shareholders' interest and other comprehensive income (if any) subject to the redemption feature (for example, par value and other paid-in amounts of mandatorily redeemable instruments shall be disclosed separately from the amount of retained earnings or accumulated deficit)? 15. Have warrants for puttable or mandatorily redeemable
Yes
No
118
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) equity securities (e.g., puttable preferred stock or puttable common stock) been analyzed and classified as a liability under paragraph 11, regardless of the number of conditions leading up to the possible transfer of assets for those warrants or the fact that the share repurchase feature is conditional on a defined contingency? [FSP FASB 150-5] H. Initial and Subsequent Measurement 16. Have mandatorily redeemable financial instruments been initially measured at fair value? [FASB 150.20] 17. Have forward contracts that require physical settlement by repurchase of a fixed number of the issuer's shares in exchange for cash been initially measured at the fair value of the shares at inception, adjusted for any consideration or unstated rights or privileges? Was equity reduced by an amount equal to the fair value of the shares at inception? [FASB 150.21] 18. Have all other financial instruments within the scope of FASB 150 been measured initially at fair value? [FASB 150.23] 19. For forward contracts that require physical settlement by repurchase of a fixed number of the issuer's equity shares in exchange for cash and mandatorily redeemable financial instruments where the amount to be paid and the settlement date are fixed, have they been measured subsequently at the present value of the amount to be paid at settlement, accruing interest cost using the rate implicit at inception? [FASB 150.22] 20. For forward contracts that require physical settlement by repurchase of a fixed number of the issuer's equity shares in exchange for cash and mandatorily redeemable financial instruments where the amount to be paid or the settlement date varies based on specified conditions, have they been measured subsequently at the amount of cash that would be paid under the conditions specified in the contract if settlement occurred at the reporting date, recognizing the resulting change in that amount from the previous reporting date as interest cost? [FASB 150.22]
Yes
No
119
Accounting: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) 21. For holders of forward contracts that require physical settlement by repurchase of a fixed number of the issuer's equity shares in exchange for cash or mandatorily redeemable financial instruments, have any amounts paid to them in excess of the initial measurement amount been reflected in interest cost? [FASB 150.22] 22. For a conditionally redeemable financial instrument that becomes mandatorily redeemable, has the issuer measured the liability initially at fair value upon reclassification, and has the issuer reduced equity by the amount of that initial measure, recognizing no gain or loss? [FASB 150.23] 23. For all remaining financial instruments within the scope of FASB 150 that are not covered in paragraph 22 of FASB 150 (that is, they are neither forward contracts that require physical settlement by repurchase of a fixed number of the issuer's equity shares in exchange for cash nor mandatorily redeemable financial instruments), have they been subsequently measured at fair value with changes in fair value recognized in earnings, unless either FASB 150 or other accounting guidance specifies a different measurement attribute? [FASB 150.24]
Yes
No
Disclosure: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) 1. For all instruments within the scope of FASB 150, have the following items been disclosed? [FASB 150.26] a. The nature and terms of the financial instruments? b. The rights and obligations embodied in those instruments? c. Information about settlement alternatives, if any, in the contract and identification of the entity that controls any such settlement alternatives? 2. For all outstanding financial instruments within the scope of FASB 150 and for each settlement alternative have the following items been disclosed? [FASB 150.27] a. The amount that would be paid, or the number of
Yes
No
120
Disclosure: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) shares that would be issued and their fair value, determined under the conditions specified in the contract if the settlement were to occur at the reporting date? b. How changes in the fair value of the issuer's equity shares would affect those settlement amounts (for example, "the issuer is obligated to issue an additional x shares or pay an additional y dollars in cash for each $1 decrease in the fair value of one share")? c. The maximum amount that the issuer could be required to pay to redeem the instrument by physical settlement, if applicable? d. The maximum number of shares that could be required to be issued, if applicable? [Also see FASB 129.05] e. That a contract does not limit the amount that the issuer could be required to pay or the number of shares that the issuer could be required to issue, if applicable? f. For a forward contract or an option contract indexed to the issuer's equity shares, the forward price or option strike price, the number of issuer's equity shares to which the contract is indexed, and the settlement date or dates of the contract, as applicable?
Yes
No
3. Some entities have no equity instruments outstanding but have financial instruments in the form of shares, all of which are mandatorily redeemable financial instruments required to be classified as liabilities. Have those entities disclosed the following: [FASB 150.28] a. Described those instruments as shares subject to mandatory redemption in statements of financial position to distinguish those instruments from other liabilities? [FASB 150.19] b. Presented payments to holders of such instruments and related accruals separately from payments to and interest due to other creditors in statements of cash flows and income? [FASB 150.19] c. Disclosed the components of the liability that would otherwise be related to shareholders' interest and other comprehensive income (if any) subject to the redemption feature (for example, par value and other
121
Disclosure: F41 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY (12/08) paid-in amounts of mandatorily redeemable instruments shall be disclosed separately from the amount of retained earnings or accumulated deficit)? [FASB 150.28, FSP FASB 150-2] 4. Have items within the scope of FASB 150 been presented as liabilities (or as assets in some circumstances) and not between the liabilities and equity section of the statement of financial position? [FASB 150.18]
Yes
No
Disclosure: F43 FINANCIAL STATEMENTS: COMPARATIVE FINANCIAL STATEMENTS (12/08) 1. Are comparative financial statements presented? Ordinarily, it is desirable that financial statements of two or more periods be presented. [ARB 43, Ch. 2A.02] 2. With respect to the comparative financial statements presented: a. Are notes, explanations, and accountants' qualifications that appeared on the statements for the preceding years repeated, or at least referred to, in the comparative statements to the extent that they continue to be significant? [ARB 43, Ch. 2A.02] b. Are changes in the manner or basis of presenting corresponding items for two or more periods explained, such as reclassifications? [ARB 43, Ch. 2A.02] c. Are exceptions to comparability disclosed? (Refer to APB Opinion 20, FASB 154 for information regarding reporting accounting changes.) [ARB 43, Ch. 2A.03] Accounting: G80 GUARANTEES (12/08)
Yes
No
Yes
No
NA
Comments/References
FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of
122
Accounting: G80 GUARANTEES (12/08)
Yes
No
NA
Comments/References
the Effective Date of FASB Statement No. 161, was issued in September 2008. This section addresses the amended disclosures for guarantees within the scope of FIN 45. [FSP No. FAS 133-1 and FIN 454.02] These disclosure requirements are effective for reporting periods (annual or interim) ending after November 15, 2008. Comparative disclosures are only required for periods ending subsequent to initial adoption. Early adoption is encouraged. FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others: [FIN 45 and FSP FIN 45-3]
1. Has the entity identified as a guarantee, contracts that have ANY of the following characteristics (also see exempted contracts under paragraph 2 below): [FIN 45.03 and FSP FIN 45-3] a. Contracts that contingently require the guarantor to make payments (either in cash, financial instruments, other assets, shares of its stock, or provision of services) to the guaranteed party based on changes in an underlying that is related to an asset, a liability, or an equity security of the guaranteed party? b. Contracts that contingently require the guarantor to make payments (either in cash, financial instruments, other assets, shares of its stock, or provision of services) to the guaranteed party based on another entity's failure to perform under an obligating agreement (performance guarantees)? c. Indemnification agreements (contracts) that contingently require the indemnifying party (guarantor) to make payments to the indemnified party (guaranteed party) based on changes in an underlying that is related to an asset, a liability, or an equity security of the indemnified party, such as an adverse judgment in a lawsuit or the imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law? d. Indirect guarantees of the indebtedness of others, even though the payment to the guaranteed party may not be based on changes in an underlying that is related to an asset, a liability, or an equity security of the
123
Accounting: G80 GUARANTEES (12/08) guaranteed party? [An indirect guarantee of the indebtedness of another arises under an agreement that obligates one entity to transfer funds to a second entity upon the occurrence of specified events, under conditions whereby (a) the funds become legally available to creditors of the second entity and (b) those creditors may enforce the second entity's claims against the first entity under the agreement. Examples of indirect guarantees include agreements to advance funds if a second entity's net income, coverage of fixed charges, or working capital falls below a specified minimum.] e. A guarantee granted to a business or its owner(s) that the revenue of the business (or a specified portion of the business) for a specified period will be at least a specified amount. [Note: Item (e) was added to FIN 45 by FSP FIN 45-3. FSP FIN 45-3 is effective for new minimum revenue guarantees issued or modified on or after the beginning of the first fiscal quarter following November 10, 2005.] 2. Has the entity NOT included in contracts identified as guarantees (exempt from the recognition, measurement and disclosure provisions of FIN 45) the following contracts: [FIN 45.06] a. A guarantee or an indemnification that is excluded from the scope of FASB 5 under paragraph 7 of that Statement? b. A lessee's guarantee of the residual value of the leased property at the expiration of the lease term, if the lessee (guarantor) accounts for the lease as a capital lease under FASB 13, Accounting for Leases? c. A contract that meets the characteristics in paragraph 3(a) of FIN 45 but is accounted for as contingent rent under FASB 13? d. A guarantee (or an indemnification) that is issued by either an insurance company or a reinsurance company and accounted for under FASB Statements No. 60, Accounting and Reporting by Insurance Enterprises; No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts; or No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts (including guarantees embedded in either
Yes
No
NA
Comments/References
124
Accounting: G80 GUARANTEES (12/08) insurance contracts or investment contracts)? e. A contract that meets the characteristics in paragraph 3(a) of FIN 45 but provides for payments that constitute a vendor rebate (by the guarantor) based on either the sales revenues of, or the number of units sold by, the guaranteed party? (Vendor rebates based on the volume of purchases by the buyer would not meet the characteristics in paragraph 3(a) of FIN 45 because the underlying relates to an asset of the seller, not the buyer who receives the rebates.) f. A guarantee (or an indemnification) whose existence prevents the guarantor from being able to either account for a transaction as the sale of an asset that is related to the guarantee's underlying or recognize in earnings the profit from that sale transaction?
Yes
No
NA
Comments/References
g. A registration payment arrangement within the scope of FSP EITF 00-19-2, Accounting for Registration Payment Arrangements? h. A guarantee that is accounted for as a credit derivative instrument at fair value under FASB No. 133, Accounting for Derivative Instruments and Hedging Activities, as described in paragraph 44DD of FASB 133? 3. Has the entity recognized a liability at the inception of the guarantee for the obligation to stand ready to perform for all contracts identified as guarantees except the following (these guarantees are not subject to FIN 45's recognition and measurement provisions but are subject to its disclosure provisions): [FIN 45.07] a. A guarantee, other than a credit derivative as described in paragraph 44DD of FASB 133, that is accounted for as a derivative instrument at fair value under FASB 133? b. A guarantee for which the underlying is related to the performance (regarding function, not price) of nonfinancial assets that are owned by the guaranteed party (e.g., product warranty)? [Note: This exemption includes software vendor-licensor contracts that include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark, or trade secret infringement by the software vendor's software.] [FSP FIN 45-1]
125
Accounting: G80 GUARANTEES (12/08) c. A guarantee issued in a business combination that represents contingent consideration (as addressed in FASB 141)? d. A guarantee for which the guarantor's obligation would be reported as an equity item (rather than a liability) under generally accepted accounting principles (GAAP)? e. A guarantee by an original lessee that has become secondarily liable under a new lease that relieved the original lessee from being the primary obligor (that is, principal debtor) under the original lease, as discussed in paragraph 38 of FASB 13, as amended? f. A guarantee issued either between parents and their subsidiaries or between corporations under common control?
Yes
No
NA
Comments/References
g. A parent's guarantee of its subsidiary's debt to a third party (whether the parent is a corporation or an individual)? h. A subsidiary's guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent? 4. For those guarantees recognized under item 3, above, has the entity measured the liability for the guarantee at inception at the greater of (a) fair value or (b) the contingent liability amount required to be recognized pursuant to paragraph 8 of FASB 5? [FIN 45.10] 5. For guarantee liabilities measured at inception at fair value under item 4, above, was the following measurement guidance considered: [FIN 45.09] a. If the guarantee was issued in a standalone arm'slength transaction with an unrelated party, was the liability recognized at the inception of the guarantee equal to the premium received or receivable by the guarantor? b. If the guarantee was issued as part of a transaction with multiple elements with an unrelated party (such as in conjunction with selling an asset or entering into an operating lease), was the liability recognized at the inception of the guarantee an estimate of the guarantee's fair value? [In this circumstance, guarantors should consider what premium would be required by the guarantor to issue the same guarantee
126
Accounting: G80 GUARANTEES (12/08) in a standalone arm's-length transaction with an unrelated party. In the absence of observable transactions for identical or similar guarantees, expected present value measurement techniques as set forth in FASB Concepts Statement 7, will likely provide the best estimate of fair value. Concepts Statement 7 states in its glossary that "expected present value refers to the sum of the probabilityweighted present values in a range of estimated cash flows, all discounted using the same interest rate convention." The general principles in paragraph 41 of Concepts Statement 7 are also relevant.] bb. For entities that have adopted Statement 157 If the guarantee was issued as part of a transaction with multiple elements with an unrelated party (e.g., in conjunction with selling an asset or entering into an operating lease), was the liability recognized at the inception of the guarantee an estimate of the guarantee's fair value? [In this circumstance, guarantors should consider what premium would be required by the guarantor to issue the same guarantee in a standalone arm's-length transaction with an unrelated party as a practical expedient.] Appendix B of FASB 157 provides guidance on the use of present value techniques. c. If the guarantee was issued as a contribution to an unrelated party, was the liability recognized at the inception of the guarantee measured at its fair value, consistent with the requirement to measure the contribution made at fair value, as prescribed in paragraph 18 of FASB 116? 6. Has the entity recorded the offsetting debit entry upon initial recognition of the liability at the inception of the guarantee based on the circumstances in which the guarantee was issued, and in determining the offsetting entry, did the entity consider the following examples: [FIN 45.11] a. If the guarantee was issued in a standalone transaction for a premium, was the offsetting entry equal to the consideration received (such as cash or a receivable)? b. If the guarantee were issued in conjunction with the sale of assets, a product, or a business, were the overall proceeds (such as the cash received or receivable) allocated between the consideration being remitted to the guarantor for issuing the guarantee and
Yes
No
NA
Comments/References
127
Accounting: G80 GUARANTEES (12/08) the proceeds from the sale? [That allocation would affect the calculation of the gain or loss on the sale transaction.] c. If the guarantee were issued in conjunction with the formation of a partially owned business or a venture accounted for under the equity method, did the recognition of the liability for the guarantee result in an increase to the carrying amount of the investment? d. If a residual value guarantee were provided by a lessee-guarantor when entering into an operating lease, was the offsetting entry (representing a payment in kind made by the lessee when entering into the operating lease) reflected as prepaid rent, which would be accounted for under paragraph 15 of FASB 13? e. If a guarantee were issued to an unrelated party for no consideration on a standalone basis (that is, not in conjunction with any other transaction or ownership relationship), was the offsetting entry an expense? 7. Subsequent to initial recognition of the guarantee liability, has the entity reduced the liability as the entity is released from risk under the guarantee? [FIN 45.12] [Depending on the nature of the guarantee, the guarantor's release from risk has typically been recognized over the term of the guarantee (a) only upon either expiration or settlement of the guarantee, (b) by a systematic and rational amortization method, or (c) as the fair value of the guarantee changes (as is done, for example, for guarantees accounted for as derivatives). However, the entity should not use 7(c) (fair value) to subsequently account for the guarantee liability unless the use of that method can be justified under some other GAAP pronouncement (e.g., FASB 133).] [FSP FIN 45-2] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? EITF 03-12, Impact of FASB Interpretation No. 45 on Issue No. 95-1 The EITF discussed the application of Interpretation 45 to EITF No. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value. The Task Force reached a consensus that Interpretation 45 does not affect Issue 95-1 because Interpretation 45 does not apply to a guarantee for which the underlying is related to an asset of the guarantor.
Yes
No
NA
Comments/References
128
Disclosure: G80 GUARANTEES (12/08)
Yes No
NA
Comments/References
FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133, and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161, was issued in September 2008. This section addresses the amended disclosures for guarantees within the scope of FIN 45. [FSP No. FAS 133-1 and FIN 454.02] These disclosure requirements are effective for reporting periods (annual or interim) ending after November 15, 2008. Comparative disclosures are only required for periods ending subsequent to initial adoption. Early adoption is encouraged.
1. Has the entity disclosed the following information about each guarantee or each group of similar guarantees (whether or not the guarantee(s) are required to be recognized in the balance sheet under FIN 45 or another standard (e.g., FASB 133)), even if the likelihood of the entity making a payment under the guarantee is remote or the guarantee contract is subject to disclosure requirements in other standards (e.g., FASB 107 or FASB 57): [FIN 45.13] a. The nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, the events or circumstances that would require the guarantor to perform under the guarantee, and the current status (that is, as of the date of the statement of financial position) of the payment/performance risk of the guarantee? (1) For an entity that uses its own internal groupings for risk management purposes and as support for its disclosure of the current status of the payment/performance risk of the guarantee, has it also disclosed how those groupings are determined and used for managing risk? b. The maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee? (Guarantees addressed under paragraph 2, below, are not subject to the requirements of this subparagraph.) [Note: The maximum potential amount of future payments should not be reduced by the effect of any amounts that may
129
Disclosure: G80 GUARANTEES (12/08) possibly be recovered (recourse or collateralization provisions in the guarantee are addressed under item d, below). If the terms of the guarantee do not limit the maximum potential future payments under the guarantee, that fact shall be disclosed. If the guarantor cannot develop an estimate of the maximum potential future payments under its guarantee, the reasons why should be disclosed.] c. The current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee (including the amount, if any, recognized under paragraph 8 of FASB 5), regardless of whether the guarantee is freestanding or embedded in another contract? d. The nature of (1) any recourse provisions that would enable the guarantor to recover from third parties any of the amounts paid under the guarantee and (2) any assets held either as collateral or by third parties that, upon the occurrence of any triggering event or condition under the guarantee, the guarantor can obtain and liquidate to recover all or a portion of the amounts paid under the guarantee? [NOTE: The guarantor must 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 guarantee.] 2. For product warranties and other guarantee contracts that are excluded from the initial recognition and initial measurement requirements of FIN 45 pursuant to paragraph 7(b), including software vendor-licensor contracts that include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark, or trade secret infringement by the software vendor's software [FSP FIN 45-1] (collectively referred to as product warranties), a guarantor is not required to disclose the maximum potential amount of future payments specified in paragraph 1(b) above. Instead, has the guarantor disclosed for those product warranties the following information: [FIN 45.14] a. The guarantor's accounting policy and methodology used in determining its liability for product warranties (including any liability [such as deferred revenue]
Yes No
NA
Comments/References
130
Disclosure: G80 GUARANTEES (12/08) associated with extended warranties)? b. A tabular reconciliation of the changes in the guarantor's aggregate product warranty liability for the reporting period? [That reconciliation should present the beginning balance of the aggregate product warranty liability, the aggregate reductions in that liability for payments made (in cash or in kind) under the warranty, the aggregate changes in the liability for accruals related to product warranties issued during the reporting period, the aggregate changes in the liability for accruals related to preexisting warranties (including adjustments related to changes in estimates), and the ending balance of the aggregate product warranty liability.] 3. For minimum revenue guarantees granted to a business or its owners, has the entity complied with the disclosure requirements in item 2, above, for any minimum revenue guarantees issued prior to the initial application of FSP FIN 45-3, regardless of whether those guarantees were recognized and measured under Interpretation 45? [FSP FIN 45-3]
Yes No
NA
Comments/References
Disclosure: I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) [NOTE: Refer to the Section D60 on accounting requirements related to long-lived assets and disposal groups to be disposed of.] A. Reporting Discontinued Operations 1. If a long-lived asset (disposal group) was disposed of or classified as held for sale, was the long-lived asset (disposal group) deemed a component of an entity? [A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity may be a reportable segment or an operating segment (as those terms are defined in FASB 131.10), a reporting unit (as that term is defined in FASB 142), a subsidiary, or an asset group (as that term is defined in FASB 144.4).] [FASB 144.41] 2. Have the results of operations of a component of an entity
Yes
No
131
Disclosure: I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) that either has been disposed of or is classified as held for sale been reported in discontinued operations if (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction? (See EITF 03-13 for factors to consider when determining whether an entity has significant continuing involvement. Also see Note in question 3 below regarding EITF 03-13 transition.) [FASB 144.42] 3. Have the operations and cash flows of the component been considered eliminated (see question 2 above) from the ongoing operations of the entity only if there is no continuing "direct" cash flows? ("Direct" cash flows include a significant migration of revenues or costs or a significant continuation of activities.) [EITF 03-13] [NOTE: EITF 03-13 is effective for components that have been disposed of or classified as held for sale in periods beginning after December 15, 2004. Transactions initiated in the fiscal year of ratification may be reclassified.] 4. If a component of an entity has been disposed of or is classified as held for sale in the period and is to be reported in discontinued operations pursuant to paragraph 42 (see questions 2 and 3 above): [FASB 144.43] a. Does the income statement (or statement of activities of a not-for-profit organization) for current and prior periods report the results of operations of the component, including any gain or loss recognized, in discontinued operations? b. Are the results of operations of the component of an entity classified as held for sale reported in discontinued operations in the period(s) in which they occur? c. Have the results of discontinued operations, less applicable income taxes (benefit), been reported as a separate component of income before extraordinary items and the cumulative effect of accounting changes (if applicable)? d. Has the gain or loss recognized on the disposal been disclosed either on the face of the income statement or in the notes to the financial statements?
Yes
No
132
Disclosure: I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) 5. If debt is to be assumed by the buyer or if debt is required to be repaid as a result of the disposal transaction, has the interest on such debt been allocated to discontinued operations? [EITF 87-24] 6. Although permitted but not required, has the enterprise chosen for other consolidated interest not directly attributable to the disposal transaction or related to other operations of the enterprise been allocated to discontinued operations? [EITF 87-24] a. If so, is the allocation based on the ratio of net assets to be sold or discontinued less debt that is required to be paid as a result of the disposal transaction to the sum of total net assets of the consolidated entity plus consolidated debt other than (a) debt of the discontinued operation that will be assumed by the buyer, (b) debt that is required to be paid as a result of the disposal transaction, and (c) debt that can be directly attributed to other operations of the enterprise (unless allocation based on net assets would not provide meaningful results)? [EITF 87-24] 7. Has general corporate overhead not been allocated to discontinued operations? [EITF 87-24] 8. If adjustments are made to amounts previously reported in discontinued operations that are directly related to the disposal of a component of an entity in a prior period, have the adjustments been classified separately as discontinued operations in the current period and have the nature and amount of such adjustments been disclosed? [FASB 144.44] B. Reporting Disposal Gains or Losses in Continuing Operations 1. Has any gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity been included in income from continuing operations before income taxes? [FASB 144.45] C. Reporting a Long-Lived Asset or Disposal Group Classified as Held for Sale 1. Has a long-lived asset classified as held for sale been presented separately in the statement of financial position? [FASB 144.46] 2. Have the assets and liabilities of a disposal group
Yes
No
133
Disclosure: I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) classified as held for sale been presented separately in the asset and liability sections, respectively, of the statement of financial position and those assets and liabilities not been offset and presented as a single amount? [FASB 144.46] 3. Have the major classes of assets and liabilities classified as held for sale been separately disclosed on either the face of the statement of financial position or in the notes to the financial statements? [FASB 144.46] D. Disclosure 1. If a long-lived asset (disposal group) has either been sold or is classified as held for sale, has the following information been disclosed in the notes to the financial statements that include the period: [FASB 144.47] a. A description of the facts and circumstances leading to the expected disposal, the expected manner and timing of that disposal, and, if not separately presented on the face of the statement, the carrying amount(s) of the major classes of assets and liabilities included as part of a disposal group? b. The gain or loss recognized and, if not separately presented on the face of the income statement, the caption in the income statement or the statement of activities that includes that gain or loss? c. If applicable, amounts of revenue and pretax profit or loss reported in discontinued operations? d. If applicable, the segment in which the long-lived asset (disposal group) is reported under FASB 131? 2. If interest has been allocated to discontinued operations, has the enterprise clearly disclosed the accounting policy (including the method of allocation) and the amount allocated to and included in discontinued operations for all periods presented? [EITF 87-24] 3. If an entity decides not to sell a long-lived asset (disposal group) previously classified as held for sale or if an entity removes an individual asset or liability from a disposal group, do the notes to the financial statements that include the period of this decision include a description of the facts and circumstances leading to the decision to change the plan to sell the long-lived asset (disposal group) and its effect on the results of operations for the period and any prior periods presented? [FASB 144.48]
Yes
No
134
Disclosure: I14 REPORTING LONG-LIVED ASSETS AND DISPOSAL GROUPS TO BE DISPOSED OF (12/08) E. TRANSITION 1. If long-lived assets (disposal groups) were classified as held for disposal as a result of disposal activities that were initiated prior to the initial application of FASB 144: [FASB 144.51] a. Do they continue to be accounted for in accordance with FASB 121 and APB 30? b. Have they been reclassified as held and used if the Recognition Criteria have not been met by the end of the fiscal year in which FASB 144 is initially applied? If not, will the segment (1) be abandoned through the liquidation or run-off of operations because the entity is obligated by regulation or contract to provide services after it ceases accepting all new business and (2) be reported as a discontinued operation in accordance with Opinion 30 when FASB 144 is initially applied. [EITF Topic D-104] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 87-24, Allocation of Interest to Discontinued Operations This Issue addresses (1) whether interest expense may be allocated to discontinued operations based on the principal amount of debt that will or could be paid with the proceeds from the sale of such operations and, if so, what method of allocation should be used and (2) whether general corporate overhead expenses may be allocated to discontinued operations. D-104, Clarification of Transition Guidance in Paragraph 51 of FASB Statement No. 144 This Issue addresses the application of the transition guidance in paragraph 51 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in situations where a segment that will (1) be abandoned through liquidation or run-off of operations because the entity is obligated by regulation or contract to provide services after it ceases accepting all new business and (2) is being reported as a discontinued operation in accordance with Opinion 30 when FASB 144 is initially applied.
Yes
No
135
Disclosure: I17 INCOME STATEMENT PRESENTATION: EXTRAORDINARY ITEMS (12/08) 1. Are events and transactions that are distinguished both by their unusual nature and by the infrequency of their occurrence reflected as extraordinary items? [NOTE: See also the AAIs of APB 30.] [APB 30.20 (as amended by FASB 4.10, FASB 141.E5(b), and FASB 145.7(a))] 2. Are the following items recognized as extraordinary items regardless of whether the criteria in Item 1 above are met: [APB 30.20 (as amended by FASB 101.10, FASB 141.E5, and FASB 145.7)] a. The net effect of discontinuing the application of FASB 71 pursuant to paragraph 6 of FASB 101? b. The remaining excess of fair value of acquired net assets over cost pursuant to paragraphs 45 and 46 of FASB 141? 3. If there are events or transactions that meet the criteria for classification as extraordinary items: [APB 30.11 and 30.12] a. Is the caption "extraordinary item(s)" used in the income statement? b. Are descriptive captions and the amounts for individual extraordinary items presented, preferably on the face of the income statement, or in the related notes? c. Are the nature of each extraordinary event or transaction and the principal items entering into the determination of extraordinary gains or losses described? d. Are extraordinary items presented net of the applicable income taxes and are such income taxes disclosed on the face of the income statement or in the related notes? e. Is earnings-per-share data for extraordinary items presented either on the face of the income statement or in the related notes?
Yes
No
136
Disclosure: I17 INCOME STATEMENT PRESENTATION: EXTRAORDINARY ITEMS (12/08) 4. Is each adjustment in the current period of an element of an extraordinary item that was reported in a prior period separately disclosed as to year of origin, nature, and amount, and classified separately in the current period in the same manner as the original item? [APB 30.25 (as amended by FASB 16.16(c), FASB 144.C5(g), and FASB 154.C6)] 5. If there are gains or losses from extinguishments of debt subject to the provisions of FASB 145: a. Have gains or losses from extinguishments of debt been classified as extraordinary only if the event or transaction was both unusual in nature and infrequent in occurrence? [NOTE: Debt extinguishments would seldom, if ever, result in extraordinary classification.] [APB 30.20 and FASB 145.A6] b. Have gains or losses on extinguishments of debt classified as an extraordinary item in prior periods presented that do not meet the criteria in Opinion 30 for classification as an extraordinary item been reclassified? [FASB 145.10]
Yes
No
Disclosure: I22 INCOME STATEMENT PRESENTATION: UNUSUAL OR INFREQUENT ITEMS (12/08) 1. If there has been a material event or transaction that is unusual in nature or occurs infrequently, but not both, and therefore does not meet both criteria for classification as an extraordinary item: [APB 30.26] a. Is that item reported as a separate component of income from continuing operations? (Note that gains or losses of a similar nature that are not individually material should be aggregated.) b. Is the nature and financial effect of each event or transaction disclosed on the face of the income statement or in the related notes? (The gain or loss should not be reduced for income taxes and the earnings-per-share effects should not be disclosed on the face of the income statement.) Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable?
Yes
No
137
Disclosure: I22 INCOME STATEMENT PRESENTATION: UNUSUAL OR INFREQUENT ITEMS (12/08) 01-13, Income Statement Display of Business Interruption Insurance Recoveries This Issue relates to how business interruption insurance recoveries should be displayed in the statement of operations. Business interruption insurance provides coverage if business operations are suspended due to the loss of use of property and equipment resulting from a covered cause of loss. Such insurance coverage generally provides for reimbursement of certain costs and losses incurred during the reasonable period required to rebuild, repair, or replace the damaged property (including gross margin that was "lost," etc.). 01-10, Accounting for the Impact of the Terrorist Attacks of September 11, 2001 This Issue provides accounting and disclosure guidance for losses and costs incurred as a result of the September 11 events, and for related insurance recoveries and federal assistance provided to air carriers in the form of direct compensation under the Air Transportation Safety and System Stabilization Act. 87-4, Restructuring of Operations: Implication of SEC Staff Accounting Bulletin No. 67 SEC Staff Accounting Bulletin No. 67 (SAB 67) expresses the SEC staff's views on the appropriate income statement presentation of restructuring charges. This Issue addresses the applicability of SAB 67 to nonpublic companies. Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) INCOME TAXES FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48" or the "Interpretation"), was issued in June 2006. The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB 109. The Interpretation applies to all business enterprises, not-for-profit entities, pass-through entities, and entities whose tax liability is subject to 100 percent credit for dividends paid (e.g., real estate investment trusts and registered investment companies) that are potentially subject to income taxes. The Interpretation is effective for fiscal years beginning after December 15, 2006. Earlier application is allowed if the enterprise has not yet issued interim or annual financial statements. In April 2007, the FASB issued FSP FIN 48-1, Definition of Settlement in
Yes
No
Yes
No
138
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) FASB Interpretation 48, to clarify when a tax position has been settled under paragraph 10(b) of FIN 48. FSP FIN 48-1 must be applied upon the initial adoption of FIN 48. In February 2008, the FASB issued FSP FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises, which defers the effective date of FIN 48 for certain nonpublic entities to fiscal years beginning after December 15, 2007. Under the FSP, a nonpublic enterprise (as defined in FASB 109) can apply the deferral unless that nonpublic enterprise (1) is a consolidated entity of a public enterprise that applies U.S. GAAP or (2) has issued a full set of U.S. GAAP annual financial statements prior to the issuance of the FSP using the recognition, measurement, and disclosure requirements of FIN 48. Prior to adoption of the Interpretation, only Section I below should be completed. Upon adoption, the Interpretation's provisions apply to Section II below. Accordingly, Sections I and II below should be completed. Additionally, certain questions from Section I would be amended to reflect the guidance in the Interpretation. Those amended questions are included as part of Section II. SECTION I 1. Have the requirements of FASB 109 been applied to: [FASB 109.04] a. Domestic federal income taxes and foreign, state, and local (including franchise) taxes based on income? b. Domestic and foreign operations that are consolidated, combined, or accounted for by the equity method? c. Foreign enterprises for purposes of preparing financial statements in accordance with U.S. GAAP? 2. Has a current tax liability or asset been recognized for the estimated taxes payable or refundable on tax returns for the current year? [FASB 109.08] 3. Has a deferred tax liability or asset been recognized for the estimated future tax effects attributable to temporary differences and carryforwards on an undiscounted basis? [FASB 109.08] 4. a. If income taxes have been paid on intercompany profits on assets remaining within the group, have such taxes been deferred or the intercompany profits to be eliminated in consolidation been appropriately reduced? [FASB 109.09(e), ARB 51.17]
Yes
No
139
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) b. Have no deferred tax assets or liabilities been recognized for differences related to assets and liabilities that, under FASB 52, are remeasured from the local currency into the functional currency using historical exchange rates and that result from (1) changes in exchange rates or (2) indexing for tax purposes? [FASB 109.9(f)] 5. In the annual computation of deferred tax liabilities or assets: [FASB 109.17] a. Have deferred taxes been determined separately for each tax-paying component in each tax jurisdiction? b. Have (1) the types and amounts of existing temporary differences, and (2) the nature and amount of each type of operating loss and tax credit carryforward and the remaining length of the carryforward period been identified? c. Has the total deferred tax liability for taxable temporary differences been measured using the applicable tax rate? d. Has the total deferred tax asset for deductible temporary differences and operating loss carryforwards been measured using the applicable tax rate? e. Have deferred tax assets for each type of tax credit carryforward been measured? 6. Has the measurement of current and deferred tax liabilities and assets been based on provisions of the enacted tax law, and have the effects of potential future changes in tax laws or rates not been anticipated? [FASB 109.08] 7. In measuring a deferred tax liability or asset using the enacted tax rate(s) expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized: a. If graduated tax rates are a significant factor, has a deferred tax liability or asset been measured using the average graduated tax rate applicable to the amount of estimated annual taxable income in the periods in which the deferred tax liability or asset is estimated to be settled or realized? [FASB 109.18] b. Have other provisions of enacted tax laws been considered when determining the tax rate to apply to certain types of temporary differences and
Yes
No
140
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) carryforwards (e.g., the tax law may provide for different tax rates on ordinary income and capital gains)? [FASB 109.18] c. Have the measurements of deferred tax liabilities or assets been based on elections that are expected to be made for tax purposes in future years? [FASB 109.233] d. If there is a phased-in change in tax laws or rates, has the enacted change in tax law or rate that becomes effective for a particular future year or years been applied to temporary differences reversing in that year or years? [FASB 109.18, .233] e. Has a deferred tax asset for deductible temporary differences that are expected to be realized in future years through carryback of a future loss to the current or a prior year (or a liability for taxable temporary differences that are expected to reduce the refund claimed for the carryback of a future loss to the current or a prior year) been measured using tax laws and rates for the current or a prior year, that is, the year for which a refund is expected to be realized based on loss carryback provisions of the tax law? [FASB 109.233] f. For an entity subject to the alternative minimum tax system, have total deferred tax liabilities and assets been measured using the regular tax rate and a deferred tax asset recognized for the alternative minimum tax credit carryforward subject to a determination of the need for a valuation allowance? [FASB 109.19, .239]
Yes
No
8. If there have been changes in the tax laws or tax rates: a. Have deferred tax liabilities and assets been adjusted to reflect the effect of the enacted change in tax laws or rates as of the enactment date of the change? [FASB 109.27] b. Has the adjustment for the effect of the change in tax laws or rates on the balance of deferred tax liabilities and assets been included in income from continuing operations for the period that includes the enactment date? [FASB 109.27] [NOTE: The FASB issued FASB Staff Position No. FAS 109-1 Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production
141
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) Activities Provided by the American Jobs Creation Act of 2004, to provide guidance on the application of FASB 109 to the provision within the American Jobs Creation Act of 2004 that provides a tax deduction on qualified production activities.] 9. If the entity's tax status has changed from nontaxable to taxable, has a deferred tax liability or asset been recognized for temporary differences at the date the entity becomes taxable and has the effect been included in income from continuing operations? [FASB 109.28] 10. If the entity ceased to be a taxable entity, has the resulting avoided deferred tax liability or asset been eliminated at the date the entity ceases to be taxable and has the effect been included in income from continuing operations? [FASB 109.28] 11. If a change in the tax status of the entity occurs, has the effect of (a) an election for a voluntary change in tax status been recognized on the approval date or on the filing date if approval is either not necessary or deemed perfunctory, and (b) a change in tax status that results from a change in tax law been recognized on the enactment date? [FASB 109.28] 12. Have deferred tax assets been reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized? [FASB 109.08, .17(e)] [NOTE: The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.] 13. Has all available evidence, both positive and negative, been considered to determine whether, based on the weight of that evidence, a valuation allowance is needed? [FASB 109.20] 14. Have the following four possible sources of taxable income available under the tax law been considered to realize a deferred tax benefit for deductible temporary differences and carryforwards: [FASB 109.21] a. Future reversals of existing taxable temporary differences? b. Future taxable income exclusive of reversing temporary differences and carryforwards?
Yes
No
142
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) c. Taxable income in prior carryback year(s) if carryback is permitted under the tax law? d. Tax planning strategies that could, if necessary, be implemented to, for example: (1) Accelerate taxable amounts to utilize expiring carryforwards? (2) Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss? (3) Switch from tax-exempt to taxable investments? 15. In determining the amount of valuation allowance required, has the entity considered any and all taxplanning strategies (including elections for tax purposes) that (a) are prudent and feasible, (b) an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carry forward from expiring unused, and (c) would result in realization of deferred tax assets? [FASB 109.22] 16. When a company is considering a tax-planning strategy to determine the amount of valuation allowance required, have significant expenses to implement the tax-planning strategy or any significant losses that would be recognized if that strategy were implemented (net of any recognizable tax benefits associated with those expenses or losses) been included in the valuation allowance? [FASB 109.22] 17. In forming a conclusion that a valuation allowance is not needed, has consideration included (but not been limited to) the following examples of negative evidence: [FASB 109.23] a. Cumulative losses in recent years? b. A history of operating loss or tax credit carryforwards expiring unused? c. Losses expected in early future years? d. Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years? e. A carryback, carryforward period that is so brief that it would limit realization of tax benefits if (1) a significant deductible temporary difference is expected to reverse in a single year, or (2) the enterprise operates in a traditionally cyclical business?
Yes
No
143
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 18. To support a conclusion that a valuation allowance is not needed when there is negative evidence, has consideration included (but not been limited to) the following examples (not prerequisites) of positive evidence: [FASB 109.24] a. Existing contracts or firm sales backlog that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures? b. An excess of appreciated asset value over the tax basis of the entity's net assets in an amount sufficient to realize the deferred tax asset? c. A strong earnings history exclusive of the loss that created the future deductible amount (tax loss carryforward or deductible temporary difference) coupled with evidence indicating that the loss (e.g., an unusual, infrequent, or extraordinary item) is an aberration rather than a continuing condition? 19. In considering the relative impact of negative and positive evidence, has the weight given to the potential effect of negative and positive evidence been commensurate with the extent to which it can be objectively verified? [FASB 109.25] 20. Has a change in the beginning-of-the-year balance of a valuation allowance (other than one that was initially recognized for the deferred tax asset for an acquired entity's deductible temporary differences or operating loss or tax credit carryforwards at the acquisition date) that results from a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years been included in income from continuing operations [FASB 109.26]
Yes
No
144
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 21. Has a change in the balance of a valuation allowance that was initially recognized related to the deferred tax asset for an acquired entity's deductible temporary differences or operating loss or tax credit carryforwards at the acquisition date recognized in the financial statements after the acquisition date been applied (a) first to reduce to zero any goodwill related to the acquisition, (b) second to reduce to zero other noncurrent intangible assets related to the acquisition, and (c) third to reduce income tax expense. [FASB 109.30] 22. Has a deferred tax liability not been recognized for the following types of temporary differences unless it becomes apparent that those temporary differences will reverse in the foreseeable future: [FASB 109.31] a. An excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary or a foreign corporate joint venture (as defined in APB 18) that is essentially permanent in duration? b. Undistributed earnings of a domestic subsidiary or a domestic corporate joint venture that is essentially permanent in duration that arose in fiscal years beginning on or before December 15, 1992? c. "Bad debt reserves" for tax purposes of U.S. savings and loan associations (and other "qualified" thrift lenders) that arose in tax years beginning before December 31, 1987 (i.e., the base-year amount)? d. "Policyholders' surplus" of stock life insurance companies that arose in fiscal years beginning on or before December 15, 1992? 23. Has a deferred tax liability been recognized for the following types of taxable temporary differences: [FASB 109.32] a. An excess of the amount for financial reporting over the tax basis of an investment in a domestic subsidiary that arises in fiscal years beginning after December 15, 1992? b. An excess of the amount for financial reporting over the tax basis of an investment in a 50-percent-or-lessowned investee except as provided in question 21(a) and 21(b) above for a corporate joint venture that is essentially permanent in duration? c. "Bad debt reserves" for tax purposes of U.S. savings
Yes
No
145
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) and loan associations (and other "qualified" thrift lenders) that arise in tax years beginning after December 31, 1987 (i.e., amounts in excess of the base-year amount)? [NOTE: The American Jobs Creation Act of 2004 introduces a special one-time dividends-received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. The FASB issued FASB Staff Position No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004, to provide accounting and disclosure guidance for the repatriation provision.] 24. Have the tax effects of temporary differences related to deposits in statutory reserve funds by U.S. steamship enterprises that arose in fiscal years beginning on or before December 15, 1992, and that were not previously recognized been recognized when those temporary differences reverse or in their entirety at the beginning of the fiscal year for which FASB 109 is first applied? [FASB 109.32] 25. Has a deferred tax asset been recognized for an excess of the tax basis over the amount for financial reporting of an investment in a subsidiary or corporate joint venture that is essentially permanent in duration only if it is apparent that the temporary difference will reverse in the foreseeable future? [FASB 109.34] a. Has the need for a valuation allowance for that deferred tax asset or other deferred tax assets been assessed? b. Have the four sources of taxable income identified in question 14 above been considered in assessing the need for and amount of a valuation allowance? c. In assessing the need for a valuation allowance, have the exceptions cited in question 21 above for future reversals of taxable differences for which a deferred tax liability has not been recognized, not been considered? d. In assessing the need for a valuation allowance, have future distributions of future earnings of a subsidiary or corporate joint venture not been considered except to the extent that a deferred tax liability has been recognized for existing undistributed earnings or earnings have been remitted in the past?
Yes
No
146
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 26. Has deferred tax expense or benefit been recognized for the change during the year in the enterprise's deferred tax liabilities and assets? [FASB 109.16] 27. Has income tax expense or benefit for the year been allocated among: [FASB 109.35] a. Continuing operations? b. Discontinued operations? c. Extraordinary items? d. Other comprehensive income? e. Items charged or credited directly to stockholders' equity? 28. Is the amount of income tax expense or benefit for the year allocated to continuing operations equal to the tax effect of pretax income or loss from continuing operations that occurred during the year, plus or minus the tax effect of: [FASB 109.35] a. Changes in circumstances that cause a change in judgment about the realization of deferred tax assets in future years? b. Changes in tax laws or rates? c. Changes in tax status? d. Tax deductible dividends paid to shareholders? 29. Have the tax effects of the following items occurring during the year been charged or credited directly to related components of other comprehensive income or shareholders' equity: [FASB 109.36, FASB 87.37] a. Adjustments of the opening balance of retained earnings for certain changes in accounting principles or a correction of an error? b. Gains and losses included in other comprehensive income but excluded from net income (e.g., translation adjustments under FASB 52, recognition of a minimum liability under FASB 87, and changes in the unrealized holding gains and losses of securities classified as available-for-sale under FASB 115)? c. An increase or decrease in contributed capital (e.g., deductible expenditures reported as a reduction of the proceeds from issuing capital stock)? d. An increase in the tax basis of assets acquired in a
Yes
No
147
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) taxable business combination accounted for as a pooling of interests and for which a tax benefit is recognized at the date of the business combination? [NOTE: FASB 141 prohibits the use of the pooling-ofinterests method for all business combinations initiated after June 30, 2001.] e. Expenses for employee stock options recognized differently for financial reporting and tax purposes? [APB 25.17, FASB 123.41-.43] f. Dividends that are paid on unallocated shares held by an ESOP and that are charged to retained earnings?
Yes
No
g. Deductible temporary differences and carryforwards that existed at the date of a quasi-reorganization? h. The effective portion of the gain or loss on a derivative designated as a cash flow hedge? [FASB 133.30 and 133.173-.175] 30. Has the tax benefit of an operating loss carryforward or carryback been reported in the same manner as the source of the income or loss in the current year and not in the same manner as (1) the source of the operating loss carryforward or taxes paid in the prior year or (2) the source of expected future income that will result in realization of a deferred tax asset for an operating loss carryforward from the current year, with the exception of the following: [FASB 109.37] a. Tax effects of deductible temporary differences and carryforwards that existed at the date of a purchase business combination and for which a tax benefit is initially recognized in subsequent years? b. Tax effects of deductible temporary differences and carryforwards that are allocated to shareholders' equity? 31. If there is only one item other than continuing operations, has the portion of income tax expense or benefit for the year that remains after the allocation to continuing operations been allocated to that item? [FASB 109.38] 32. If there are two or more items other than continuing operations, has the amount that remains after the allocation to continuing operations been allocated among those other items in proportion to their individual effects on income tax expense or benefit for the year? [FASB 109.38]
148
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 33. If there are two or more items other than continuing operations, and the sum of the separately calculated, individual effects of each item do not equal the amount of income tax expense or benefit for the year that remains after the allocation to continuing operations, has the entity: [FASB 109.38] a. Determined the effect on income tax expense or benefit for the year of the total net loss for all net loss items? b. Apportioned the tax benefit determined in (a) above ratably to each net loss item? c. Determined the amount that remains, that is, the difference between (1) the amount to be allocated to all items other than continuing operations and (2) the amount allocated to all net loss items? d. Apportioned the tax expense determined in (c) above ratably to each net gain item? 34. In separate financial statements of subsidiaries that are included in a group that files a consolidated tax return: [FASB 109.40] a. Has the consolidated amount of current and deferred tax expense for the group been allocated among the members of the group in those members' separate financial statements? b. Has the allocation method adopted been systematic, rational, and consistent with the broad principles established by FASB 109? [NOTE: A method that allocates current and deferred taxes to members of the group by applying FASB 109 to each member as if it were a separate taxpayer meets the criteria outlined in paragraph 40 of FASB 109.] 35. Quasi-Reorganizations: Are the tax benefits of deductible temporary differences and carryforwards as of the date of a quasi-reorganization, as defined and contemplated in ARB 43, Chapter 7, reported as a direct addition to contributed capital if the tax benefits are recognized in subsequent years? [FASB 109.39] Business Combinations 36. Has a deferred tax liability or asset been recognized for differences between the assigned values and the tax bases of assets and liabilities (except for the portion of goodwill
Yes
No
149
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) for which amortization is not deductible for tax purposes, unallocated excess over cost (also referred to as "negative goodwill"), leveraged leases, and acquired APB 23 differences) of an entity acquired in a business combination? [FASB 109.30] [NOTE: The exception to comprehensive recognition of deferred taxes that pertains to temporary differences related to that the portion of goodwill for which amortization is not deductible for tax purposes does not extend to temporary differences related to other types of identified intangible assets or to the portion of goodwill for which amortization is deductible for tax purposes.] [FASB 109.132, FASB Implementation Guide for FASB 109, Q&A #16] 37. If a valuation allowance is recognized for a deferred tax asset at the acquisition date, have those benefits that have been recognized by elimination of the valuation allowance in periods subsequent to the acquisition date been applied: (a) first to reduce to zero any goodwill related to that acquisition, (b) second to reduce to zero other noncurrent intangible assets related to that acquisition, and (c) third to reduce income tax expense? [FASB 109.30, .268] 38. If amortization of goodwill is deductible for tax purposes in some tax jurisdictions, have the reported amount of goodwill and the tax basis of goodwill in those tax jurisdictions been separated into two components as of the combination date for purposes of deferred tax calculations, with the first component of each equaling the lesser of goodwill for financial reporting or tax-deductible goodwill and the second component of each equaling the remaining of each, that is, the remainder, if any, of goodwill for financial reporting or the remainder, if any, of tax-deductible goodwill? [FASB 109.262] 39. Has a deferred tax liability or asset been recognized for any temporary difference that arose between the book and tax basis of the first component of goodwill determined from question 38 above? [FASB 109.262] 40. Have no deferred taxes been recognized for the second component of goodwill determined from question 38 above? [FASB 109.262] 41. If the second component determined from question 38 above was an excess of tax-deductible goodwill over the reported amount of goodwill, has the tax benefit for that excess been recognized when realized on the tax return,
Yes
No
150
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) and has that tax benefit been applied first to reduce to zero the goodwill related to that acquisition, second to reduce to zero other noncurrent intangible assets related to that acquisition, and third to reduce income tax expense? [FASB 109.262] 42. If the tax law limits the use of the acquired entity's deductible temporary differences and carryforwards to subsequent taxable income of the acquired entity in a consolidated tax return for the combined entity, or if the acquired entity will file a separate tax return, has the need for a valuation allowance for some portion or all of the acquired entity's deferred tax assets for deductible temporary differences and carryforwards been assessed based on the acquired entity's separate past and expected future results of operations? [FASB 109.264] 43. If the tax law permits the future use of either of the combining entities' deductible temporary differences or carryforwards to reduce taxable income or taxes payable attributable to the other entity subsequent to the business combination, and if the combined entity expects to file a consolidated tax return, has a deferred tax asset (net of a valuation allowance, if necessary) been recognized for deductible temporary differences or carryforwards of either combining entity based on an assessment of the combined entity's past and expected future results of operations as of the acquisition date through a reduction of goodwill or noncurrent assets recorded for the acquired enterprise? [FASB 109.266] 44. If additional amounts of deductible temporary differences and operating loss or tax credit carryforwards arise after the acquisition date and before recognition of the tax benefit of amounts existing at the acquisition date, have tax benefits been recognized in later years as follows: [FASB 109.268] a. The tax benefit of amounts existing at the acquisition date is first applied to reduce goodwill and other noncurrent intangible assets to zero, and any additional tax benefit as a reduction of income tax expense? b. The tax benefit of amounts arising after the acquisition date is recognized as a reduction of income tax expense? 45. Has the determination of whether a tax benefit is attributable to an amount existing at or arising after the
Yes
No
151
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) acquisition date been determined for financial reporting purposes by provisions in the tax law that identify the sequence in which those amounts are utilized for tax purposes? [FASB 109.268] 46. If not determinable by the provisions in the tax law, has a tax benefit that has been recognized for financial reporting purposes been prorated between a reduction of (a) goodwill and other noncurrent intangible assets, and (b) income tax expense? [FASB 109.268] Share-Based Compensation Awards Under FASB 123(R) 47. The cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law should be considered to be a deductible temporary difference in applying FASB 109. The deductible temporary difference should be based on the compensation cost recognized for financial reporting purposes. a. Has the deferred tax benefit (or expense) that results from increases (or decreases) in that temporary difference, for example, an increase that results as additional service is rendered and the related cost is recognized or a decrease that results from forfeiture of an award, been recognized in the income statement? [FASB 123(R).59] b. Has the entity ensured that it is not recognizing a deductible temporary difference for recognition of compensation cost for instruments that ordinarily do not result in tax deductions under existing tax law? [FASB 123(R).59] c. A future event, such as an employee's disqualifying disposition of shares under U.S. tax law at the issuance date of FASB 123(R), can give rise to a tax deduction for instruments that ordinarily do not result in a tax deduction. Have the tax effects of such an event been recognized only when it occurs? [FASB 123(R).59] 48. Has the cumulative amount of compensation cost recognized for instruments classified as liabilities that ordinarily would result in a future tax deduction under existing tax law been considered to be a deductible temporary difference? [FASB 123(R).60]
Yes
No
152
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 49. Is the deductible temporary difference pursuant to item 48 above based on the compensation cost recognized for financial reporting purposes? [FASB 123(R).60] 50. Has the entity ensured that differences between (a) the deductible temporary difference computed pursuant to item 47 above and (b) the tax deduction that would result based on the current fair value of the entity's shares, are not being considered in measuring the gross deferred tax asset or determining the need for a valuation allowance for a deferred tax asset recognized? [FASB 123(R).61] 51. If a deduction reported on a tax return for an award of equity instruments exceeds the cumulative compensation cost for those instruments recognized for financial reporting, has any resulting realized tax benefit that exceeds the previously recognized deferred tax asset for those instruments (the excess tax benefit) been recognized as additional paid-in capital? [FASB 123(R).62] 52. Have the excess tax benefits that stem from a reason other than a change in the fair value (or calculated value) of the company's shares between the measurement date for accounting purposes and a later measurement date for tax purposes been recognized in the income statement? [FASB 123(R).62] If the entity has adopted EITF Issue 06-11, question 52 above would be substituted with the following question: 52. Have the excess tax benefits that stem from a reason other than (1) a change in the fair value (or calculated value) of the company's shares between the measurement date for accounting purposes and a later measurement date for tax purposes or (2) related dividends or dividend equivalents charged to equity, been recognized in the income statement? [FASB 123(R).62, EITF 06-11] 53. The amount deductible on the employer's tax return may be less than the cumulative compensation cost recognized for financial reporting purposes. Is the write-off of a deferred tax asset related to that deficiency, net of the related valuation allowance: a. First offset to the extent of any remaining additional paid-in capital from excess tax benefits from previous awards accounted for in accordance with FASB 123 or 123(R)? [FASB 123(R).63] b. If there is any remaining balance of the write-off of a deferred tax asset related to a tax deficiency, is it
Yes
No
153
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) recognized in the income statement? [FASB 123(R).63] [NOTE: An entity that continued to use Opinion 25's intrinsic value method as permitted by FASB 123 should calculate the amount available for offset (the APIC pool) as the net amount of excess tax benefits that would have qualified as such had it instead adopted FASB 123 for recognition purposes pursuant to FASB 123's original effective date and transition method. In determining that amount, no distinction should be made between excess tax benefits attributable to different types of equity awards, such as restricted shares or share options. An entity shall exclude from that amount both excess tax benefits from share-based payment arrangements that are outside the scope of FASB 123(R), such as employee share ownership plans, and excess tax benefits that have not been realized pursuant to FASB 109, as noted in paragraph A94, footnote 82, of FASB 123(R).] SECTION II For enterprises that have adopted FASB Interpretation ("FIN") 48, the following section should be completed. Note: FASB Staff Position FIN 48-1, Definition of Settlement in FASB Interpretation 48, must be applied upon the initial adoption of FIN 48. 1. Has the enterprise identified all of its material tax positions? The term tax position as used in the Interpretation refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: a. A decision not to file a tax return b. An allocation or a shift of income between jurisdictions c. The characterization of income or a decision to exclude reporting taxable income in a tax return d. A decision to classify a transaction, entity, or other position in a tax return as tax exempt. [FIN 48.4] 2. Has the enterprise determined the appropriate unit of
Yes
No
154
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) account for all identified tax positions considering, at a minimum, the manner in which the enterprise prepares and supports its income tax return and the approach the enterprise anticipates the taxing authority will take during an examination? [FIN 48.5] 3. Has the enterprise determined if its identified tax positions are more likely than not (a likelihood of more than 50 percent) to be sustained upon examination based solely on the technical merits of the position, considering all facts, circumstances, and information available at the reporting date? [FIN 48.6] 4. In assessing the more-likely-than-not recognition threshold, did management consider: [FIN 48.7] a. The presumption that the tax position would be examined by the relevant taxing authority that has full knowledge of all relevant information? b. That the technical merits of a tax position derived from sources of authorities in the tax law (i.e., legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position? c. When the past administrative practices and precedents of the taxing authority in its dealings with the enterprise or similar enterprises are widely understood, that those practices and precedents were taken into account? d. That each tax position was evaluated without consideration of the possibility of offset or aggregation with other positions? 5. Have all tax positions that meet the more-likely-than-not recognition threshold been measured initially and subsequently as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information? In performing this assessment, has management considered the amounts and probabilities of the outcomes that could be realized upon ultimate settlement using the facts, circumstances, and information available at the reporting date? [FIN 48.8] 6. If a tax-planning strategy is contemplated as a source of future taxable income to support the realizability of a deferred tax asset under paragraph 21(d) of FASB 109, have paragraphs 58 of the Interpretation been applied in
Yes
No
155
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) determining the amount of available future taxable income? [FIN 48.9] 7. If the more-likely-than-not recognition threshold is not met in the period for which a tax position is taken or expected to be taken, has the enterprise recognized the benefit of the tax position in the first interim period that meets any one of the following three conditions: a. The more-likely-than-not recognition threshold is met by the reporting date? b. The tax matter is effectively settled through negotiation or litigation? c. The statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired? [FIN 48.10, FSP FIN 48-1] 8. Is a tax position considered effectively settled only if all of the following conditions are met: a. The taxing authority has completed its examination procedures including all appeals and administrative reviews that the taxing authority is required and expected to perform for the tax position. b. The enterprise does not intend to appeal or litigate any aspect of the tax position included in the completed examination. c. The possibility is remote that the taxing authority would examine or reexamine any aspect of the tax position. d. Management has considered the taxing authoritys policy on reopening closed examinations and the specific facts and circumstances of the tax position. e. Management presumes that the relevant taxing authority has full knowledge of all relevant information in making the assessment on whether the taxing authority would reopen a previously closed examination. [FIN 48.10A] [FSP FIN 48-1.4] 9. If an enterprise that had previously considered a tax position effectively settled becomes aware that the taxing authority may examine or reexamine the tax position or intends to appeal or litigate any aspect of the tax position, does the enterprise no longer considered the tax position effectively settled and has the enterprise reevaluated the tax position in accordance with Interpretation 48? [FIN 48.10B] [FSP FIN 48-1.6]
Yes
No
156
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 10. Has an enterprise derecognized a previously recognized tax position in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination? Has the enterprise not used a valuation allowance as a substitute for derecognizing the benefit of a tax position when the more-likely-than-not recognition threshold is no longer met? [FIN 48.11] 11. Has management used its best judgment given the facts, circumstances, and information available to reevaluate the subsequent recognition, derecognition, and measurement as of the reporting date? Were any subsequent changes a result of an evaluation of new information and not from a new evaluation or new interpretation by management of information that was available in a previous financial reporting period? [FIN 48.12] 12. Has a change in judgment that results in subsequent recognition, derecognition, or change in measurement of a tax position taken in a prior annual period (including any related interest and penalties) been recognized as a discrete item in the period in which the change occurs? [FIN 48.13] 13. Has a change in judgment that results in subsequent recognition, derecognition, or change in measurement of a tax position taken in a prior interim period within the same fiscal year been reflected pursuant to the provisions of paragraph 19 of APB Opinion No. 28, Interim Financial Reporting, and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods? [FIN 48.14] 14. If the tax law requires interest to be paid on an underpayment of income taxes, has an enterprise recognized interest expense in the first period that interest would begin accruing according to the provisions of the relevant tax law? [FIN 48.15] 15. Has the amount of interest expense recognized been computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with this Interpretation and the amount previously taken or expected to be taken in a tax return? [FIN 48.15] 16. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties, has an enterprise recognized an expense for the amount of the statutory penalty in the period in which the enterprise claims or
Yes
No
157
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) expects to claim the position in the tax return? [FIN 48.16] 17. If penalties were not recognized when the position was initially taken, has the expense been recognized in the period in which the enterprise's judgment about meeting the minimum statutory threshold changes? Have previously recognized interest and penalties associated with tax positions that subsequently meet one of the conditions in paragraph 10 of the Interpretation been derecognized in the period that condition is met? [FIN 48.16] 18. Was a liability created (or the amount of a net operating loss carryforward or amount refundable reduced) for an unrecognized tax benefit representing an enterprise's potential future obligation to the taxing authority for a tax position that was not recognized pursuant to the Interpretation? [FIN 48.17] AMENDMENTS TO ITEMS IN SECTION I UPON ADOPTION OF FIN 48 Additionally, questions 2 and 14 from Section I above would be amended to reflect the guidance in FIN 48. 2. Has a tax liability or asset been recognized based on the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for the estimated taxes payable or refundable on tax returns for the current and prior years? [FASB 109.08, amended] 14. Have the following four possible sources of taxable income available under the tax law been considered to realize a deferred tax benefit for deductible temporary differences and carryforwards: [FASB 109.21] a. Future reversals of existing taxable temporary differences? b. Future taxable income exclusive of reversing temporary differences and carryforwards? c. Taxable income in prior carryback year(s) if carryback is permitted under the tax law? d. Tax planning strategies that could, if necessary, be implemented to, for example: (1) Accelerate taxable amounts to utilize expiring carryforwards? (2) Change the character of taxable or deductible
Yes
No
158
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) amounts from ordinary income or loss to capital gain or loss? (3) Switch from tax-exempt to taxable investments? When a tax planning strategy is contemplated as a source of future taxable income to support the realizability of a deferred tax asset under paragraph 21(d) of FASB 109, have paragraphs 5-8 of Interpretation No. 48 been applied in determining the amount of available future taxable income? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards This Issue addresses how a company should recognize the income tax benefit received on dividends that are (1) paid to employees holding equityclassified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options and (2) charged to retained earnings under FASB Statement 123(R). The Task Force reached a consensus that an entity should recognize a realized tax benefit associated with dividends on affected securities charged to retained earnings as an increase in APIC. The amount recognized in APIC should be included in the APIC pool. When an entitys estimate of forfeitures increases or actual forfeitures exceed its estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the income statement; however, the amount reclassified is limited to the APIC pool balance on the reclassification date. This Issue is effective for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. 02-13, Deferred Income Tax Considerations in Applying the Goodwill Impairment Test in FASB Statement No. 142 The issues are (1) whether the fair value of a reporting unit should be estimated by assuming that the unit would be bought or sold in a nontaxable transaction versus a taxable transaction, (2) whether deferred income taxes should be included in the carrying amount of a reporting unit for purposes of Step 1 of the FASB 142 goodwill impairment test, and (3) for purposes of determining the implied fair value of a reporting unit's goodwill in Step 2 of the FASB 142 goodwill impairment test, what income tax bases an entity should use for a reporting unit's assets and liabilities in order to measure deferred tax assets and liabilities. That is, should an entity use the existing income tax bases or assume new income tax bases for the unit's assets and liabilities? 00-16, Recognition and Measurement of Employer Payroll
Yes
No
159
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) Taxes on Employee Stock-Based Compensation The issue is when an employer should recognize a liability and corresponding cost for employer payroll taxes on employee stock compensation. 99-15, Accounting for Decreases in Deferred Tax Asset Valuation Allowances Established in a Purchase Business Combination As a Result of a Change in Tax Regulations The issue is whether the effect of a change in tax law or regulation that results in a decrease in a valuation allowance that initially was recorded in the allocation of the purchase price in a purchase business combination should be included in income from continuing operations pursuant to paragraph 27 of FASB 109 or as an adjustment to the purchase price allocation pursuant to paragraph 30 of FASB 109. 98-11, Accounting for Acquired Temporary Differences in Certain Purchase Transactions That Are Not Accounted for as Business Combinations The issues are (1) how the tax effect of asset purchases that are not business combinations in which the amount paid differs from the tax basis of the asset should be accounted for, (2) how the net tax benefit resulting from a purchase of future tax benefits from a third party that is not a government acting in its capacity as a taxing authority should be accounted for, and (3) whether all transactions directly with a government (in its capacity as a taxing authority) should be accounted for in a similar manner. 96-7, Accounting for Deferred Taxes on In-Process Research and Development Activities Acquired in a Purchase Business Combination The issue is whether a deferred tax liability should be recognized at the consummation date of a purchase business combination for the initial difference (i.e., prior to the write-off of in-process R&D) between the amounts assigned for financial reporting purposes to in-process R&D and its underlying tax basis. 95-20, Measurement in the Consolidated Financial Statements of a Parent of the Tax Effects Related to the Operations of a Foreign Subsidiary That Receives Tax Credits Related to Dividend Payments The issue is whether the consensus in Issue 95-10 also should apply to the consolidated financial statements of a parent that includes a foreign subsidiary that receives a tax credit for dividends paid, if the parent expects to remit the subsidiary's earnings. That is, if the parent has not availed itself of the exception for foreign unremitted earnings in APB Opinion 23, should the tax effects related to the operations of the foreign subsidiary be recognized in the parent's consolidated financial statements based on the foreign tax jurisdiction's distributed or undistributed rate?
Yes
No
160
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 95-10, Accounting for Tax Credits Related to Dividend Payments in Accordance with FASB Statement No. 109 The issue is whether a deferred tax asset should be recognized for the tax benefits of future tax credits that will be realized when income previously taxed at the undistributed rate is subsequently distributed. That is, should the tax effects of temporary differences be measured using the distributed rate or the undistributed rate? 95-9, Accounting for the Tax Effects of Dividends in France in Accordance with FASB Statement No. 109 The issue is whether a tax that is assessed on a corporation based on dividends distributed, such as the French precompte tax, should be recorded as an increase in income tax expense or considered to be in effect a withholding of tax for the recipient of the dividend and recorded in equity as part of the dividend paid to shareholders. 94-10, Accounting by a Company for the Income Tax Effects of Transactions among or with Its Shareholders under FASB Statement No. 109 The issue is whether tax effects caused by transactions among or with shareholders should be included in the income statement or in equity in the separate financial statements of the company affected. 94-1, Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects The issue is how an entity that invests in a qualified affordable housing project through a limited partnership should account for its investment. 93-17, Recognition of Deferred Tax Assets for a Parent Company's Excess Tax Basis in the Stock of a Subsidiary That Is Accounted for as a Discontinued Operation The issue is whether the tax benefit for the excess of outside tax basis over financial reporting basis of an investment in a subsidiary that meets the requirements of APB Opinion 30 to be reported as a discontinued operation should be recognized in accordance with paragraph 34 of FASB 109 or paragraph 15 of APB Opinion 30 [NOTE: See the STATUS section of this Issue.]. 93-16, Application of FASB Statement No. 109 to Basis Differences within Foreign Subsidiaries That Meet the Indefinite Reversal Criterion of APB Opinion No. 23 The issue is whether the indefinite reversal criterion of APB Opinion 23, as amended, applies only to temporary differences related to outside basis differences or whether it should be applied to the revaluation surplus related to inside basis differences of foreign subsidiaries in the consolidated financial statements of the parent and its foreign subsidiaries.
Yes
No
161
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 93-13, Effect of a Retroactive Change in Enacted Tax Rates That Is Included in Income from Continuing Operations The issue is how to determine the tax effect of a retroactive change in enacted tax rates that is included in income from continuing operations for the period that includes the enactment date of the retroactive change. 93-12, Recognition and Measurement of the Tax Benefit of Excess Tax-Deductible Goodwill Resulting from a Retroactive Change in Tax Law When a company elects to retroactively amortize goodwill in accordance with the Omnibus Budget Reconciliation Act of 1993, the issues are (1) how the tax benefit related to tax-deductible goodwill in excess of goodwill for financial reporting purposes should be determined and (2) how that benefit should be recognized under FASB 109. 93-9, Application of FASB Statement No. 109 in Foreign Financial Statements Restated for General Price-Level Changes Enterprises located in countries with highly inflationary economies may prepare financial statements restated for general price-level changes in accordance with generally accepted accounting principles in the United States. The tax bases of assets and liabilities of those enterprises are often restated for the effects of inflation. For those enterprises, the issues are: (1) how temporary differences should be computed under FASB 109 and (2) how deferred income tax expense or benefit for the year should be determined. 93-7, Uncertainties Related to Income Taxes in a Purchase Business Combination The issues are whether FASB 38 is applicable to any income tax uncertainties and, if not, how income tax uncertainties should be accounted for under FASB 109. The EITF discussion section is amended to reflect that Interpretation 48 applies to recognition and measurement of uncertainty in income taxes recognized in accordance with FASB 109. The STATUS section of that Issue in the EITF Abstracts is also updated. 92-8, Accounting for the Income Tax Effects under FASB Statement No. 109 of a Change in Functional Currency When an Economy Ceases to Be Considered Highly Inflationary The issue is whether under FASB 109 an entity should account for the income tax effects of a change in functional currency when an economy ceases to be considered highly inflationary as a charge to income tax expense or a charge to the cumulative translation adjustments component of shareholders' equity.
Yes
No
162
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) 91-8, Application of FASB Statement No. 96 to a State Tax Based on the Greater of a Franchise Tax or Income Tax The issues are to what extent the new Texas tax is based on income and how the amount of deferred Texas taxes should be computed under FASB 96. [NOTE: See the STATUS section of this Issue as FASB 109 supersedes FASB 96.] 89-20, Accounting for Cross Border Tax Benefit Leases The issue is whether the cash consideration received by the U.S. enterprise from the foreign investor for tax benefits that the foreign investor will obtain in the foreign tax jurisdiction should be immediately recognized in income or deferred. [NOTE: See the STATUS section of this Issue.] 88-4, Classification of Payment Made to IRS to Retain Fiscal Year On December 22, 1987, the Revenue Act of 1987 was enacted, which allows partnerships and S corporations to elect to retain their fiscal year rather than adopt a calendar year for tax purposes as previously required by the Tax Reform Act of 1986. Entities that elect to retain a fiscal year are required to make an annual payment in a single installment each year that approximates the income tax that the partners-owners would have paid on the short-period income had the entity switched to a calendar year. The issue is how the payment should be recorded in the financial statements of the entity. 87-8, Tax Reform Act of 1986: Issues Related to the Alternative Minimum Tax This Issue addresses several aspects of accounting for the impacts of the Alternative Minimum Tax. [NOTE: See the STATUS section of this Issue as many of the consensus reached have been nullified by FASB 96 and FASB 109.] 86-46, Uniform Capitalization Rules for Inventory under the Tax Reform Act of 1986 The issues are whether the types of costs that are required to be allocated to inventories for tax purposes would be capitalizable under generally accepted accounting principles and, if so, whether the new costing method is a preferable method for purposes of justifying a change in accounting principle. 86-44, Effect of a Change in Tax Law on Investments in Safe Harbor Leases This Issue addresses how to calculate and report the effect of the change in tax law due to the Tax Reform Act of 1986 as it relates to investments in safe harbor leases. 86-43, Effect of a Change in Tax Law or Rates on Leveraged Leases The issue is how to calculate and report the adjustments, if any, required by a change in the tax law or
Yes
No
163
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) rates as it relates to leveraged leases. [NOTE: See the STATUS section of this Issue.] 86-33, Tax Indemnifications in Lease Agreements Some leases contain indemnification clauses that indemnify lessors, on an after-tax basis, for certain tax benefits that the lessor may lose if a change in the tax law precludes realization of those tax benefits. The issue is the appropriate accounting by the lessor and lessee for indemnification payments. [NOTE: See the STATUS section of this Issue regarding the impact of FASB Interpretation 45.] 86-9, IRC Section 338 and Push-Down Accounting Historically, a change in legal form of an acquired company through liquidation, corporate reorganization, or statutory merger was necessary to obtain a step-up in tax basis. However, as a result of the Tax Equity and Fiscal Responsibility Act in 1982, it is possible to obtain a step-up in tax basis without formally liquidating an acquired company. The issues are (1) assuming an acquisition in which (a) the acquired corporation is not a party to the transaction effecting change in ownership and is not an SEC registrant, (b) a stepup in tax basis is elected, and (c) there are no compelling reasons for retaining the old basis, whether push-down accounting (that is, use of the acquiring company's basis of accounting in the preparation of the acquired corporation's financial statements) should be required and (2) assuming continuation of the historical basis, which of the following methods is preferable for allocating the consolidated tax provision (a) modify the intercorporate tax allocation agreement so that taxes are allocated to the acquired corporation on the preacquisition tax basis, (b) credit the tax benefit from the tax basis step-up to the acquired corporation's capital surplus when realized, or (c) credit the tax benefit to income of the acquired corporation as a permanent difference when realized. [NOTE: See the STATUS section of this Issue.] D-33, Timing of Recognition of Tax Benefits for Prereorganization Temporary Differences and Carryforwards This Issue addresses the approach to determine the timing of recognition of a tax benefit for pre-reorganization deductible temporary differences and net operating loss and tax credit carryforwards (for which a valuation allowance was provided at the date of reorganization) when postreorganization net operating loss carryforwards exist. D-32, Intraperiod Tax Allocation of the Tax Effect of Pretax Income From Continuing Operations This Issue addresses intraperiod tax allocation pursuant to FASB 109
Yes
No
164
Accounting: I27 ACCOUNTING FOR INCOME TAXES (12/08) D-31, Temporary Differences Related to LIFO Inventory and Tax-to-Tax Differences This Issue addresses (1) whether FASB 109 requires recognition of a deferred tax liability for LIFO inventory temporary differences (that is, for the excess of the amount of LIFO inventory for financial reporting over its tax basis), (2) whether FASB 109 requires recognition of a deferred tax liability for a subsidiary's LIFO inventory temporary difference if that subsidiary is sold before the LIFO inventory temporary difference reverses (since the deferred tax liability for the LIFO inventory of the subsidiary will not be considered "settled"), and (3) whether recognition of a deferred tax asset for a tax-to-tax difference (excess of parent company tax basis of the stock of an acquired company over the tax basis of the net assets of the acquired company) is permitted under FASB 109. D-30, Adjustment Due to Effect of a Change in Tax Laws or Rates This Issue addresses when a change in income tax rates that is retroactive should be recognized, particularly in situations where a company is adopting a new accounting standard at that date.
Yes
No
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48" or the "Interpretation"), was issued in June 2006. The Interpretation is effective for fiscal years beginning after December 15, 2006. Earlier application is allowed if the enterprise has not yet issued interim or annual financial statements. Prior to adoption of the Interpretation, only Section I below should be completed. Upon adoption, Sections I and II below should be completed. In February 2008, the FASB issued FSP FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises, which defers the effective date of FIN 48 for certain nonpublic entities to fiscal years beginning after December 15, 2007. Under the FSP, a nonpublic enterprise (as defined in FASB 109) can apply the deferral unless that nonpublic enterprise (1) is a consolidated entity of a public enterprise that applies U.S. GAAP or (2) has issued a full set of U.S. GAAP annual financial statements prior to the issuance of the FSP using the recognition, measurement, and disclosure requirements of FIN 48.
Yes
No
165
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) SECTION I 1. In a classified statement of financial position: [FASB 109.41] a. Have deferred tax liabilities and assets been classified as current and noncurrent based on the classification of the related asset or liability for financial reporting? b. Has a deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, been classified according to the expected reversal date of the specific temporary difference pursuant to FASB 37? c. Has the valuation allowance for a particular tax jurisdiction been allocated between current and noncurrent deferred tax assets for that tax jurisdiction on a pro-rata basis? 2. For a particular tax-paying component of an enterprise and within a particular tax jurisdiction, have (a) all current deferred tax liabilities and assets been offset and presented as a single amount, and (b) all noncurrent deferred tax liabilities and assets been offset and presented as a single amount? [FASB 109.42] 3. Have deferred tax liabilities and assets attributable to different tax-paying components of the enterprise or to different tax jurisdictions not been offset? [FASB 109.42] 4. Have the components of the net deferred tax liability or asset recognized in an entity's statement of financial position been disclosed as follows: [FASB 109.43] a. The total of all deferred tax liabilities? b. The total of all deferred tax assets? c. The total valuation allowance recognized for deferred tax assets? d. The net change during the year in the total valuation allowance? 5. For public entities: a. Has the entity disclosed the approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets (before allocation of valuation allowances)? [FASB 109.43]
Yes
No
166
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) b. If the enterprise is not subject to income taxes because its income is taxed directly to its owners, has the entity disclosed that fact and the net difference between the tax bases and the reported amounts of the enterprise's assets and liabilities? [FASB 109.43] 6. For nonpublic entities, has the entity disclosed the types of significant temporary differences and carryforwards? [NOTE: Nonpublic entities may omit disclosure of the tax effects of each type of temporary difference and carryforwards.] [FASB 109.43] 7. Has the following information been disclosed whenever a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes for any of the areas addressed by APB 23 (as amended by FASB 109) or for deposits in statutory reserve funds by U.S. steamship enterprises: [FASB 109.44] a. A description of the types of temporary differences for which a deferred tax liability has not been recognized and the types of events that would cause those temporary differences to become taxable? b. The cumulative amount of each type of temporary difference? c. The amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries and foreign corporate joint ventures that are essentially permanent in duration if determination of that liability is practicable or a statement that determination is not practicable? d. The amount of the deferred tax liability for temporary differences other than those in (c) above (i.e., undistributed domestic earnings, the bad-debt reserve for tax purposes of a U.S. savings and loan association or other qualified thrift lender, the policyholders' surplus of a life insurance enterprise, and the statutory reserve funds of a U.S. steamship enterprise) that has not been recognized in accordance with the provisions of paragraphs 31 and 32 of FASB 109? 8. Has disclosure been made in the financial statements or notes of the significant components of income tax expense attributable to continuing operations for each year presented, including: [FASB 109.45] a. Current tax expense or benefit?
Yes
No
167
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) b. Deferred tax expense or benefit (exclusive of the effects of other components listed below)? c. Investment tax credits? d. Government grants (to the extent recognized as a reduction of income tax expense)? e. The benefits of operating loss carryforwards? f. Tax expense that results from allocating certain tax benefits either directly to contributed capital or to reduce goodwill or other noncurrent intangible assets of an acquired entity?
Yes
No
g. Adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the enterprise? h. Adjustments of the beginning-of-the-year balance of a valuation allowance because of a change in circumstance that causes a change in judgment about the realizability of the related deferred tax asset in future years? 9. Has disclosure been made of the amount of income tax expense or benefit allocated to continuing operations, discontinued operations, extraordinary items, other comprehensive income or items charged or credited directly to stockholders' equity? [FASB 109.46] 10. Has disclosure been made of a reconciliation using percentages or dollar amounts of (a) the reported amount of income tax expense attributable to continuing operations for the year to (b) the amount of income tax expense that would result from applying domestic federal statutory rates (the regular tax rates if there are alternative tax systems) to pretax income from continuing operations, including the estimated amount and the nature of each significant reconciling item? [FASB 109.47] [NOTE: Nonpublic entities shall disclose the nature of significant reconciling items but may omit a percentage or numerical reconciliation.] 11. Has disclosure been made of the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes? [FASB 109.48] 12. Has disclosure been made of any portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be allocated to reduce
168
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) goodwill or other noncurrent intangible assets of an acquired entity or directly to contributed capital? [FASB 109.48] 13. If the entity is a member of a group that files a consolidated tax return, has disclosure been made in its separately issued financial statements of: [FASB 109.49] a. The aggregate amount of current and deferred tax expense for each income statement presented? b. The amount of any tax-related balances due to or due from affiliates as of the date of each balance sheet presented? c. The principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to members of the group? d. The nature and effect of any changes in allocation method (and in determining related balances to or from affiliates) during the years for which statements are presented? SECTION II For enterprises that have adopted FASB Interpretation ("FIN") 48, the following section should be completed. Note: FASB Staff Position FIN 48-1, Definition of Settlement in FASB Interpretation 48, must be applied upon the initial adoption of FIN 48. In the year of initial adoption: 1. Has the cumulative effect of applying the Interpretation been reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that fiscal year, presented separately? Does the cumulative-effect adjustment not include items that would not be recognized in earnings? [FIN 48.23] 2. Has the enterprise disclosed the cumulative effect of the change on retained earnings in the statement of financial position as of the date of adoption? [FIN 48.24] In the year of initial adoption and thereafter: 3. If the enterprise presents a classified statement of financial position, did it classify a liability associated with an unrecognized tax benefit as a current liability (or the amount of a net operating loss carryforward or amount refundable is reduced) to the extent the enterprise
Yes
No
169
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) anticipates payment (or receipt) of cash within one year or the operating cycle, if longer? [FIN 48.17] 4. Did the enterprise not combine the liability for unrecognized tax benefits (or reduction in amounts refundable) with deferred tax liabilities or assets? [FIN 48.17] 5. Are liabilities recognized as a result of applying the Interpretation not classified as a deferred tax liability unless they arose from a taxable temporary difference? [FIN 48.18] 6. Has the enterprise consistently classified the interest recognized in the financial statements as either income taxes or interest expense, based on the accounting policy election of the enterprise? [FIN 48.19] 7. Has the enterprise consistently classified penalties recognized in the financial statements as either income taxes or another expense classification, based on the accounting policy election of the enterprise? [FIN 48.19] 8. Has the enterprise disclosed its policy on classification of interest and penalties in the footnotes to the financial statements? [FIN 48.20] 9. Has the enterprise disclosed at the end of its annual reporting period the following: [FIN 48.21] a. A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period, which shall include at a minimum: (1) The gross amounts of the increases and decreases in unrecognized tax benefits as a result of tax positions taken during a prior period? (2) The gross amounts of increases and decreases in unrecognized tax benefits as a result of tax positions taken during the current period? (3) The amounts of decreases in the unrecognized tax benefits relating to settlements with taxing authorities? (4) Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations? b. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate? c. The total amounts of interest and penalties recognized
Yes
No
170
Disclosure: I27 ACCOUNTING FOR INCOME TAXES (12/08) in the statement of operations and the total amounts of interest and penalties recognized in the statement of financial position? d. For positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date: (1) The nature of the uncertainty? (2) The nature of the event that could occur in the next 12 months that would cause the change? (3) An estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made? e. A description of tax years that remain subject to examination by major tax jurisdictions?
Yes
No
171
Accounting: I50 INSURANCE COSTS (12/08) 1. Are payments to insurance companies that do not involve transfer of risk accounted for as a deposit by the insured or by the ceding enterprise in the case of reinsurance? [FASB 5.44-.45 (as amended by FASB 113)] 2. Is the cash surrender value of nonterm life insurance contracts on the lives of corporate officers recognized as an asset and is the change in value accounted for as an adjustment of premiums paid in determining the expense or income for the period? [FTB 85-4.02, EITF 06-05] Accounting for Life Settlement Contracts by ThirdParty Investors 1. Has an election been made to account for investments in life settlement contracts using either the investment method or the fair value method, as described in paragraphs 6 through 8 of FSP FTB 85-4-1? 2. Has the election been made on an instrument-byinstrument basis, and is it irrevocable? 3. Has the election been supported by concurrent documentation or a preexisting documented policy for automatic election? [FSP FTB 85-4-1.05] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-5, Accounting for Purchases of Life Insurance Determining the Amount that Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 This Issue affects purchasers of life insurance including COLI and BOLI. This Issue is effective for fiscal years beginning after December 15, 2006. Earlier application is permitted as of the beginning of a fiscal year for periods in which interim or annual financial statements have not been issued. 03-8, Accounting for Claims-Made Insurance and Retroactive Insurance Contracts by the Insured Entity The EITF discussed issues related to the following points: 1. How an insured entity, including an insurance entity purchasing insurance unrelated to its core insurance operations, should account for a purchased retroactive insurance policy and whether the transaction results in gain recognition (excluding reinsurance transactions). 2. Whether a claims-made insurance policy represents a purchased retroactive insurance contract subject to the
Yes
No
172
Accounting: I50 INSURANCE COSTS (12/08) consensus in Issue 1. 3a. Whether an insured entity should recognize a liability at the balance sheet date for IBNR claims. 3b. If the probable losses from IBNR claims and incidents cannot be reasonably estimated, whether a liability may be accrued based on the estimated cost of purchasing "tail" coverage, which would insure the entity for events that occur during the claims-made policy period but are not reported to the insurance carrier in that period. 4a. In situations in which an entity's fiscal year and policy term coincide and the contract is prospective, the appropriate accounting for both (1) the IBNR liability in subsequent periods when the entity purchases another claims-made insurance policy that, in part, covers a portion of the losses included in the IBNR liability and (2) the premiums for that subsequent claims-made insurance policy. 4b. The accounting ramifications on the consensus reached in Issue 4a of having a prospective claims-made policy term that does not coincide with the enterprise's fiscal year. 93-14, Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by Insurance Enterprises and Other Enterprises The EITF discussed the accounting for multiple-year retrospectively rated contract arising from an insurance transaction that is not a reinsurance contract. 88-5, Recognition of Insurance Death Benefits The EITF discussed whether it is appropriate for an enterprise to record income from death benefits on corporate-owned life insurance (COLI) policies on an actuarial expected basis rather than upon the actual death of the insured.
Yes
No
Disclosure: I50 INSURANCE COSTS (12/08) ACCOUNTING FOR LIFE SETTLEMENT CONTRACTS BY THIRD-PARTY INVESTORS A. Financial Statement Presentation 1. Are investments that are remeasured at fair value on the face of the statement of financial position presented separately from those accounted for under the investment method by either: a. Displaying separate line items on the statement of
Yes
No
173
Disclosure: I50 INSURANCE COSTS (12/08) financial position for the fair value method and investment method carrying amounts; or b. Presenting the aggregate of those fair value method and investment method carrying amounts and parenthetically disclosing the amount of those investments accounted for under the fair value method included in the aggregate amount? [FSP FTB 85-41.09] 2. Is investment income from investments in life settlement contracts that are remeasured at fair value reported separately on the face of the income statement from the investment income from those accounted for under the investment method? Is this accomplished by either: a. Displaying separate line items on the income statement for the investment income from the investments in life settlement contracts that are accounted for under the fair value method and investment method; or b. Presenting the aggregate of the investment income in life settlement contracts and parenthetically disclosing the investment income from those investments accounted for under the fair value method that are included in the aggregate amount? [FSP FTB 85-41.10] 3. Are cash receipts and cash payments related to life settlement contracts classified pursuant to FASB Statement No. 95, Statement of Cash Flows, based on the nature and purpose for which the life settlements were acquired? [FSP FTB 85-4-1.11] B. Disclosure Requirements Has the investor disclosed its accounting policy for life settlement contracts including the classification of cash receipts and cash disbursements in the statement of cash flows? Note: The disclosure requirements in paragraphs 13 through 19 of FSP FTB 85-4-1 do not eliminate disclosure requirements included in other U.S. generally accepted accounting principles pronouncements, including other disclosure requirements on the use of fair value. [FSP FTB 85-4-1.12] Investment Method 1. Is the following disclosed for life settlement contracts accounted for under the investment method based on the remaining life expectancy for each of the first five
Yes
No
174
Disclosure: I50 INSURANCE COSTS (12/08) succeeding years from the date of the statement of financial position and thereafter, as well as in the aggregate: a. The number of life settlement contracts? b. The carrying value of the life settlement contracts? c. The face value (death benefits) of the life insurance policies underlying the contracts? [FSP FTB 85-41.13] 2. Has the investor disclosed, as of the date of the most recent statement of financial position presented, the life insurance premiums anticipated to be paid for each of the five succeeding fiscal years to keep the life settlement contracts in force? [FSP FTB 85-4-1.14] 3. If the investor becomes aware of new or updated information that causes it to change its expectations on the timing of the realization of proceeds from the investments in life settlement contracts, is the nature of the information and the related effect on the timing of the realization of proceeds from the life settlement contracts disclosed, including significant changes to the amounts disclosed in accordance with question 1 above? [FSP FTB 85-4-1.15] Fair Value Method 1. Are the method(s) and significant assumptions used to estimate the fair value of investments in life settlement contracts, including any mortality assumptions, disclosed? [FSP FTB 85-4-1.16] 2. Is the following disclosed for life settlement contracts accounted for under the fair value method based on remaining life expectancy for each of the first five succeeding years from the date of the statement of financial position and thereafter, as well as in the aggregate: a. The number of life settlement contracts? b. The carrying value of the life settlement contracts? c. The face value (death benefits) of the life insurance policies underlying the contracts? [FSP FTB 85-41.17] 3. Are the reasons for changes in expectation of the timing of the realization of the investments in life settlement contracts disclosed, including significant changes to the amounts disclosed in accordance with question 2 above?
Yes
No
175
Disclosure: I50 INSURANCE COSTS (12/08) [FSP FTB 85-4-1.18] 4. Is the following disclosed for each reporting period presented in the income statement: a. The gains or losses recognized during the period on investments sold during the period? b. The unrealized gains or losses recognized during the period on investments that are still held at the date of the statement of financial position? [FSP FTB 85-41.19] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-5, Accounting for Purchases of Life InsuranceDetermining the Amount that Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 This Issue affects purchasers of life insurance including corporateowned life insurance (COLI) and bank-owned life insurance (BOLI). The Task Force reached a consensus that a policyholder should disclose when contractual restrictions on the ability to surrender a policy exist. 03-8, Accounting for Claims-Made Insurance and Retroactive Insurance Contracts by the Insured Entity The EITF discussed issues related to disclosures that should be made by companies insured under claims-made policies.
Yes
No
Accounting: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) 1. Is interest capitalized for the following types of assets ("qualifying assets"): a. Assets that are constructed or otherwise produced for an enterprise's own use (including assets, constructed or produced for the enterprise by others for which deposits or progress payments have been made)? [FASB 34.09] b. Assets intended for sale or lease that are constructed or otherwise produced as discrete projects (e.g., ships or real estate developments)? [FASB 34.09] c. Land acquired for development while developmentrelated activities are in progress (if the asset resulting from the development-related activities is a structure, interest capitalized on land expenditures is part of the
Yes
No
176
Accounting: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) acquisition cost of the structure)? [FASB 34.11] d. Investments (equity, loans, and advances) accounted for by the equity method while the investee has activities in progress necessary to commence its planned principal operations provided that the investee's activities include the use of funds to acquire qualifying assets for its operations? [FASB 34.09, as amended by FASB 58.05] e. Unusually significant investments in unproved oil and gas properties and major development projects (related to oil and gas producing operations accounted for by the full cost method) whose costs are not being currently depreciated, depleted, or amortized and on which exploration or development activities are in progress? Similarly, in a cost center with no production, significant properties and projects on which exploration or development activities are in progress? [FIN 33.2] [NOTE: The "Oil and Gas Producing Activities" section herein should also be completed.] 2. Is interest not capitalized for the following types of assets: [NOTE: Pro forma prospective and retroactive computations may confirm whether the effect of capitalizing interest is or is not material, but immateriality on a pro forma prospective or retroactive basis does not override a determination of whether capitalization is material to current-year income, the balance sheet, or other measures.] [FASB 42.09] a. Inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis? [FASB 34.10] b. Assets that are in use or ready for their intended use in the earnings activities of the enterprise? [FASB 34.10] c. Assets that are not being used in the earning activities of the enterprise and that are not undergoing the activities necessary to get them ready for use? [FASB 34.10] d. Land that is not undergoing activities necessary to get it ready for its intended use? [FASB 34.11] e. Assets that are not included in the consolidated balance sheet of the parent company and consolidated
Yes
No
177
Accounting: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) subsidiaries? [FASB 34.10, as amended by FASB 58.06] f. Investments accounted for by the equity method after the planned principal operations of the investee begin? [FASB 34.10, as amended by FASB 58.06]
Yes
No
g. Investments in regulated investees that are capitalizing both the cost of debt and equity capital? [FASB 34.10, as amended by FASB 58.06] h. Assets acquired with gifts and grants (and interest earned from temporary investment of such funds) that are restricted by the donor or grantor to acquisition of those assets to the extent that funds are available from such gifts and grants? [FASB 34.10, as amended by FASB 62.05] i. Oil and gas assets (related to oil and gas producing operations accounted for by the full cost method) whose costs are being currently depreciated, depleted, or amortized? [FIN 33.2] [NOTE: The "Oil and Gas Producing Activities" section herein should also be completed.]
[NOTE: The interest cost component of net periodic pension cost and the interest cost component of postretirement benefit cost should not be considered interest for purposes of applying FASB 34. [FASB 87.16, FASB 106.22]] 3. Except in the circumstances noted in question 6 below, is the amount of interest capitalized determined by applying an interest rate(s) (the "capitalization rate") to the average amount of accumulated expenditures for the asset during the capitalization period? [FASB 34.13] [Note that "expenditures" are defined as capital expenditures (net of progress payment collections) for the qualifying asset that have required the payment of cash, the transfer of other assets, or the incurring of a liability on which interest is recognized. However, reasonable approximations of net capitalized expenditures may be used. For example, capitalized costs for an asset may be used as a reasonable approximation of capitalized expenditures unless the difference is material]. [FASB 34.16] 4. Except in the circumstances noted in question 6 below, in determining the capitalization period: [FASB 34.17, as amended by FASB 62.07, and 34.18]
178
Accounting: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) a. Does the capitalization period begin when (a) expenditures (as defined in the note to question 3) for the asset have been made, (b) activities necessary to get the asset ready for its intended use are in progress, and (c) interest cost is being incurred? b. Does interest capitalization continue as long as those three conditions are present? c. Does interest capitalization end when the asset is substantially complete and ready for its intended use? 5. Is the capitalization rate used based on the rates applicable to borrowings outstanding during the capitalization period or the rate of a specific new borrowing obtained to finance the acquisition of the qualifying asset, to the extent applicable? [NOTE: If the average accumulated expenditures for the asset exceed the amounts of specific net borrowings associated with the asset, the capitalization rate to be applied to such excess shall be a weighted average of the rates applicable to other borrowings of the enterprise.] [FASB 34.13 and 34.14] 6. When qualifying assets are financed with the proceeds of tax-exempt borrowings and those funds are externally restricted to the acquisition of specified qualifying assets or to service the related debt: a. Is the amount of interest cost that is capitalized all interest cost of the borrowing less any interest earned on related interest-bearing investments acquired with proceeds of the related tax-exempt borrowings from the date of the borrowing until the assets are ready for their intended use? [FASB 62.03-.04] b. Does the capitalization period begin at the date of the borrowing? [FASB 34.17, as amended by FASB 62.07] c. Does interest capitalization end when the asset is substantially complete and ready for its intended use? [FASB 34.18] 7. Is the total amount of interest capitalized in a period not in excess of the total amount of interest cost incurred by the enterprise in that period? [NOTE: For consolidated financial statements, this limitation shall be applied by reference to the total amount of interest cost incurred by the parent company and consolidated subsidiaries on a consolidated basis. For separately issued financial
Yes
No
179
Accounting: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) statements of a parent company or a consolidated subsidiary and in the financial statements (whether separately issued or not) of unconsolidated subsidiaries and other investees accounted for by the equity method, the limitation shall be applied by reference to the total amount of interest cost (including interest on intercompany borrowings) incurred by the separate entity.] [FASB 34.15] 8. Is interest capitalization continued even though present accounting principles, including FASB 144 (which applies in recognizing impairment of long-lived assets held for use), require recognition of a lower value for the asset than the acquisition cost? [FASB 34.19, FASB 144.C26] [NOTE: The "Impairment of Long-Lived Assets to Be Held and Used" section herein should also be completed.] 9. Except in the circumstance noted in question 10 below (i.e., "equity-method investments"), is capitalized interest disposed of in the same manner as the other components of an asset's cost? [FASB 34.20, as amended by 58.07] 10. Is interest capitalized on an investment accounted for by the equity method of accounting accounted for in accordance with paragraph 19(b) of APB 18? [FASB 34.20, as amended by 58.07] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 99-9, Effect of Derivative Gains and Losses on the Capitalization of Interest This Issue addresses whether the interest rate used in capitalizing interest as part of the historical cost of acquiring certain assets under FASB 34 should be the effective yield after gains and losses on the effective portion of a derivative instrument that qualifies as a fair value hedge of the fixed interest rate debt or the original effective rate of the fixed-rate debt.
Yes
No
Disclosure: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) 1. Is disclosure made of the total amount of interest cost incurred, indicating as appropriate the amounts thereof that have been capitalized or the amounts charged to
Yes
No
180
Disclosure: I67 INTEREST: CAPITALIZATION OF INTEREST COSTS (12/08) expense? [FASB 34.21]
Yes
No
Accounting: I69 ADDITIONAL NOTES (12/08) 1. If notes are received or issued solely for cash, is the difference between the cash proceeds and face amount accounted for as a premium or discount? [APB 21.06; 21.11] 2. If notes are received or issued for cash and some other rights or privileges, is the difference between the cash proceeds and the present value (computed using an appropriate interest rate) of the note accounted for as discount or premium? [APB 21.07; 21.11] 3. If notes are exchanged for property, goods, or services: a. Is the note recorded at face amount if the exchange is a transaction entered into at arm's length? [NOTE: This would be the case if the general presumption is met that the stipulated rate of interest is appropriate. The general presumption is met unless (1) interest is not stated, (2) the stated interest rate is unreasonable, or (3) the stated face amount of the note is materially different from the current cash sale price for the same or similar items or from the market value of the note at the date of the transaction.] [APB 21.08, .12] b. If (1) interest is not stated, or (2) the stated interest rate is unreasonable, or (3) the stated face amount of the note is materially different from the current cash sale price for the same or similar items or from the market value of the note at the date of the transaction, have the note, the sales prices, and the cost of the property, goods, or services exchanged been recorded at either the fair value of the property, goods, or services or at an amount that reasonably approximates the market value of the note, whichever is the more clearly determinable? [APB 21.08, .12] c. In determining the market value of a note that stipulates either no interest or a rate of interest that is clearly unreasonable (per question 3.b.), are established exchange prices for the related property, goods, or services or evidence of the market value of the note used, if available? Otherwise in the absence of this information, is the present value of the note
Yes
No
181
Accounting: I69 ADDITIONAL NOTES (12/08) determined by discounting all future payments on the note from the time the note is issued, assumed, or acquired, using an appropriate imputed rate of interest? [NOTE: Changes in prevailing interest rates after the dates the applicable notes were issued or acquired should be ignored.] [APB 21.09; 21.12-.14] 4. Are the interest rates used for determining present value of specific notes appropriate? [NOTE: The rate used for valuation purposes will normally be at least equal to the rate at which the debtor can obtain financing of a similar nature from other sources at the date of the transaction.] [APB 21.13-.14] 4a. For entities that have adopted Statement 157 Are the interest rates used for determining present value of specific notes appropriate? [NOTE: The rate used for valuation purposes should be at least equal to the rate at which the debtor can obtain financing of a similar nature from other sources at the date of the transaction.] [APB 21.13-.14 as amended by FASB 157] 5. If a note requires the imputation of interest, is the difference between the present value and the face amount treated as discount or premium and amortized as interest expense or income (excluding that which may be capitalized in accordance with FASB 34 see I67 above) over the term of the note in a way that results in a constant rate of interest on the amount outstanding at the beginning of a given period ("interest method")? [NOTE: Other methods of amortization may be used if the results obtained are not materially different from those that would result from the "interest method."] [APB 21.15] 6. Are differences between the recognition for financial accounting purposes and income tax purposes of discount and premium resulting from the determination of present value of notes treated as temporary differences in accordance with FASB 109? [APB 21, footnote 8, FASB 109.287] [NOTE: For hybrid financial instruments accounted for at fair value in their entirety in accordance with FASB 155, Accounting for Certain Hybrid Financial Instruments, the "Accounting for Derivatives and Hedging Activities" section herein should also be completed.]
Yes
No
182
Disclosure: I69 INTEREST: IMPUTATION OF AN INTEREST COST (12/08) [NOTE: Question 1 pertains to all types of "notes" (receivables or payables that represent contractual rights to receive money or contractual obligations to pay money on fixed or determinable dates, whether or not there is a stated provision for interest).] 1. Are the following financial statement requirements and disclosures met for all notes: [APB 21.16 and APB 21.20] a. Discount or premium reported in the balance sheet as a direct deduction from or addition to the face amount of the note? b. Effective interest rate included in the description of the note? c. Face amount of the note disclosed in the financial statements or in the notes to the statements? d. Amortization of discount or premium reported as interest expense in the statement of income (excluding that which may be capitalized in accordance with FASB 34; see I67 above)? e. Issue costs reported in the balance sheet as deferred charges?
Yes
No
NA
Comments/References
Accounting: I78 INVENTORY (12/08) 1. Has a change in the composition of elements of costs included in inventory not occurred (see Section A06, "Accounting Changes")? [FIN 1.05] 2. Does the cost of inventory exclude the following items: a. Selling expenses? [ARB 43, Ch. 4.5, as amended by FASB 151.2] b. Other items, such as abnormal freight, abnormal handling costs, and amounts of wasted materials (spoilage)? [ARB 43, Ch. 4.5, as amended by FASB 151.2] c. Under most circumstances, general and administrative expenses, except for the portion of such expenses that are clearly related to inventory production? (General and administrative expenses may be accounted for as contract costs under the completed-contract method of accounting or, in some circumstances, as indirect
Yes
No
183
Accounting: I78 INVENTORY (12/08) contract costs by government contractors) [ARB 43, Ch. 4.5, as amended by FASB 151.2] 3. Are items such as abnormal freight, abnormal handling costs, and amounts of wasted materials (spoilage) treated as current period charges? [ARB 43, Ch. 4.5, as amended by FASB 151.2] 4. Are allocation of fixed production overheads to the costs of conversion based on the normal capacity of the production facilities (normal capacity refers to a range of production levels)? [ARB 43, Ch. 4.5, as amended by FASB 151.2] a. In periods of abnormally high production, is the amount of fixed overhead allocated to each unit of production decreased so that inventories are not measured above cost? [ARB 43, Ch. 4.5, as amended by FASB 151.2] b. Is the amount of fixed overhead allocated to each unit of production not increased as a consequence of abnormally low production or idle plant? [ARB 43, Ch. 4.5, as amended by FASB 151.2] 5. Are unallocated overheads recognized as expense in the period in which they are incurred? [ARB 43, Ch. 4.5, as amended by FASB 151.2] 6. Are all acquisition and production costs included in the cost of inventory including overhead expenses that are clearly related to inventory production? [ARB 43, Ch. 4.5, as amended by FASB 151.2] 7. In cases where sales incentives have been offered that will result in a loss on sale of a product, has the inventory of that product been evaluated for evidence of impairment? [EITF 01-9, ARB 43 Ch. 4.08] 8. Are inventories reported in the financial statements at the lower-of-cost or market, where market means current replacement cost (by purchase or by reproduction, as the case may be) except that: [ARB 43, Ch. 4.08-.13] a. Market should not exceed the net realizable value (i.e., estimate selling price in the ordinary course of business less reasonable predictable costs of completion and disposal); and b. Market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin?
Yes
No
184
Accounting: I78 INVENTORY (12/08) Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty The EITF addressed the issues of (1) whether two or more inventory purchase and sales transactions with the same counterparty should be viewed as a single exchange transaction subject to Opinion 29 and (2) whether there are circumstances under which nonmonetary exchanges of inventory within the same line of business should be recognized at fair value. 86-46, Uniform Capitalization Rules for Inventory under the Tax Reform Act of 1986 The EITF reached a consensus that the fact that a cost is capitalizable for tax purposes does not, in itself, indicate that it is preferable, or even appropriate, to capitalize that cost for financial reporting purposes. 86-13, Recognition of Inventory Market Declines at Interim Reporting Dates The EITF reached a conclusion that a write-down is generally required for inventory which declines in market price below cost unless the decline is due to seasonal price fluctuations. 84-24, LIFO Accounting Issues The EITF discussed the accounting for inventory under the LIFO method. On March 19, 1985, the SEC issued SAB 58, which indicates that in the absence of existing authoritative literature on LIFO accounting, the SEC staff believes that preparers of financial statements and their independent accountants should look to the LIFO Issues Paper for guidance in determining what constitutes acceptable LIFO accounting practice.
Yes
No
Disclosure: I78 INVENTORY (12/08) 1. Do the financial statements disclose the basis and method of valuation of inventories? [ARB 43, Ch. 4.15-.16] 2. Do the financial statements disclose the nature and effect of any change in methods of valuation of inventories? [ARB 43, Ch. 4.15] 3. Are material losses from the write-down of inventory from cost to market disclosed separately from cost of goods sold in the income statement? [ARB 43, Ch. 4.14] 4. Are material losses from the write-down of inventory from cost to market that are directly attributable to a
Yes
No
185
Disclosure: I78 INVENTORY (12/08) decision by management to exit or restructure an activity classified as a component of cost of goods sold in the income statement? [EITF 96-9] 5. Are material net losses on firm purchase commitments for inventory recognized in the accounts with the amounts separately disclosed in the income statement? [ARB 43, Ch. 4.17] 6. In exceptional cases where inventories may be stated above cost, is this fact fully disclosed? [ARB 43, Ch. 4.16] 7. For companies on LIFO, have the following disclosures been made: [LIFO Issues Paper] a. Either the LIFO reserve or the replacement cost (FIFO is normally acceptable) of the ending inventory along with their basis of determination? b. For companies that have not fully adopted LIFO, the extent LIFO is used (i.e., the portion of total ending inventory on LIFO or the portion of cost of sales applicable to LIFO)? c. The effects on income of LIFO inventory liquidations?
Yes
No
Disclosure: IN6 INSURANCE INDUSTRY: FINANCIAL GUARANTEE INSURANCE CONTRACTS (12/08) Statement 163 was issued in May 2008. This section addresses the disclosures for financial guarantee insurance (and reinsurance) contracts issued by insurance enterprises that are included within the scope of paragraph 6 of Statement 60. [FASB 163.02] Disclosure requirements in 1g and 2 below are effective for the first period (including interim) beginning after May 2008. All other FASB 163 requirements are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. 1. Has the entity disclosed in its financial statements for each annual period (and in an interim period if a significant change has occurred), the following: a. For financial guarantee insurance contracts where premiums are received as payments over the period of
Yes
No
186
Disclosure: IN6 INSURANCE INDUSTRY: FINANCIAL GUARANTEE INSURANCE CONTRACTS (12/08) the contract (rather than at inception): [FASB 163.30a] (1) The premium receivable and the unearned premium revenue as of the date(s) of the statement of financial position and the line item in the statement of financial position where those amounts are reported (if not presented separately)? (2) Amount of accretion on the premium receivable and the line item in the statement of income where that amount is reported (if not presented separately)? (3) The weighted-average risk-free rate used to discount the premiums expected to be collected and the weighted average period of the premium receivable? b. A schedule of premiums expected to be collected related to the premium receivable, detailing the following: [FASB 163.30b] (1) The four quarters of the subsequent annual period and each of the next four annual periods? (2) The remaining periods aggregated in five-year increments? c. A rollforward of the premium receivable for the period, including: [FASB 163.30c] (1) The beginning premium receivable? (2) Premium payments received? (3) New business written? (4) Adjustments to the premium receivable, including at a minimum: (a) Adjustments for changes in the period of a financial guarantee insurance contract and an explanation of why the adjustment occurred? (b) Accretion of the premium receivable discount? (c) Other adjustments with explanations provided for significant or recurring adjustments? (5) The ending premium receivable?
Yes
No
187
Disclosure: IN6 INSURANCE INDUSTRY: FINANCIAL GUARANTEE INSURANCE CONTRACTS (12/08) d. For premium revenue recognition that has been accelerated, the amount and reasons for acceleration? [FASB 163.30d] e. A schedule of the future expected premium revenue as of the latest date of the statement of financial position, detailing the following: [FASB 163.30e] (1) The four quarters of the subsequent annual period and each of the next four annual periods? (2) The remaining periods aggregated in five-year increments? f. For the claim liability: [FASB 163.30f] (1) The weighted average risk-free rate used to discount the claim liability? (2) The significant component(s) of the change in the claim liability for the period (such as changes in the discount rate, the accretion of the discount on the claim liability, changes in the timing, changes in the likelihood of default), the amount relating to that component(s), and the line item in the statement of income where that amount(s) is reported (if not separately disclosed)? g. A description of the entity's risk management activities used to track and monitor deteriorating insured financial obligations, including: [FASB 163.30g] (1) A description of each grouping or category used to track and monitor deteriorating insured financial obligations? (2) The entity's policies for placing an insured financial obligation in, and monitoring, each grouping or category? (3) The entity's policies for avoiding or mitigating claim liabilities, the related expense and liability reported during the period for those risk mitigation activities (not including reinsurance), and a description of where that expense and that liability are reported in the statement of income and the statement of financial position, respectively? 2. Has the entity disclosed for each annual and interim
Yes
No
188
Disclosure: IN6 INSURANCE INDUSTRY: FINANCIAL GUARANTEE INSURANCE CONTRACTS (12/08) period the following information related to the claim liability: a. A schedule of insured financial obligations at the end of each interim period detailing, at a minimum, the following for each category or grouping of these financial obligations: [FASB 163.31] (1) Number of issued and outstanding financial guarantee insurance contracts? (2) Remaining weighted average contract period? (3) Insured contractual payments outstanding, segregating principal and interest? (4) Gross claim liability? (5) Gross potential recoveries? (6) Discount, net (both claim liability and potential recoveries)? (7) Net claim liability? (8) Reinsurance recoverables? (9) Unearned premium revenue.
Yes
No
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) A. Determining Whether an Arrangement is a Lease 1. When concluding that an arrangement contains a lease has the conclusion been based on the substance of the arrangement using the following factors: [EITF 01-8.812] a. Does the property, plant, or equipment in the arrangement include only land and/or depreciable assets? [EITF 01-8.9] b. Is fulfillment of the arrangement dependent on the use of specific property, plant, or equipment that is either explicitly or implicitly identified in the arrangement? [EITF 01-8.10-11] c. Does the arrangement convey the right to control the use of the property, plant, or equipment to the
Yes
No
189
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) purchaser (lessee) by meeting any one of the following criteria? [EITF 01-8.12] (1) Does the purchaser have the ability or right to operate the property, plant, or equipment or direct others to operate the property, plant, or equipment in a manner it determines while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment? (2) Does the purchaser have the ability or right to control physical access to the underlying property, plant, or equipment while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment, or (3) Do facts and circumstances indicate that it is remote that one or more parties other than the purchaser will take more than a minor amount of the output or other utility that will be produced or generated by the property, plant, or equipment during the term of the arrangement, and the price that the purchaser (lessee) will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of the time of delivery of the output? 2. Has a reassessment of whether an arrangement contains a lease after the inception of the arrangement been made only if: a. There is a change in the contractual terms, b. A renewal option is exercised or an extension is agreed to by the parties to the arrangement, c. There is a change in the determination as to whether or not fulfillment is dependent on specified property, plant, or equipment, or d. There is a substantial physical change to the specified property, plant, or equipment? A reassessment of an arrangement should be based on the facts and circumstances as of the date of reassessment, including the remaining term of the arrangement. Changes in estimate (for example, the estimated amount of output to be delivered to the purchaser or other potential purchasers) would not
Yes
No
190
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) trigger a reassessment. [EITF 01-8.13] B. Classification Criteria General Rules 1. Are lease transactions accounted for as capital leases, if, at the inception of the lease, they meet one or more of the following criteria: (a) the lease transfers ownership of the property to the lessee by the end of the lease term, (b) the lease contains a bargain purchase option, (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property, or (d) the present value at the beginning of the lease term of the minimum lease payments (computed using the lower of the lessee's incremental borrowing rate or the lessor's implicit rate if known by the lessee) excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by and expected to be realized by the lessor? [FASB 13.07] [NOTE: As to criterion (d), the minimum lease payments include lessee guarantees of residual value (see FIN 19) as well as any expected costs to be incurred by the lessee under an obligation to return the assets at the end of the lease term. Also see FTB 79-12 as to use of a secured borrowing rate. Criteria (c) and (d) are not applicable if the beginning of the lease term falls within the last 25 percent of the total estimated economic life of the leased property, including earlier years of use. Certain terms used in the lease classification criteria ("inception of the lease," "lease term," "bargain purchase option," "estimated economic life of the leased property," "minimum lease payments," and "fair value of the leased property") are defined in paragraph 5 of FASB 13, as superseded and amended.] 2. Are all other lease transactions accounted for as operating leases?
Yes
No
191
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) C. Classification Criteria Leases Involving Real Estate or Part of a Building 1. If a lease involves land only or land and buildings, is the lease accounted for as a capital lease if (a) the lease transfers ownership of the property to the lessee by the end of the lease term or (b) the lease contains a bargain purchase option? (Land and buildings should be capitalized separately according to their fair values.) [FASB 13.25-.26] 2. If the lease involves land and buildings and the value of the land is 25 percent or more of the fair value of the leased property at the inception of the lease (as defined by FASB 23) and the lease does not transfer ownership to the lessee by the end of the lease term nor contain a bargain purchase option, is the land considered as an operating lease and the building evaluated separately to determine whether it is an operating lease or a capital lease? [For purposes of applying FASB 13.26, the minimum lease payments after deducting executory costs, including any profit thereon, applicable to the land and the building shall be separated by the lessee by determining the fair value of the land and applying the lessee's incremental borrowing rate to it to determine the annual minimum lease payments applicable to the land element; the remaining minimum lease payments shall be attributed to the building element.] 3. If the lease involves land and buildings and the value of the land is less than 25 percent of the fair value of the leased property at the inception of the lease (as defined in FASB 23) and the lease does not transfer ownership to the lessee by the end of the lease term nor contain a bargain purchase option, are for purposes of applying the criteria of paragraphs 7(c) and 7(d) of FASB 13 (using the estimated economic life of the building as the estimated economic life of the unit) to determine whether it is a capital lease or an operating lease? 4. If the lease involves real estate and equipment, are the lease payments relating to the equipment separately estimated and the equipment considered separately in determining the accounting treatment to be accorded the lease? [FASB 13.27]
Yes
No
192
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) 5. For a lease that involves part of a building or complex: [FASB 13.28] a. If the fair value of the leased property is not objectively determinable (see FIN 24), is the lease accounted for as a capital lease if the lease term is equal to 75 percent or more of the estimated economic life of the building; otherwise, as an operating lease? [NOTE: If the property is leased from a governmental unit or authority, see FIN 23.] b. If the fair value of the leased property is objectively determinable, is the lease accounted for in the same manner as a lease involving land and buildings? D. Accounting for Modifications (Including Renewals or Extensions) of Existing Lease Agreements 1. Are (a) changes in the provisions of a lease that would have resulted in a different classification of the lease had the changed terms been in effect at the inception of the lease, and (b) actions that extend the lease beyond the expiration of the existing lease term (except where a guarantee or penalty is rendered inoperative see question 2 below), considered as new agreements and accounted for as capital leases or operating leases, as appropriate? (The classification of a lease in accordance with the criteria of FASB 13 should not be changed as a result of a business combination unless the provisions of the lease are modified. See FIN 21.) [FASB 13.09] 2. If a capital lease contains a residual guarantee by the lessee or a penalty for failure to renew the lease at the end of the lease term and a renewal or extension of the lease term or a new lease for the same property renders the guarantee or penalty inoperative, are the asset and obligation adjusted by an amount equal to the difference between the present value of the future minimum lease payments (computed using the interest rate to record the lease initially) and the present balance of the obligation? [FASB 13.12; .05] 3. If a change in the provisions of a lease results from a refunding by the lessor of tax-exempt debt, including an advance refunding, in which the perceived economic advantages of the refunding are passed through to the lessee and the revised agreement is classified as a capital lease, has the change been accounted for as prescribed by paragraph 12(a) of FASB 22? [FASB 13.14]
Yes
No
193
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) 4. Except for a change in the provisions of a lease that results from a refunding by the lessor of tax-exempt debt as described in question 3 above, if the provisions of a capital lease are changed in a way that changes the amount of the remaining minimum lease payments and the change either (a) does not give rise to a new agreement or (b) gives rise to a new capital lease, are the present balances of the asset and the obligation adjusted by an amount equal to the difference between the present value of the future minimum lease payments (computed using the rate of interest used to record the lease initially) under the revised or new agreement and the present balance of the obligation? 5. If the change in the lease provisions gives rise to a new agreement classified as an operating lease, is the transaction accounted for under the sale-leaseback requirements of FASB 98, or paragraphs 2 and 3 of FASB 28, as applicable? [FASB 13.14a, FASB 145.8] 6. If a renewal or extension of a capital lease (except when a guarantee or penalty is rendered inoperative see question 2 above) is classified as an operating lease, does the existing lease continue to be accounted for as a capital lease to the end of its original term, and the renewal or extension accounted for as any other operating lease? 7. Is the termination of a capital lease accounted for by removing the asset and obligation, with gain or loss recognized for the difference? [NOTE: The termination of a capital lease that results from the purchase of a leased asset by the lessee is not the type of transaction contemplated by this question, but rather is an integral part of the purchase of the leased asset. See FIN 26.] E. Accounting for Subleases 1. In a sublease transaction, if an original lessee is relieved of the primary obligation under the original lease because a new lessee is substituted under the original lease or a new lessee is substituted through a new agreement: [FASB 13.35-.40, FASB 145.9] a. If the original lease was a capital lease of property other than real estate (including integral equipment) are the asset and liability removed from the accounts and a gain or loss recognized in the current period for the difference?
Yes
No
194
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) b. If the original lease was a capital lease of real estate (including integral equipment) are the asset and liability removed from the accounts and a gain or loss recognized in the current period for the difference if the criteria for recognition of a sale in FASB 66 are met? (1) If the transaction results in a gain, was the gain recognized if the criteria in FASB 66 for recognition of profit by the full accrual method were met? (2) If the criteria in FASB 66 for recognition of profit by the full accrual method were not met was the gain recognized in accordance with one of the other profit recognition methods discussed in FASB 66? (3) Was any loss on the transaction recognized immediately? c. If the original lessee is secondarily liable, has the guarantee obligation been recognized in accordance with paragraph 114 of FASB 140 for both capital and operating leases? 2. In a sublease transaction, if an original lessee is not relieved of the primary obligation under the original lease, has the original lessee continued to account for the obligation related to the original lease as before? [NOTE: See FIN 27 regarding losses on subleases.] 3. In a sublease transaction, if an original lessee is not relieved of the primary obligation under the original lease, has the sublease been accounted for by the original lessee (sublessor) as follows: a. If the original lease transferred ownership of the property by the end of the lease term or the lease contained a bargain purchase option, has the sublessor accounted for the sublease in accordance with the criteria for classification of leases by lessors?
Yes
No
195
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) b. Except as provided in question 3c. below, if the original lease did not transfer ownership of the property by the end of the lease term and the lease did not contain a bargain purchase option but the term of the original lease was equal to 75 percent or more of the estimated economic life of the leased property or the present value of the minimum lease payments equaled or exceeded 90 percent of the excess of the fair value of the leased property over any related investment tax credit retained by the lessor, has the sublessor accounted for the sublease as a direct financing lease if (1) the lease term is equal to 75 percent or more of the (remaining) estimated economic life of the leased property, (2) the collectibility of the minimum lease payments is reasonably predictable, and (3) no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the sublessor; otherwise, as an operating lease? c. If the original lease did not transfer ownership of the property by the end of the lease term and the lease did not contain a bargain purchase option but the sublease was intended as an integral part of the overall transaction, has the sublessor accounted for the sublease as a sales-type or direct financing lease if either (1) the lease term is equal to 75 percent or more of the (remaining) estimated economic life of the leased property or (2) the present value of the minimum lease payments equals or exceeds 90 percent of the excess of the fair value of the leased property (the fair value to the original lessor at the inception of the original lease) over any related investment tax credit retained by the sublessor and the collectibility of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the sublessor; otherwise, as an operating lease? d. If the original lease was an operating lease, has the sublease been accounted for as an operating lease? 4. Has the sublessee accounted for the lease as an operating lease or a capital lease as if the sublessee were the original lessee?
Yes
No
196
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) F. Accounting for Capital Leases 1. For lease transactions classified as capital leases: [FASB 13.10-.13] a. Is the capitalized asset (other than an asset involving land) amortized to its expected value, if any, to the lessee at the end of the lease term in a manner consistent with the lessee's normal depreciation policy for owned assets, using a life equal to the lease term if (1) the lease term is equal to 75 percent or more of the estimated economic life of the leased property or (2) the present value of the minimum lease payments equals or exceeds 90 percent of the excess of the fair value of the leased property over any investment tax credit retained by the lessor? [FASB 13.10-.13] b. Is the capitalized asset (other than an asset involving land) amortized in a manner consistent with the lessee's normal depreciation policy for owned assets if (1) the lease transfers ownership of the property to the lessee by the end of the lease term or (2) the lease contains a bargain purchase option? c. Are the minimum lease payments allocated between a reduction of the obligation and interest expense to produce a constant periodic rate of interest on the remaining balance of the obligation? (Interest incurred under these provisions may be subject to capitalization. See FASB 34.) d. Are contingent rentals included in the determination of income as accruable? [FASB 29] G. Accounting for Operating Leases 1. Are rentals, including scheduled rent increases included in minimum lease payments, on operating leases charged to expense over the lease term on a straight-line basis unless another systematic and rational basis is more representative of the time pattern in which the leased property is physically employed? [NOTE: See FTB 85-3 and FTB 88-1.] [FASB 13.15] 2. Are payments made to or on behalf of the lessee representing incentives for a lessee to sign a new lease recognized on a straight-line basis over the term of the new lease? [NOTE: See FTB 88-1. Losses incurred by the lessor as a result of assuming a lessee's preexisting lease with a third party should be considered as an incentive for purposes of applying the guidance in FTB
Yes
No
197
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) 88-1.] 3. For projects not within the scope of FASB 67, have rental costs associated with ground or building operating leases that were incurred during a construction period been recognized as rental expense and included in income from continuing operations? [FSP FAS 13-1.6] H. Leases Between Related Parties 1. In consolidated financial statements or in financial statements for which an interest in an investee is accounted for on the equity basis, is profit or loss on a leasing transaction appropriately eliminated? [FASB 13.30] I. Accounting for Sales with Leasebacks [NOTE: For sale and leaseback transactions involving real estate, real estate with equipment, integral equipment, and office buildings with furniture and fixtures, see Item J below.] 1. In a sale and leaseback transaction: [FASB 28.03] a. If the lease meets one of the criteria for treatment as a capital lease, has the lease been accounted for as a capital lease; otherwise, as an operating lease? b. Has any profit or loss on the sale been deferred and amortized in proportion to the amortization of the leased asset (straight-line over lease term if land only), if a capital lease, or in proportion to the related gross rental charged to expense over the lease term, if an operating lease, unless the conditions in either (1) or (2) below exist? (1) If the seller-lessee relinquishes the right to substantially all of the remaining use of the property sold (retaining only a minor portion of such use), have the sale and the leaseback been accounted for as separate transactions based on their respective terms? (If the amount of rentals called for by the lease is unreasonable under market conditions at the inception of the lease, however, an appropriate amount should be deferred or accrued, by adjusting the profit or loss on the sale, and amortized as specified above, to adjust those rentals to a reasonable amount.)
Yes
No
198
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) (2) If the seller-lessee retains more than a minor part but less than substantially all of the use of the property through the leaseback and realizes a profit on the sale in excess of (a) the present value of the minimum lease payments over the lease term, if the leaseback is classified as an operating lease, or (b) the recorded amount of the leased asset, if the leaseback is classified as a capital lease, has the profit on the sale in excess of either the present value of the minimum lease payments or the recorded amount of the leased asset, whichever is appropriate, been recognized at the date of the sale? (Profit or loss on the sale refers to profit or loss that would be recognized if there were no leaseback.) c. If the fair value of the property at the time of the transaction is less than its undepreciated cost, has a loss been recognized immediately up to the amount of the difference between the undepreciated cost and fair value? J. Accounting for Sales and Leasebacks of Real Estate, Real Estate With Equipment, Integral Equipment, and Office Buildings With Furniture and Fixtures [FIN 43 states that FASB 66 and FASB 98 apply to the sale of integral equipment. The EITF reached a consensus in EITF 00-13 that when the combined total of both the cost to remove an asset plus the decrease in value (for leasing transactions, the information used to estimate those costs and the decrease in value should be as of lease inception) exceeds 10 percent of the fair value of the equipment (installed) (for leasing transactions, at lease inception), the equipment is deemed integral equipment.] 1. If the seller-lessee uses "sale-leaseback accounting" for a transaction involving real estate, are the following requirements met? [NOTE: Sale-leaseback accounting is a method of accounting in which the seller-lessee records the sale, removes all property and related liabilities from its balance sheet, recognizes gain or loss from the sale in accordance with FASB 13 as amended by FASB 28, FASB 66, and FASB 98, and classifies the leaseback in accordance with FASB 13, as amended by FASB 28.] [FASB 98.07]
Yes
No
199
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) a. Is there a normal leaseback? [NOTE: A normal leaseback includes, among other things, the active use of the property by the seller-lessee. If the seller-lessee subleases all or a portion of the asset sold and the present value of a reasonable amount of rental for that portion of the leaseback that is subleased is more than 10% of the fair value of the asset sold, the sellerlessee is not deemed to have active use of the property.] [FASB 98.07-.08] b. Do payment terms and provisions adequately demonstrate the buyer-lessor's initial and continuing investment in the property? (See FASB 66, paragraphs 8-16.) [FASB 98.07-.09] c. Do payment terms and provisions that transfer all of the other risks and rewards of ownership demonstrate the absence of any other continuing involvement by the seller-lessee, such as those described in FASB 98, paragraphs 11-13, and FASB 66, paragraphs 25-39 and 41-43? [FASB 98.07; .10-.13] 2. In addition to the disclosure requirements of FASB 13 and FASB 66, do the financial statements of the seller-lessee include a description of the terms of the sale-leaseback transaction, including any future commitments, obligations, provisions, or circumstances that require or result in the seller-lessee's continuing involvement? [FASB 98.17] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 08-3, Accounting by Lessees for Nonrefundable Maintenance Deposits This Issue addresses whether lessees should account for maintenance deposits that may not be refunded (if the lessee does not perform the specified maintenance activities) as a deposit or as a contingent rental expense. 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination This Issue addresses the determination of the amortization period for (1) leasehold improvements acquired in a business combination and (2) leasehold improvements that are placed in service significantly after and not contemplated at the beginning of the lease term. 01-12, The Impact of the Requirements of FASB Statement No. 133 on Residual Value Guarantees in Connection with a
Yes
No
200
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) Lease There is a scope overlap between FASB 13 and FASB 133 with respect to the accounting for residual value guarantees that (a) are subject to the requirements of FASB 13, (b) meet the definition of a derivative in FASB 133, and (c) either are not explicitly excluded from the scope of FASB 133 or do not qualify for one of the scope exceptions in FASB 133. That scope overlap does not extend to the accounting for residual value guarantee obligations by third-party residual value guarantors and the accounting for contracts that, although labeled as residual value guarantees, are not in the scope of FASB 13. This Issue addresses (1) how to resolve the scope overlap and (2) whether a third-party residual value guarantor should account for a residual value guarantee under the requirements of FASB 133. 01-8, Determining Whether an Arrangement Contains a Lease This Issue addresses whether an arrangement (typically involving an energy-related contract such as capacity contracts, requirements contracts, and transportation contracts) contains a lease that is within the scope of FASB 13. 00-13, Determining Whether Equipment is Integral Equipment Subject to FASB Statements No. 66 and No. 98 This Issue addresses how the determination of whether equipment is integral equipment should be made. 99-14, Recognition by a Purchaser of Losses on Firmly Committed Executory Contracts At the inception of a firmly committed 1 executory contract, the "buyer" expects that the benefit it will receive over the term of the contract from the rights conveyed by the contract (for example, the right to use a leased asset, to use a trade name, or to future advertising) will equal or exceed its cost over the term of the contract (the consideration paid or to be paid to the counterparty under the contract). This Issue addresses when, if ever, a purchaser under a firmly committed executory contract should recognize an impairment of its remaining contractual right asset under the contract and how that impairment loss should be measured if the purchaser will continue to use the asset or service to be received under the contract. 99-13, Application of EITF Issue No. 97-10 and FASB Interpretation No. 23 to Entities That Enter into Leases with Governmental Entities This Issue considers whether projects involving the construction of government-owned properties that involve a lease of the completed improvements that would be classified as an operating lease under Interpretation 23 should be excluded from the scope of Issue 97-10.
Yes
No
201
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) 98-9, Accounting for Contingent Rent Some rental agreements provide for minimum rental payments plus contingent rents based on the lessee's operations, such as a future specified sales target. This Issue addresses how a lessee should account for contingent rental expense that is based on future specified targets. 97-10, The Effect of Lessee Involvement in Asset Construction This Issue considers how an entity (lessee) that is involved with the construction of an asset that it will lease when construction is completed should determine whether it should be considered the owner of that asset during the construction period. 97-1, Implementation Issues in Accounting for Lease Transactions, Including Those involving Special-Purpose Entities This Issue addresses how environmental risks and non-performance related default covenants and the related remedies should be considered in the determination of lease classification and how an SPE should calculate depreciation when a lessee retains the expected substantive residual risks and substantially all of the residual rewards of the leased property. 96-21, Implementation Issues in Accounting for Leasing Transactions Involving Special-Purpose Entities This Issue addresses the following categories of issues (note that categories 3, 9 and 10 apply to leasing transactions irrespective of whether the lessor is an SPE): The categories of issues are: 1. Multiple properties within a single SPE-lessor 2. Multi-tiered SPE structures 3. Payments made by lessee prior to beginning of lease term 4. Payments to equity owners of an SPE during the lease term 5. Fees paid to owners of record of an SPE 6. Source of initial minimum equity investment 7. Equity capital at risk 8. Payment to owners of record of an SPE prior to the lease term 9. Costs incurred by lessee prior to entering into a lease agreement 10. Interest-only payments.
Yes
No
202
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) 95-17, Accounting for Modifications of an Operating Lease That Do Not Change the Lease Classification An entity leases an asset under an operating lease for use in its operations. Prior to the expiration of the original lease term, the lessee and lessor agree to modify the lease by shortening the lease term and increasing the lease payments over the shortened lease period. The modifications do not change the lease classification and no other changes are made to the lease. The issue is how the adjustment to the lease term and the increase in the lease payments over the shortened lease period should be accounted for. 93-8, Accounting for the Sale and Leaseback of an Asset That is Leased to Another Party - This Issue addresses whether a sale-leaseback transaction in which the seller-lessee-sublessor retains substantial risks of ownership in the property through the leaseback terms should be accounted for as either (1) a borrowing in accordance with paragraphs 21 and 22 of FASB 13 or (2) as a sale leaseback transaction in accordance with paragraphs 32 and 33 of FASB 13, as amended by FASB 28, 92-1, Allocation of Residual Value or First Loss Guarantee to Minimum Lease Payments in Leases Involving Land and Building(s) This Issue addresses what the accounting treatment of a residual value or first-loss guarantee should be for purposes of performing the 90 percent test in paragraph 7(d) of FASB 13 to determine lease classification when the fair value of the land is 25 percent or more of the total fair value of the leased property at inception of the lease. 90-20, Impact of an Uncollateralized Irrevocable Letter of Credit on a Real Estate Sale-Leaseback Transaction This Issue relates to a situation in which Company A (seller-lessee) enters into a real estate sale-leaseback transaction with unrelated Company B (buyer-lessor). Company B requires Company A to provide an irrevocable letter of credit securing all or a portion of the lease payments as required under the lease agreement. The issuer of the letter of credit does not require Company A to pledge specific assets as collateral. The transaction otherwise qualifies for sale-leaseback accounting under FASB 98. The Issue addresses whether Company A's uncollateralized, irrevocable letter of credit is a form of continuing involvement that precludes sale-leaseback accounting under FASB 98. 90-14, Unsecured Guarantee by Parent of Subsidiary's Lease Payments in a Sale-Leaseback Transaction This Issue addresses whether an unsecured guarantee by a parent of a subsidiary's lease payments is a form of continuing
Yes
No
203
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) involvement that precludes the application of sale-leaseback accounting under FASB 98 in (1) the subsidiary's separate financial statements and (2) the parent's consolidated financial statements. 89-20, Accounting for Cross Border Tax Benefit Leases This Issue relates to a situation in which a U.S. enterprise purchases a depreciable asset and enters into an arrangement with a foreign investor that provides the foreign investor with an ownership right in, but not necessarily title to, the asset. That ownership right enables the foreign investor to claim certain benefits of ownership of the asset for tax purposes in the foreign tax jurisdiction. The U.S. enterprise also enters into an agreement in the form of a leaseback for the ownership right with the foreign investor. The lease agreement contains a purchase option for the U.S. enterprise to acquire the foreign investor's ownership right in the asset at the end of the lease term. The issue is whether the cash consideration received by the U.S. enterprise from the foreign investor for tax benefits that the foreign investor will obtain in the foreign tax jurisdiction should be immediately recognized in income or deferred. 89-16, Consideration of Executory Costs in Sale-Leaseback Transactions Executory costs (such as insurance, maintenance, and taxes) of property leased in a sale-leaseback transaction (1) may be paid by the buyer-lessor who expects to recover the costs through the monthly rentals established in the lease, (2) may be paid by the buyer-lessor and in turn billed to the seller-lessee as an addition to the rent, or (3) may be paid directly by the seller-lessee. This Issue addresses how to consider executory costs in the calculation of profit to be deferred in a sale-leaseback transaction. 88-21, Accounting for the Sale of Property Subject to the Seller's Preexisting Lease This Issue relates to a situation in which an entity owns an interest in property and also is a lessee under an operating lease for all or a portion of the property. (This owner-lessee relationship can occur when the entity has an investment in a partnership that owns the leased property.) The Issue addresses the accounting ramifications that occur when the entity sells its interest or the partnership sells the property to an independent third party and the entity continues to lease the property under the preexisting operating lease. 86-33, Tax Indemnifications in Lease Agreements Some leases contain indemnification clauses that indemnify lessors,
Yes
No
204
Accounting: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) on an after-tax basis, for certain tax benefits that the lessor may lose if a change in the tax law precludes realization of those tax benefits. The Issue addresses the appropriate accounting by the lessor and lessee for indemnification payments. 86-17, Deferred Profit on Sale-Leaseback Transaction with Lessee Guarantee of Residual Value This Issue relates to the following scenario: In a sale-leaseback transaction, the seller-lessee guarantees to the lessor that the residual value will be a stipulated amount. The seller-lessee retains more than a minor part but less than substantially all the use of the property through the leaseback. The lease does not meet the criteria for classification as a capital lease. The issue is how the residual value guarantee should affect the determination of profit to be deferred on the sale in accordance with FASB 28. 85-27, Recognition of Receipts from Made-Up Rental Shortfalls This Issue relates to the accounting for fees paid and received in connection with the sale and subsequent leaseback of property to a public real estate "blind pool" syndication. 85-16, Leveraged Leases This Issue addresses whether FASB 13 precludes real estate leases and leases in saleleaseback transactions from being classified as leveraged leases if the criteria in paragraph 42 of FASB 13 are met. 84-37, Sale-Leaseback Transaction with Repurchase Option This Issue addresses certain perceived inconsistencies between FASB 13 (as amended by FASB 28) and FASB 66 Accounting for Sales of Real Estate for sale-leaseback transactions. D-107, Lessor Consideration of Third-Party Residual Value Guarantees This Issue addresses whether a lessor, when applying paragraph 7(d) of FASB 13 at lease inception, should include, in minimum lease payments, residual value guarantees for a portfolio of leased assets for which settlement is not solely based upon the residual value of the individual leased assets. D-24, Sale-Leaseback Transactions with Continuing Involvement This Issue addresses (1) whether the retention of a partial interest of a property in a sale-leaseback transaction violates the continuing involvement conditions of FASB 98, Accounting for Leases, and (2) the effect of a provision in a sale-leaseback agreement that allows the sellerlessee to require the buyer-lessor to refinance debt related to the property and pass through the interest savings to the sellerlessee.
Yes
No
205
Disclosure: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) A. Disclosure for Operating Leases 1. For lease transactions classified as operating leases, is the following information disclosed in the notes to the financial statements: [FASB 13.16] a. For operating leases having initial or remaining noncancelable lease terms in excess of one year: (1) Future minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years? (2) The total minimum rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented? b. For all operating leases, rental expense for each period for which an income statement is presented, with separate amounts for minimum rentals, contingent rentals, and sublease rentals? (Rental payments under leases with terms of a month or less that were not renewed need not be included.) c. A general description of the lessee's leasing arrangements including, but not limited to, the following: (1) The basis on which any contingent rental payments are determined? (2) The existence and terms of renewal or purchase options and escalation clauses? (3) Restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing? 2. For projects not within the scope of FASB 67, were rental costs associated with ground or building operating leases that were incurred during a construction period included in income from continuing operations? [FSP FAS 13-1.6] B. Disclosure for Capital Leases 1. For lease transactions classified as capital leases: [FASB 13.10-.13] a. Are the asset (not exceeding fair value) and liability representing the present value of the minimum lease payments (computed using the lower of the lessee's
Yes
No
206
Disclosure: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) incremental borrowing rate or the interest rate implicit in the lease, if known) recorded and separately identified in the lessee's balance sheet or the footnotes thereto? [NOTE: If the minimum lease payments are subject to escalation provisions during the construction or pre-acquisition period, the fair value of the property may be affected. See FASB 23.] b. In a classified balance sheet, has the lease obligation been appropriately segregated between current and noncurrent? 2. Is the following information disclosed in the financial statements or the notes thereto: [FASB 13.13;16] a. The gross amount of assets recorded under capital leases as of the date of each balance sheet presented by major classes according to nature or function? The amount of accumulated amortization also should be disclosed in total. (This information may be combined with the comparable information for owned assets.) b. The amortization charge, unless the charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense and the fact that it is so included is disclosed? c. Future minimum lease payments as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years, with separate deductions from the total for the amount representing executory costs, including any profit thereon, included in the minimum lease payments and for the amount of the imputed interest necessary to reduce the net minimum lease payments to present value? d. The total minimum sublease rentals to be received in the future under noncancelable subleases as of the date of the latest balance sheet presented? e. Total contingent rentals actually incurred for each period for which an income statement is presented? f. A general description of the lessee's leasing arrangements including, but not limited to, the following: (1) The basis on which any contingent rental payments are determined? (2) The existence and terms of renewal or purchase
Yes
No
207
Disclosure: L11 ACCOUNTING FOR LEASES BY LESSEES (12/08) options and escalation clauses? (3) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing? C. Leases Between Related Parties 1. In leases between related parties, are the nature and extent of leasing transactions between the parties disclosed and, where it is clear that the terms of the transactions have been significantly affected by the fact that the parties are related, has appropriate modification been made to the classification and/or accounting to recognize economic substance rather than legal form? [FASB 13.29-.31] 2. In consolidated financial statements or in financial statements in which an interest in an investee is accounted for on the equity basis, is profit or loss on leasing transactions appropriately eliminated? [FASB 13.30] D. Disclosure for Sales and Leasebacks of Real Estate, Real Estate With Equipment, Integral Equipment, and Office Buildings With Furniture and Fixtures 1. In addition to the disclosure requirements of FASBs 13 and 66, do the financial statements of a seller-lessee include a description of the terms of the sale-leaseback transaction, including future commitments, obligations, provisions, or circumstances that require or result in the seller-lessee's continuing involvement? [FASB 98.17] 2. If the sale-leaseback transaction has been accounted for by the deposit method or as a financing, do the financial statements also disclose: [FASB 98.18] a. The obligation for future minimum lease payments, as of the date of the latest balance sheet presented in the aggregate and for each of the five succeeding fiscal years? b. The total of minimum sublease rentals, if any, to be received in the future under noncancelable subleases, in the aggregate and for each of the five succeeding fiscal years? Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) A. Classification Criteria Leases Not Involving Real
Yes
No
Yes
No
208
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) Estate or Integral Equipment Classifications From the Standpoint of the Lessor 1. Are lease transactions accounted for as sales-type leases (if they give rise to manufacturer's or dealer's profit (or loss)) only if they meet one or more of the following criteria: (a) the lease transfers ownership of the property to the lessee by the end of the lease term; (b) the lease contains a bargain purchase option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property; or (4) the present value at the beginning of the lease term of the minimum lease payments (computed using the interest rate implicit in the lease) excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by and expected to be realized by the lessor. Further, both of the following criteria must be met: (1) collectibility of the minimum lease payments is reasonably predictable and (2) no important uncertainties surround the amount of unreimbursable costs yet to be incurred under the lease, except where a lease involves real estate, which shall be classified as a sales-type lease only if it meets the criterion in (a) above, in which case criterion (1) and (2) above do not apply. [FASB 13.06-.08] [NOTE: Test (2) is to be applied as of the date that construction is completed or the property is acquired, if it is subsequent to the inception of the lease (See FASB 23). Criteria (c) and (d) are not applicable if the beginning of the lease term falls within the last 25 percent of the remaining estimated economic life of the leased property. Under FASB 98, paragraph 22(c), a lease involving real estate that would otherwise be classified as of the inception date as a sales-type lease giving rise to a manufacturer's or dealer's profit shall be classified as an operating lease unless the lease transfers title by the end of the lease term or shortly thereafter. At the beginning of the lease term, the lease must also meet the requirements that a sale of the same property would have to meet for full and immediate profit recognition under FASB 66.] 2. Are lease transactions accounted for as direct financing leases (if they do not give rise to manufacturer's or dealer's profit (or loss)) if they meet one or more of the following
Yes
No
209
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) criteria: (a) the lease transfers ownership of the property to the lessee by the end of the lease term; (b) the lease contains a bargain purchase option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property; or (4) the present value at the beginning of the lease term of the minimum lease payments (computed using the interest rate implicit in the lease) excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by and expected to be realized by the lessor. Further, both of the following criteria must be met: (1) collectibility of the minimum lease payments is reasonably predictable and (2) no important uncertainties surround the amount of unreimbursable costs yet to be incurred under the lease. [FASB 13.06-08] 3. Is a lease transaction accounted for as a leveraged lease when it meets all of the following criteria: [FASB 13.42] a. It meets the definition of a direct financing lease in accordance with the criteria of question 2 above. [NOTE: Sales-type leases should not be accounted for as leveraged leases.] b. It involves at least three parties: a lessee, a long-term creditor, and a lessor c. The financing provided by the long-term creditor (which must provide the lessor with "substantial leverage") is nonrecourse as to the general credit of the lessor, and d. The lessor's net investment declines during the early years once the investment has been completed and rises during the later years of the lease before its final elimination? 4. Are all other lease transactions accounted for as operating leases? [FASB 13.06] B. Classification Leases Involving Real Estate or Part of a Building 1. If the lease involves land, or land and buildings, and the lease gives rise to manufacturer's or dealer's profit (or loss) and transfers ownership to the lessee by the end of
Yes
No
210
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) the lease term [paragraph 7(a)], has the lease been classified as a sales-type lease as appropriate under paragraph 6(b)(i) and accounted for under the provisions of FASB 66 in the same manner as a seller of the same property? [FASB 13.25-.26] 2. If the lease involves land, or land and buildings, and does not give rise to manufacturer's or dealer's profit (or loss) and the criterion of paragraph 7(a) and both criteria of paragraph 8 are met, has the lease been accounted for as a direct financing lease or leveraged lease as appropriate under paragraph 6(b)? [FASB 13.25] 3. If the lease involves land, or land and buildings, and contains a bargain purchase option [paragraph 7(b)] and both criteria of paragraph 8 are met, has (a) the lease, without manufacturer's or dealer's profit(or loss), been accounted for as a direct financing lease, or leveraged lease, or (b) in the case where the lease includes manufacturer's or dealer's profit, has the lease been accounted for as an operating lease? [FASB 13.25] 4. If the lease is required to meet the criteria of paragraph 8 but fails to do so, has it been accounted for as an operating lease? [FASB 13.25] 5. If the lease involves land and buildings and the value of the land is less than 25 percent of the fair value of the leased property at the inception of the lease (as defined by FASB 23) and the lease does not transfer ownership to the lessee by the end of the lease term nor contain a bargain purchase option: [FASB 13.26] a. Are the land and building evaluated as a single unit (using the estimated economic life of the building as the estimated economic life of the unit) to determine whether it is an operating lease, a direct financing lease, or a leveraged lease? b. If the lease term is equal to 75 percent or more of the estimated economic life of the leased property or the present value of the minimum lease payments equals or exceeds 90 percent of the excess of the fair value of the leased property over any related ITC expected to be realized by the lessor and collectibility of the lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor, is the lease accounted for as a single unit either as a direct financing lease, a
Yes
No
211
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) leveraged lease, or an operating lease as appropriate under paragraph 6(b)? [NOTE: A lease involving real estate that would otherwise be classified as of the inception date as a sales-type lease giving rise to a manufacturer's or dealer's profit (or loss) shall be classified as an operating lease unless the lease transfers title by the end of the lease term or shortly thereafter (criterion 7a) and also meets the requirements that a sale of the same property would have to meet for full and immediate profit recognition under FASB 66.] 6. If the lease involves land and buildings and the value of the land is 25 percent or more of the fair value of the leased property at the inception of the lease (as defined by FASB 23) and the lease does not transfer ownership to the lessee by the end of the lease term nor contain a bargain purchase option: a. If the building element of the lease has a lease term equal to 75 percent or more of the estimated economic life of the leased property or the present value of the minimum lease payments equals or exceeds 90 percent of the excess of the fair value of the leased property over any ITC expected to be realized by the lessor and collectibility of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor, is the building element of the lease accounted for as a direct financing lease, a leveraged lease, or an operating lease, as appropriate, and the land element accounted for separately as an operating lease? [NOTE: See EITF 92-1 for allocation of residual value guarantees between the land and building.] [FASB 13.26] b. Otherwise, have both the building element and the land element of the lease been accounted for as a single operating lease? 7. If, at the inception of the lease, the fair value of the property in an operating lease involving real estate that would have been classified as a sales-type lease except that it did not meet criterion 7(a) is less than its cost or carrying amount (if different), has a loss been recognized at the inception of the lease? [FASB 98.22(j)] 8. If the lease involves real estate and equipment, are the lease payments relating to the equipment separately
Yes
No
212
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) estimated and the equipment considered separately in determination of the accounting treatment to be accorded the lease? [FASB 13.27] 9. For a lease that involves part of a building or a complex: [FASB 13.28] a. If either cost or fair value of the leased property is not objectively determinable (see FIN 24), is the lease accounted for as an operating lease? b. If the cost and the fair value of the leased property are objectively determinable, is the lease accounted for in the same manner as a lease involving land and buildings? C. Accounting for Modifications (Including Renewals or Extensions) of Existing Lease Agreements 1. If there have been (a) changes in the provisions of a lease that would have resulted in a different classification of the lease had the changed terms been in effect at the inception of the lease, or (b) actions that extend the lease beyond the expiration of the existing lease term (i.e., market rate renewals but not bargain renewals) except where a guarantee or penalty is rendered inoperative (see paragraphs 12 and 17(e) of FASB 13), are such changes considered new agreements and accounted for as salestype leases, direct financing or operating leases, as appropriate? [NOTE: The classification of a lease in accordance with the criteria of FASB 13 shall not be changed as a result of a business combination unless the provisions of the lease are modified. See FIN 21. A renewal or extension of an existing sales-type lease or direct financing lease that otherwise qualifies as a salestype lease shall be classified as a direct financing lease unless the renewal or extension occurs at or near the end of the original term specified in the existing lease, in which case it shall be classified as a sales-type lease. See FASB 27.] [FASB 13.09] 2. If a change in the provisions of a lease results from a refunding by the lessor of tax-exempt debt, including an advance refunding, in which the perceived economic advantages of the refunding are passed through to the lessee and the revised agreement is classified as a direct financing lease, has the change been accounted for as prescribed by FASB 22? [FASB 13.17(f), .18(c)] 3. Except for a change in the provisions of a lease that results
Yes
No
213
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) from a refunding by the lessor of tax-exempt debt as described in question 2 above, if the provisions of a salestype lease or direct financing lease are changed in a way that changes the amount of the remaining minimum lease payments and the change either (a) does not give rise to a new agreement or (b) does give rise to a new agreement but such agreement is classified as a direct financing lease, have the balance of the minimum lease payments receivable and the estimated residual value, if affected, been adjusted to reflect the change and has the net adjustment been charged or credited to unearned income? [NOTE: An upward adjustment of the estimated residual value is not allowed.] 4. Is the remaining net investment in a revised sales-type or direct financing lease that gives rise to a new agreement classified as an operating lease removed from the accounts, the leased asset recorded as an operating lease at the lower of its original cost, present fair value, or present carrying amount, and any net adjustment charged to income? 5. Except when a guarantee or penalty is rendered inoperative, has a renewal or extension of an existing sales-type or direct financing lease been accounted for as follows: a. If the renewal or extension is classified as a direct financing lease, has it been accounted for as in question 3 above? b. If the renewal or extension is classified as an operating lease, has the existing lease continued to be accounted for as a sales-type or direct financing lease to the end of its original term, and the renewal or extension accounted for as any other operating lease? 6. Is a terminated sales-type or direct financing lease accounted for by removing the net investment from the accounts and by recording the leased asset at the lower of its original cost, present fair value, or present carrying amount, and any resulting net adjustment charged to income? 7. If a sales-type lease or a direct financing lease contains a residual guarantee by the lessee or a penalty for failure to renew the lease at the end of the lease term, and a renewal or extension of the lease term or a new lease for the same property renders the guarantee or penalty inoperative, are
Yes
No
214
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) existing balances of the minimum lease payments receivable and the estimated residual value adjusted for the changes resulting from the revised agreement and the net adjustment charged or credited to unearned income? [NOTE: An upward adjustment of the estimated residual value is not allowed.] [FASB 13.17(e)] 8. If the original lessee enters into a sublease or the original lease agreement is sold or transferred by the original lessee to a third party, is the lease accounted for as before? [FASB 13.36] 9. If the original lease agreement is replaced by a new agreement with a new lessee, is the termination of the original lease accounted for as in question 6 above and the new lease accounted for as a separate transaction? [FASB 13.37] D. Sales or Assignments of Leases (or Properties Subject to Lease) and Sales Leasebacks 1. Is the sale or assignment of a lease or property subject to a lease that was accounted as a sales-type lease or direct financing lease accounted for by the original accounting treatment accorded the lease? Any transfer of minimum lease payments or guaranteed residual values subject to a sales-type lease or direct financing lease shall be accounted for in accordance with FASB 140. However, transfers of unguaranteed residual values are not subject to the provisions of FASB 140. 2. Is the sale of property subject to an operating lease or of property that is leased or intended to be leased by a thirdparty purchaser to another party treated as a sale only if the seller or any party related to the seller did not retain substantial risks of ownership in the leased property such as a formal or informal commitment, in case of default by the lessee or termination of the lease, to (1) acquire the lease or property, (2) substitute an existing lease, or (3) secure a replacement lessee or a buyer for the property under a remarketing agreement unless the seller will receive a reasonable fee commensurate with the effort involved at the time of securing a replacement lessee or buyer for the property and is not required to give priority to the property owned by a third-party purchaser over similar property owned or produced by the seller? [FASB 13.21] 3. If a sale to a third party of property subject to an operating
Yes
No
215
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) lease, or of property that is leased by or intended to be leased by the third-party purchaser to another party, is not recorded as a sale because the seller or any party related to the seller retains substantial risks of ownership in the leased property, is the transaction accounted for as a borrowing with the proceeds recorded as an obligation and amortized in accordance with APB 21 and the leased property and rentals recorded by the "seller" except that the term over which the asset is depreciated should be limited to the estimated amortization period of the obligation? [FASB 13.22] 4. Is a sale or assignment by the lessor of lease payments due under an operating lease accounted for as a borrowing? 5. In a sale-leaseback transaction, is the lease evaluated by the purchaser-lessor to determine if it is an operating lease or a direct financing lease in accordance with the criteria of questions 1 and 3 above and accounted for accordingly? [FASB 13.34] E. Accounting for Sales-Type Leases 1. For lease transactions classified as sales-type leases: [FASB 13.17] a. Are the minimum lease payments (net of executory costs such as property taxes, insurance, and maintenance to be paid by the lessor) plus the unguaranteed residual value accruing to the benefit of the lessor recorded as the gross investment in the lease? [NOTE: If the minimum lease payments are subject to escalation provisions during the construction or preacquisition period, the residual value of the property may be affected. See FASB 23.] b. Is the difference between the gross investment in the lease and the sum of the present values (using the interest rate implicit in the lease) of the two components of the gross investment recorded as unearned income? c. Is unearned income amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment (gross investment less unearned income) in the lease? d. Is the net investment in the lease appropriately segregated between current and noncurrent assets in a classified balance sheet?
Yes
No
216
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) e. Is the present value of the minimum lease payments (net of executory costs), discounted at the interest rate implicit in the lease, recorded as the sales price? f. Is the cost or carrying amount, if different, of the leased property, plus any initial direct costs (as defined in FASB 91), less the present value of the unguaranteed residual value accruing to the benefit of the lessor, computed at the interest rate implicit in the lease, charged against income in the same period?
Yes
No
g. Is the estimate of residual value reviewed periodically and, if the estimate is excessive, is the net investment reduced and a loss recognized in the period in which the estimate is changed? (No upward adjustment of residual value is allowed.) h. Are contingent rentals included in the determination of income as accruable? (See FASB 29.) F. Accounting for Direct Financing Leases 1. For lease transactions classified as direct financing leases: [FASB 13.18] a. Are the minimum lease payments (net of executory costs such as property taxes, insurance, and maintenance to be paid by the lessor) and the unguaranteed residual value accruing to the benefit of the lessor, recorded as the gross investment in the lease? (See note to question 1a above.) [FASB 13.18 (as amended by FASB 98, paragraphs 22(h) and (i))] b. Does the estimated residual value in (a) not exceed the amount estimated at the inception of the lease? c. Is the difference between the gross investment in the lease and the cost or carrying amount, if different, of the leased property recorded as unearned income? d. Does the net investment in the lease include the gross investment plus any unamortized initial direct costs, less the unearned income? [FASB 91.23] e. Are the unearned income and initial direct costs amortized to income over the lease term so as to produce a constant periodic rate of return on the net investment in the lease? f. Is the net investment in the lease appropriately segregated between current and noncurrent assets in a
217
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) classified balance sheet? g. Is the estimate of residual value reviewed periodically and, if the estimate is excessive, is the net investment reduced and a loss recognized in the period in which the estimate is changed? (No upward adjustment of residual value is allowed.) h. Are contingent rentals included in the determination of income as accruable? (See FASB 29.) G. Accounting for Leveraged Leases 1. Have leveraged leases been accounted for by recording the investment net of nonrecourse debt? [FASB 13.43] 2. Do the net of balances of the following accounts represent the initial and continuing investment in leveraged leases: a. Rentals receivable, net of that portion of the rental applicable to principal and interest on the nonrecourse debt? b. A receivable for the amount of the investment tax credit to be realized on the transaction? c. The estimated residual value of the leased asset? d. Unearned and deferred income consisting of: (1) The estimated pretax lease income (or loss), after deducting initial direct costs (as defined in FASB 91), remaining to be allocated to income over the lease term? (2) The investment tax credit remaining to be allocated to income over the lease term? 3. For lease transactions recorded as leveraged leases: [FASB 13.44-.47] a. Is periodic net income computed using the rate of return on the net investment (including deferred taxes) in years in which it is positive? (The rate is distinct from the interest rate implicit in the lease.) b. Is the difference between the net cash flow and the amount of income recognized, if any, used to increase or reduce the net investment balance? c. Is the tax effect of the difference between pretax accounting income (or loss) and taxable income (or loss) charged or credited to deferred taxes and is the deferred tax account presented in the balance sheet
Yes
No
218
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) separately from the net investment balance? d. If the projected net cash receipts over the term of the lease are less than the lessor's initial investment, is a loss recognized at the inception of the lease? e. If at any time during the lease term the application of the method prescribed by FASB 13 would result in a loss being allocated to future years, has that loss been recognized immediately? f. Are important assumptions affecting estimated total net income or the projected timing of income tax cash flows generated by the lease (e.g., residual value, income tax rates, and timing revisions of income tax cash flows directly related to the leveraged lease transaction) reviewed at least annually?
Yes
No
g. If a change in an assumption impacts the estimated total net income or projected timing of income tax cash flows generated from the lease: (1) Is the allocation of income recalculated from the inception of the lease using actual cash flows up to the date of the recalculation and projected cash flows following the date of recalculation? (2) Does the recalculation not include interest and penalties assessed by a taxing authority? (3) Are advance payments and deposits made with a taxing authority included in the projected settlement amount and not considered an actual cash flow of the leveraged lease? (4) Is any gain or loss recognized in the year the assumption was changed? (5) Is the pretax gain or loss recognized included in income from continuing operations before income taxes in the same line item in which leveraged lease income is recognized? Is the tax effect of the recognized gain or loss included in the income tax line item? (No upward adjustment of residual value is allowed.) h. Are tax positions reflected in the lessor's initial calculation and/or subsequent recalculation based on the recognition, derecognition, and measurement criteria in FASB Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes?
219
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) i. Are pretax income from leveraged leases, the tax effect of pretax income, and the amount of investment tax credit recognized as income disclosed separately in the income statement or notes thereto for each period?
Yes
No
H. Accounting for Operating Leases 1. For lease transactions recorded as operating leases: a. Is rent, including scheduled rent increases, included in minimum lease payments recognized on a straight-line basis over the lease term unless another systematic and rational allocation basis is more representative of the time pattern in which the leased property is physically employed? [FASB 13.19] [FTB 85-3; 881] b. Are payments to or on behalf of the lessee that represent incentives for a lessee to sign a new lease recognized on a straight-line basis over the term of the new lease? [NOTE: Losses incurred by the lessor as a result of assuming a lessee's preexisting lease with a third party should be considered an incentive for purposes of applying guidance in FTB 88-1.] c. Is the leased property included with or near property, plant, and equipment in the balance sheet and depreciated following the lessor's normal depreciation policy and is the accumulated depreciation deducted from the investment in the leased property in the balance sheet? [FASB 13.19] d. Are initial direct costs (as defined in FASB 91) deferred and allocated over the lease term in proportion to the recognition of rental income unless they are insignificant? (Initial direct costs may be charged to expense as incurred if the effect is not materially different.) I. Accounting for an Interest in the Residual Value of a Leased Asset Either Acquired by a Third Party, or Retained by a Lessor That Sells the Related Minimum Rental Payments 1. An enterprise, including a lease broker, that acquires from a lessor an unconditional right to own and possess, at the end of the lease term, an asset subject to a lease, or a right to receive all, or a portion, of the proceeds from the sale of a leased asset at the end of the lease term should account
220
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) for the transaction as the acquisition of an asset. [FTB 862.02] a. Has the asset been recorded at the amount of cash disbursed, the fair value of consideration given, and the present value of liabilities assumed at the date the right is acquired? [FTB 86-2.04] b. Has the fair value of the interest in the residual value been used to measure its cost if that fair value is more clearly evident than the fair value of the assets surrendered, services rendered, or liabilities assumed? c. Is the asset carried at acquisition costs, or at a lower value (new cost basis) and a loss recognized, if the fair value has declined below the carrying cost and the decline is other than temporary? [FTB 86-2.06] 2. If a lessor sells substantially all of the minimum rental payments associated with a sales-type, direct financing, or leveraged lease and retains an interest in the residual value of the leased asset, is the remaining interest reported at its carrying amount at the date of sale of the lease payments, or at a lower value (new cost basis) if the fair value has declined below the carrying cost and the decline is other than temporary? [FTB 86-2.10] 3. If an interest in the residual value of a leased asset is guaranteed, has the residual value of the leased asset been accounted for as a financial asset to the extent of the guarantee of the residual value? Increases to its estimated value over the remaining lease term should be recognized. [FASB 140.356] J. Money-Over-Money Lease Transactions 1. An enterprise that manufactures or purchases an asset, leases the asset to a lessee, and obtains nonrecourse financing in excess of the asset's cost using the leased asset and future lease rentals as collateral should never recognize as income the proceeds from the borrowing at the beginning of the lease term (other than the recognition of manufacturer's or dealer's profit (or loss) in a sales-type lease). [FTB 88-1.16-.17] a. Has the transaction been recorded as the manufacture or purchase of an asset and a lease of the asset as an operating, direct financing, or sales-type lease, as appropriate? b. Has the nonrecourse financing been recorded as the
Yes
No
221
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) borrowing of funds? c. Are the related asset and the liability for the nonrecourse financing separately reflected in the financial statements (i.e., not offset) unless a right of setoff exists? [FIN 39.05] K. Wrap Lease Transactions 1. An enterprise that purchases an asset, leases the asset to a lessee, obtains nonrecourse financing using the lease rentals or the lease rentals and the asset as collateral, sells the asset subject to the lease and the nonrecourse debt to a third-party investor, and leases the asset back while remaining the substantive principal lessor under the original lease should account for the wrap lease transaction as a sale-leaseback transaction under FASB 13 or FASB 98, as appropriate. [FTB 88-1.21-.22] a. If the property involved is real estate, has the transaction been accounted for as a sale-leaseback transaction under the provisions of FASB 98? b. If the property involved is not real estate, has the transaction been accounted for as a sale-leaseback under the provisions of paragraphs 32-34 of FASB 13 and the lease to the end user accounted for as a sublease in accordance with paragraph 36 of FASB 13? (The enterprise would also reflect the retained residual interest, gross sublease receivable, nonrecourse third-party debt, the leaseback obligation, and the note receivable from the investor in the statement of financial position.) [FASB 28.02] c. Are the sublease asset and the related nonrecourse debt separately reflected in the financial statements (i.e., not offset) unless a right of setoff exists? [FIN 39.05] L. LESSOR FUNDING OF LESSEE EXPENDITURES 1. In contractual lease arrangements where the lessor is required to make payments to the lessee, or on behalf of the lessee, has the lessor appropriately accounted for such payment as (1) a lease incentive in accordance with Technical Bulletin 88-1 or (2) as the acquisition of property whereby the lessor is the accounting owner? [FTB 88-1.06-09] [NOTE: For a more complete discussion of the accounting for lessor funding of lessee expenditures, see Accounting Alert
Yes
No
222
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) 05-7, "Lessor Accounting Issues."] M. RENT HOLIDAYS 1. In operating leases that contain a rent holiday (a period during which the lessee has the right to use the leased asset, but has no obligation to make current rental payments) has the lessor appropriately not suspended revenue recognition for the period of the rent holiday? [FTB 88-1.01-02] There are numerous EITF Issues that address the accounting for leasing transactions. The following EITF Issues represent some of the more significant Issues that have been discussed by the Emerging Issues Task Force. Has the entity complied with all Issues discussed by the Emerging Issues Task Force, when applicable? 08-2, Lessor Revenue Recognition for Maintenance Services Issue 08-2 addresses how a lessor should account for payments it receives in connection with performing maintenance services considered to be executory costs. 01-8, Determining Whether an Arrangement Contains a Lease - Issue 01-8 addresses whether an arrangement (typically involving an energy-related contract such as capacity contracts, requirements contracts, and transportation contracts) contains a lease that is within the scope of FASB Statement 13. 00-13, Determining Whether Equipment Is "Integral Equipment" Subject to FASB Statements No. 66 and No. 98 Issue 00-13 is how the determination of whether equipment is integral equipment should be made. Following the issuance of Interpretation 43, which concluded that sale of integral equipment was within the scope of FASB 66, there was an increased importance on the determination of whether equipment constituted "integral equipment" because such a determination determined whether the detailed guidance in FASB 66 should be applied to a transfer of equipment. 00-11, Lessors' Evaluation of Whether Leases of Certain Integral Equipment Meet the Ownership Transfer Requirements of FASB Statement No. 13 Issue 00-11 addresses (1) whether integral equipment subject to a lease should be evaluated as real estate under FASB 13 and (2) if integral equipment subject to a lease is evaluated as real estate under FASB 13, how the requirement of paragraph 7(a) of FASB 13 for the transfer of ownership should be evaluated when no statutory title registration system exists for leased
Yes
No
223
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) assets. 98-9, Accounting for Contingent Rent Some rental agreements provide for minimum rental payments plus contingent rents based on the lessee's operations, such as a future specified sales target. The literature is unclear as to how contingent rent based on future specified targets should be accounted for in reporting periods prior to achievement of the target. On December 3, 1999, the SEC issued SAB 101, which provides guidance on lessors' accounting for contingent rent. With respect to lessees' accounting for contingent rent, at the September 23-24, 1998 meeting, the Task Force reached a consensus that a lessee should recognize contingent rental expense (in annual periods as well as in interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable. Previously recorded rental expense should be reversed into income at such time that it is probable that the specified target will not be met. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value The Task Force reached a consensus that a manufacturer is precluded from recognizing a sale of equipment if the manufacturer guarantees the resale value of the equipment to the purchaser. Rather, the manufacturer should account for the transaction as a lease, using the principles of lease accounting in FASB 13. 95-4, Revenue Recognition on Equipment Sold and Subsequently Repurchased Subject to an Operating Lease The Task Force reached a consensus that a manufacturer would not be precluded from recognizing a sale at the time the product is transferred to the dealer if all of the following conditions exist: (1) The dealer is a substantive and independent enterprise that transacts business separately with the manufacturer and customers; (2) The manufacturer has delivered the product to the dealer, and the risks and rewards of ownership have passed to the dealer, including responsibility for the ultimate sale of the product and for insurability, theft, or damage. A customer's failure to enter into a lease with the finance affiliate (or manufacturer) would not allow the dealer to return the product to the manufacturer; (3) The finance affiliate (or manufacturer) has no legal obligation to provide a lease arrangement to a potential customer of the dealer at the time the product is delivered to the dealer; (4) The customer has other financing alternatives available from parties unaffiliated with the manufacturer, and the customer is in control of the selection from the financing
Yes
No
224
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) alternatives. 93-8, Accounting for the Sale and Leaseback of an Asset That is Leased to Another Party Issue 93-8 addresses whether a sale-leaseback transaction in which the seller-lessee-sublessor retains substantial risks of ownership in the property through the leaseback terms should be accounted for as either (1) a borrowing in accordance with paragraphs 21 and 22 of FASB 13 or (2) as a sale-leaseback transaction in accordance with paragraphs 32 and 33 of FASB 13, as amended by FASB 28. 87-7, Sale of an Asset Subject to a Lease and Nonrecourse Financing: "Wrap Lease Transactions" Issue 87-7 addresses the circumstance when a lessor leases an asset (for example, equipment) to a lessee and obtains nonrecourse financing from a financial institution using the lease receivable and the asset as collateral. Concurrently or at a later date, the lessor sells the asset subject to the lease and the nonrecourse financing to a third party and leases the asset back. The lessor remains the principal lessor with the equipment user. In exchange for the asset, the lessor receives cash and a note receivable and may also retain an interest in the residual value of the leased asset and remarketing rights. These transactions are commonly referred to as "wrap lease transactions." The issues are (1) how the cash proceeds should be accounted for; (2) whether an interest retained in the residual value of the leased asset should be recorded as an asset and recognized as income in the period of the transaction; and (3) how fees for the remarketing of the asset at the end of the lease term should be accounted for. 86-43, Effect of a Change in Tax Law or Rates on Leveraged Leases The Task Force reached a consensus that FASB 13 and Technical Bulletin 79-16 (Revised) require that all components of a leveraged lease be recalculated from inception of the lease based on the revised after-tax cash flows arising from the change in the tax law, including revised tax rates and repeal of the investment tax credit. The difference between the amounts originally recorded and the recalculated amounts would be included in income of the year in which the tax law is enacted. 86-33, Tax Indemnifications in Lease Agreements Some leases contain indemnification clauses that indemnify lessors, on an after-tax basis, for certain tax benefits that the lessor may lose if a change in the tax law precludes realization of those tax benefits. Issue 86-33 addresses the appropriate accounting by the lessor and lessee for indemnification payments. Issue 86-33 concludes that although the
Yes
No
225
Accounting: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) indemnification payments may appear to meet the definition of contingent rentals in FASB 13, as amended by FASB 29, such payments are not of the nature normally expected to arise under contingent rent provisions. Further, due to the close association of the payments to specific aspects of the tax law, the payments should be accounted for in a manner that recognizes the tax law association. The original lease classification should not be changed. Further, Issue 86-33 concludes that lessors receiving indemnification payments should allocate the payments into two parts: (1) that resulting from any investment tax credit (ITC) lost and (2) that relating to all other tax effects. The portion relating to ITC should be accounted for consistent with the lessor's accounting policy for ITC. That is, the payments allocated to the ITC cost should be recognized in the income statement in the same period as the ITC would have been recognized. The Task Force, however, did not discuss how the payments would be classified in the income statement. The remaining part should be reflected in income consistent with the classification of the lease. That is, the payments should be accounted for as an adjustment of the lessor's investment if the lease is a capital lease or recognized ratably over the lease term if an operating lease. D-107, Lessor Consideration of Third-Party Residual Value Guarantees Topic D-107 addresses whether a lessor, when applying paragraph 7(d) of FASB 13 at lease inception, should include, in minimum lease payments, residual value guarantees for a portfolio of leased assets for which settlement is not solely based upon the residual value of the individual leased assets. D-8, Accruing Bad-Debt Expense at Inception of a Leases Topic D-8 concludes that the recognition of bad debts should be based on the guidance provided in FASB Statement No. 5, Accounting for Contingencies. Disclosure: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) A. Disclosures for Sales-Type and Direct Financing Leases 1. If leasing is a significant part of the lessor's business activities, is the following information disclosed in the financial statements or notes for sales-type and direct
Yes
No
Yes
No
226
Disclosure: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) financing leases: [FASB 13.23] a. The components of the net investment in sales-type and direct financing leases as of the date of each balance sheet presented: (1) Future minimum lease payments to be received, with separate deductions for (a) amounts representing executory costs and (b) the accumulated allowance for uncollectible minimum lease payments receivable? (2) The unguaranteed residual value accruing to the benefit of the lessor? (3) For direct financing leases only, initial direct costs? [NOTE: Initial direct cost, as defined in FASB 13, paragraph 5(m) is revised by FASB 91.24.] (4) Unearned income? b. Future minimum lease payments to be received for each of the five succeeding fiscal years as of the date of the latest balance sheet presented? c. Total contingent rentals included in income for each period for which an income statement is presented? d. A general description of the lessor's leasing arrangements? B. Disclosure for Leveraged Leases 1. Are all the components of the net investment balance in leveraged leases disclosed in notes to the financial statements when leveraged leasing is a significant part of the lessor's business? 2. Is the amount of deferred income taxes related to the lessor's leveraged leases presented separately from the net investment in the balance sheet? 3. Is the pretax income of the leveraged lease presented separately from the tax effect of the pretax income and investment tax credits recognized, if any, either in the income statement or disclosed in the notes to the financial statements? [FASB 13.47] C. Disclosure for Operating Leases 1. If leasing is a significant part of the lessor's business activities, is the following information disclosed in the
Yes
No
227
Disclosure: L12 ACCOUNTING FOR LEASES BY LESSORS (12/08) financial statements or notes for operating leases: [FASB 13.23] a. The cost and carrying amount, if different, of property on lease or held for leasing by major classes of property according to nature or function and the amount of accumulated depreciation in total as of the date of the latest balance sheet presented? b. Minimum future rentals on noncancelable leases as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding fiscal years? c. Total contingent rentals included in income for each period in which an income statement is presented? d. A general description of the lessor's leasing arrangements? 2. For periods in which the lessor has recognized contingent rental income, is the following information disclosed in the financial statements or notes thereto: [EITF 98-9.13] a. The accounting policy for recognizing contingent rental income? b. If contingent rental income is recognized prior to the lessee's achievement of the specified target (provided achievement of that target is considered probable), has disclosure of the impact on rental income been made? D. Related-Party Accounting and Disclosure 1. In leases between related parties, are the nature and extent of leasing transactions between the parties disclosed and where it is clear that the terms of the transactions have been significantly affected by the fact that the parties are related, is appropriate modification made in the classification and/or accounting treatment to recognize economic substance rather than legal form? [FASB 13.29] 2. In consolidated financial statements or in financial statements in which an interest in an investee is accounted for on the equity basis, is profit or loss on leasing transactions appropriately eliminated? [FASB 13.30] 3. Are accounts of subsidiaries whose principal business activity is leasing property or facilities consolidated? [FASB 94.09] [FASB 13.31]
Yes
No
228
Accounting: L20 LENDING ACTIVITIES (12/08) 1. If the company has recognized nonrefundable fees and/or costs associated with lending activities (including lending, committing to lend, refinancing/restructuring loans, arranging standby letters of credit, syndicating loans, and leasing activities) and loan purchases (except when such fees and/or costs are associated with originating or acquiring loans that are carried at market value and the changes in market value are included in earnings, and except when such fees and/or costs relate to loan commitments that are accounted for as derivatives under FASB 133, as amended) have: [FASB 91.02, .03 (as amended by FASB 115, FASB 124, or FASB 149)] a. Loan origination fees been deferred and recognized over the life of the related loan as an adjustment of yield (interest income), unless such fees were received in conjunction with a FASB 15 troubled debt restructuring, in which case they should be applied as a reduction of the recorded loan investment balance? Have direct loan origination costs been deferred and recognized over the life of the related loan as a reduction of the loan's yield, unless such costs were incurred in connection with a modification of terms of a FASB 15 troubled debt restructuring in which case they should have been expensed as incurred? [NOTE: Refer to paragraphs 6, 7, and 14 of FASB 91 for a more detailed description of direct loan origination costs to be deferred and those to be expensed as incurred.] Have loan origination fees and related direct loan origination costs for a given loan been offset and is only the net amount being deferred and amortized? [FASB 91.05-.07, 91.14] b. Except as noted in paragraphs (1) and (2) below, commitment fees been deferred and, if the commitment is exercised, recognized over the life of the loan as an adjustment of yield or, if the commitment expires unexercised, recognized in income upon expiration of the unexercised commitment? (1) If the enterprise's experience with similar arrangements indicates that the likelihood that the commitment will be exercised is remote, have the commitment fees been recognized over the commitment period on a straight-line basis as service fee income? If the commitment is
Yes
No
229
Accounting: L20 LENDING ACTIVITIES (12/08) subsequently exercised during the commitment period, have the remaining unamortized commitment fees at the time of exercise been recognized over the life of the loan as an adjustment to yield? (2) If the amount of the commitment fees is determined retrospectively as a percentage of the line of credit available but unused in a previous period, if that percentage is nominal in relation to the stated interest rate on any related borrowing, and if that borrowing will bear a market interest rate at the date the loan is made, have the commitment fees been recognized as service fee income as of the determination date? [FASB 91.08] c. Direct costs, as described in paragraph 6 of FASB 91, that have been incurred in connection with the origination of a loan commitment been offset against any related commitment fees and only the net amount recognized as described in b, above? [FASB 91.9] d. Credit card fees been deferred and recognized on a straight-line basis over the period the fees entitle the cardholder to use the card? [FASB 91.10] e. Syndication fees been recognized when the syndication is complete unless a portion of the syndication loan is retained, in which case a portion of the fees should be deferred to produce a yield on the portion of the loan retained that is not less than the average yield on the loans held by the other syndication participants? [FASB 91.11] f. Unamortized net fees and/or costs and any prepayment penalties in connection with refinancings and restructurings (except for fees received in connection with a modification of terms in a FASB 15 troubled debt restructuring) been recognized in (1) Interest income if the refinanced or restructured loan is accounted for as new loan (i.e., this condition is met if the new loan's effective yield is at least equal to the effective yield for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the lender) [FASB 91.12], or (2) Included in the net investment in the new loan if
Yes
No
230
Accounting: L20 LENDING ACTIVITIES (12/08) the refinanced or restructured loan does not meet the criteria for a new loan or if only minor modifications are made to the original loan contract? [FASB 91.13] g. Only the difference between the initial investment (amount paid to seller net of any fees paid or received) in a purchased loan or group of loans and the related loan's principal amount been deferred and recognized as an adjustment of yield over the life of the loan, and have all other costs incurred in connection with acquiring purchased loans or committing to purchase loans been expensed as incurred? [FASB 91.15] [Note that designation of a fee or cost as an origination fee or cost for a loan that is purchased is inappropriate because a purchased loan has already been originated by another party. [FASB 91.36]] 2. In the case in which the entity does not estimate prepayments pursuant to paragraph 19 of FASB 91 and prepayments occur or a portion of the purchased loans is sold, has a proportionate amount of the related deferred fees and purchase premium or discount been recognized in income so that the effective interest rate on the remaining portion of loans continues unchanged? [FASB 91.16] 3. Have all net fees or costs that are required to be recognized as yield adjustments over the life of the related loan been recognized by the interest method based on the contractual terms of the loan and without anticipating prepayments of principal (except if the conditions in paragraph 19 of FASB 91 are met) as stated below? [FASB 91.18] a. If the loan's stated interest rate increases during the term of the loan (so that interest accrued under the interest method in early periods would exceed interest at the stated rate), has interest income been recognized to the extent that the net investment in the loan would increase to an amount greater than the amount at which the borrower could settle the obligation? (Prepayment penalties are to be considered in determining the amount at which the borrower could settle the obligation only to the extent that such penalties are imposed throughout the loan term.) b. If the loan's stated interest rate decreases during the term of the loan, the stated periodic interest received early in the term of the loan would exceed the periodic interest income that is calculated under the interest
Yes
No
231
Accounting: L20 LENDING ACTIVITIES (12/08) method. In that circumstance, has the excess been deferred and recognized in those future periods when the constant effective yield under the interest method exceeds the stated interest rate? c. If the loan's stated interest rate varies based on future changes in an independent factor, such as an index or rate, was the calculation of the constant effective yield necessary to recognize fees and costs based either on the factor (the index or rate) that is in effect at the inception of the loan or on the factor as it changes over the life of the loan? 4. If the enterprise holds a large number of similar loans for which prepayments are probable and the timing and amount of prepayments can be reasonably estimated, the enterprise may consider estimates of future principal prepayments in the calculation of the constant effective yield necessary to apply the interest method. If the enterprise anticipates prepayments in applying the interest method and a difference arises between the prepayments anticipated and actual prepayments received, has the enterprise: [FASB 91.19] a. Recalculated the effective yield to reflect actual payments to date and anticipated future payments? b. Adjusted the net investment in the loans to the amount that would have existed had the new effective yield been applied since the acquisition of the loans? c. Recorded the adjustment to the investment in the loans to the new balance by a corresponding charge or credit to interest income? 5. For a loan that does not provide scheduled payment terms (demand loan), have any net fees or costs been recognized as an adjustment of yield on a straight-line basis over a period that is consistent with (1) the understanding between the borrower and lender or (2) if no understanding exists, the lender's estimate of the period of time over which the loan will remain outstanding, and when the loan is paid in full, has any unamortized amount been recognized? [FASB 91.20]
Yes
No
232
Accounting: L20 LENDING ACTIVITIES (12/08) 6. For revolving lines of credit (or similar loan arrangements), have the net fees or costs been recognized in income on a straight-line basis over the period the revolving line of credit is active, assuming that borrowings are outstanding for the maximum term provided in the loan contract? If the borrower pays all borrowings and cannot reborrow under the contract, have any unamortized net fees or costs been recognized in income upon payment? Has the interest method been applied to recognize net unamortized fees or costs when the loan agreement provides a schedule for payment and no additional borrowings are provided for under the agreement? [FASB 91.20] 7. If the entity is not recognizing interest income because it is concerned about the realization of loan principal or interest, has it suspended amortization of deferred net fees or costs? [FASB 91.17] Has the entity considered questions and answers issued as FASB Staff Implementation Guides related to FASB 91?
Yes
No
Disclosure: L20 LENDING ACTIVITIES (12/08) A. Disclosures for Lending Activities 1. Balance Sheet Classification: a. Is the unamortized balances of loan origination, commitment, and other fees and costs and purchase premiums and discounts that are being recognized as an adjustment of yield reported on the enterprise's balance sheet as part of the loan balance to which it relates? [FASB 91.21] 2. Income Statement Classification: a. Are amounts of loan origination, commitment, and other fees and costs recognized as an adjustment of yield reported as part of interest income? b. Are other fees, such as commitment fees, that are being amortized on a straight-line basis over the commitment period or included in income when the commitment expires, reported as service fee income? [FASB 91.22]
Yes
No
233
Disclosure: L20 LENDING ACTIVITIES (12/08) 3. If the enterprise anticipates principal prepayments in applying the interest method pursuant to paragraph 19 of FASB 91, does it disclose such policy and the significant assumptions underlying the prepayment estimates? [FASB 91.19]
Yes
No
Accounting: L35 LIABILITIES: EXTINGUISHMENTS (12/08) 1. Liabilities to be extinguished must meet the requirements of FASB 140. Has the debtor derecognized (extinguished) a liability if either of the following conditions is met? [FASB 140.16] a. The debtor pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes delivery of cash, other financial assets, goods, or services or reacquisition by the debtor of its outstanding debt securities whether the securities are canceled or held as so-called treasury bonds. b. The debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. Note that if nonrecourse debt (such as mortgage loans) is assumed by a third party in conjunction with the sale of an asset that serves as sole collateral for that debt, the sale and related assumption effectively accomplish a legal release of the seller-debtor for purposes of applying FASB 140. 2. If debt is extinguished, other than in a troubled debt restructuring as described in FASB 15 or a conversion into equity securities (a) pursuant to conversion privileges provided in the terms of the debt at issuance or (b) in an induced conversion as described in FASB 84, is the difference between the reacquisition price and the net carrying amount recognized currently in income of the period of extinguishment as losses or gains as a separate item? [APB 26.20, as amended by APB 30 and FASB 145, and APB 26.21] [Note that based on consideration of APB 30 (refer to item 4) "separate item" may refer to classification as an extraordinary item or as a separate component of income from continuing operations.] Reacquisition price is defined as the amount paid on extinguishment, including a call premium and miscellaneous costs of reacquisition. If extinguishment is achieved by a direct exchange of new securities, the
Yes
No
234
Accounting: L35 LIABILITIES: EXTINGUISHMENTS (12/08) reacquisition price is the total present value of the new securities. Net carrying amount is defined as the amount due at maturity, adjusted for unamortized premium, discount, and cost of issuance. [APB 26.3, as amended by FASB 140] 3. If a creditor has released the debtor from primary obligation on the condition that a third party assumes the obligation and the original debtor now becomes secondarily liable, has the debtor extinguished the original liability and then recognized a guarantee obligation in the same manner as would a guarantor that had never been primarily liable to that creditor, with due regard for the likelihood that the third party will carry out its obligations? Accordingly, was the guarantee obligation initially measured at fair value, and has that amount been included in determining the gain or loss recognized on extinguishment? [FASB 140.114] 4. Are gains or losses on extinguishment of debt classified as extraordinary items only if the underlying events or transactions are both unusual in nature and infrequent in occurrence, as defined in paragraph 20 of APB 30 [APB 30.20, as amended by FASB 145]. (Note that the FASB board concluded that the application of these two criteria of APB 30 to debt extinguishment transactions would seldom, if ever, result in extraordinary classification of the resulting gains and losses.) [FASB 145.A6] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-6, Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments This Issue addresses (1) how a modification of a debt instrument (or an exchange of debt instruments) that affects the terms of an embedded conversion option should be considered in the issuer's analysis of whether debt extinguishment accounting should be applied and (2) the accounting for a modification of a debt instrument (or an exchange of debt instruments) that affects the terms of an embedded conversion option when extinguishment accounting is not applied. 05-1, Accounting for the Conversion of an Instrument That Became Convertible upon the Issuer's Exercise of a Call Option This Issue addresses whether the conversion of an instrument that became convertible upon the issuer's exercise of a call option should be accounted for as a conversion (that is, no gain or loss recognized related to the equity securities issued to settle the instrument) or as a debt extinguishment.
Yes
No
235
Accounting: L35 LIABILITIES: EXTINGUISHMENTS (12/08) 03-7, Accounting for the Settlement of the Equity-Settled Portion of a Convertible Debt Instrument That Permits or Requires the Conversion Spread to Be Settled in Stock (Instrument C of Issue No. 90-19 This Issue addresses how the issuer should account for the partial cash-based and partial stock-based settlement of a debt instrument structured in the form of Instrument C as described in Issue 90-19. 02-15, Determining Whether Certain Conversions of Convertible Debt to Equity Securities Are within the Scope of FASB Statement No. 84 This Issue addresses whether FASB 84 applies when the "offer" for consideration in excess of the original conversion terms is made by the debt holder rather than the debtor, including (a) circumstances in which a third party purchases the debt securities in the open market (at a significant discount from face value) and approaches the debtor to increase the conversion terms of the debt and (b) circumstances in which the offer to induce conversion is not extended to all debt holders. 01-7, Creditor's Accounting for a Modification or Exchange of Debt Instruments This Issue addresses how a creditor should evaluate whether a modification of the terms of a debt instrument (or loan, from the perspective of the creditor) as a result of a refinancing or restructuring (other than in a troubled debt restructuring) is more than minor under paragraph 13 of FASB 91. [Note that FASB 91 requires a creditor to account for the modified debt instrument as a new debt instrument if both (1) the modified debt instrument's effective yield is at least equal to the effective yield for a comparable loan to a debtor with similar collection risks who is not refinancing or restructuring and (2) modifications of the original debt instrument are more than minor.] 00-9, Classification of a Gain or Loss from a Hedge of Debt That Is Extinguished This Issue addresses (1) how the component of the gain or loss resulting from a prior adjustment of the debt's carrying amount for a fair value hedge should be classified in the income statement when that debt is extinguished, (2) how the component of other comprehensive income resulting from a cash flow hedge of debt should be classified in the income statement when the debt is extinguished, and (3) how the component of other comprehensive income resulting from a cash flow hedge of the forecasted debt transaction should be classified in the income statement when the forecasted debt transaction occurs and the debt is subsequently extinguished. 96-19, Debtor's Accounting for a Modification or Exchange of
Yes
No
236
Accounting: L35 LIABILITIES: EXTINGUISHMENTS (12/08) Debt Instruments This Issue addresses (1) how a debtor should account for an exchange of debt instruments with substantially different terms, (2) how a debtor should account for a substantial modification in the terms of an existing debt agreement (other than a troubled debt restructuring), and (3) if a gain or loss is recognized from an exchange or modification, whether the gain or loss should be classified as extraordinary. 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion This Issue addresses (1) whether the initial balance sheet treatment by the issuer should provide for separate or combined accounting for the conversion feature and debt obligation, (2) how the issuer should account for the excess conversion spread over the accreted value, and (3) how each instrument should be treated in earnings-per-share computations. 86-36, Invasion of a Defeasance Trust This Issue addresses whether the removal of assets from the trust should affect the enterprise's initial and ongoing reporting of the debentures as having been extinguished previously, in view of the fact that, as a precondition for an in-substance defeasance, FASB 76 requires a debtor to irrevocably place assets in a trust to be used solely for satisfying scheduled payments of both interest and principal. Disclosure: L35 LIABILITIES: EXTINGUISHMENTS (INCLUDING MODIFICATIONS OR EXCHANGES OF DEBT INSTRUMENTS) (12/08) 1. If assets are set aside solely for satisfying scheduled payments of a specific obligation, is a description of the nature of restrictions placed on those assets disclosed? [FASB 140.17(c) for nonpublic entities and FSP FASB 140-4 Appendix B6(b) for public entities] 2. Are gains or losses on extinguishment of debt classified as extraordinary items only if the underlying events or transactions are both unusual in nature and infrequent in occurrence, as defined in paragraph 20 of APB 30? [APB 30.20, as amended by FASB 145] [Note that the FASB concluded that the application of these two criteria of APB 30 to debt extinguishment transactions would seldom, if ever, result in extraordinary classification of the resulting gains and losses.] [FASB 145.A6] a. Have gains or losses on extinguishment of debt classified as extraordinary been disclosed on the face
Yes
No
Yes
No
237
Disclosure: L35 LIABILITIES: EXTINGUISHMENTS (INCLUDING MODIFICATIONS OR EXCHANGES OF DEBT INSTRUMENTS) (12/08) of the income statement as a separate line item after income from continuing operations, net of income tax effects, if practicable, or otherwise as disclosure in the related notes? [APB 30.11] b. Have the nature of the extraordinary event(s) or transaction(s) and the principal items entering into the determination of the extraordinary gain or loss been described in the related notes? [APB 30.11] c. Has the entity presented the earnings per share data for the extraordinary item(s) either on the face of the income statement or in the related notes? [APB 30.12, FASB 128.37] 3. Are the underlying events or transactions related to the gains or losses on extinguishment of debt considered either unusual in nature or infrequent in occurrence but not both (and, thus, the events or transactions do not meet the criteria for classification as extraordinary items)? [APB 30.20, as amended by FASB 145] a. Have material gains or losses on extinguishment of debt for which the underlying events or transactions are unusual in nature or occur infrequently, but not both, been reported as a separate component of income from continuing operations? [APB 30.26] b. Have the nature and financial effects of each such event or transaction been disclosed on the face of the income statement or in the notes to the financial statements? [APB 30.26] c. Have similar gains or losses on extinguishment of debt that are not material individually been aggregated for purposes of determining whether disclosure is required? [APB 30.26] d. Have the gains or losses not been reported on the face of the income statement net of income taxes or in any other manner that may imply that they are extraordinary items? [APB 30.26, as amended by FASB 145] e. Has the entity not disclosed the earnings per share effects of those items on the face of the income statement? [APB 30.12, FASB 128.37]
Yes
No
238
Accounting: N35 NONMONETARY TRANSACTIONS (12/08) 1. If there have been nonmonetary transactions other than (a) business combinations, (b) transfers of nonmonetary assets solely between parties under common control or between corporate joint ventures and their owners, (c) acquisitions of nonmonetary assets or services on issuance of capital stock of an enterprise, (d) stock issued or received in stock dividends and stock splits that are accounted for in accordance with ARB 43, Chapter 7B, (e) transfers of assets to an entity in exchange for an equity interest in that entity, (f) a pooling of assets to find, develop, or produce oil or gas from a particular property or group of properties as described in paragraph 44 of FASB 19 (as amended), (g) exchanges of a part of an operating interest owned for a part of an operating interest owned by another party that is subject to paragraph 47(e) of FASB 19 (as amended), (h) transfers of financial assets within the scope of FASB 140: [APB 29.04, as amended by FASB 153.2b] a. Is the accounting based on the fair values of the assets or services involved unless (1) the fair value of neither the asset(s) received nor the asset(s) relinquished is determinable within reasonable limits, (2) the transaction is an exchange of a product or property held for sale for a product or property to be sold in the same line of business in the ordinary course of business to facilitate sales to customers other than the parties to the exchange, (3) the transaction lacks commercial substance, or (4) the transfer is a nonreciprocal transfer to the owners of an enterprise in a spin-off or other form of reorganization or liquidation or in a plan that is in substance the rescission of a prior business combination? [APB 29.18-.23; EITF 01-02] For entities that have adopted FASB 157 b. If one of the parties in a nonmonetary transaction could have elected to receive cash instead of the nonmonetary asset, has the amount of cash that could have been received been considered as evidence in determining the fair value of the nonmonetary assets exchanged (APB 29.18 as amended by FASB 157)?
Yes
No
239
Accounting: N35 NONMONETARY TRANSACTIONS (12/08) 2. If there has been an involuntary conversion of a nonmonetary asset into a monetary asset, is a gain or loss recognized in the period of involuntary conversion for the difference between the cost of the nonmonetary asset and the amount of monetary assets received, even if the monetary assets are subsequently reinvested in a similar nonmonetary asset? (Does not apply to interim-period liquidations of a LIFO inventory when replacement is expected by year end.) [FIN 30.01-.02] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 01-02, Interpretations of APB Opinion No. 29 Issue 01-2 addresses the following related to APB 29 (as amended by FASB 153): Whether full or partial gain recognition is appropriate in a circumstance in which one entity (Entity A) transfers its ownership interest of either a controlled productive asset or assets or a controlled business to another entity (Entity B) in exchange for an ownership interest in that entity (Entity B, Exchanges of product or property held for sale for productive assets, Exchanges involving monetary consideration, and Nonreciprocal transfers to owners.
Yes
No
The Task Force reached consensuses on these issues 99-17, Accounting for Advertising Barter Transactions This Issue addresses whether barter transactions that involve a monetary exchange of advertising should result in recorded revenues and expenses at the more readily determinable fair value of the advertising surrendered or received in the exchange, or book value, because fair value cannot be determined within reasonable limits. The Task Force reached a consensus on this Issue. 93-11, Accounting for Barter Transactions Involving Barter Credits This Issue addresses whether APB Opinion 29 should be applied to an exchange of a nonmonetary asset for barter credits and, if so, the amount of profit or loss, if any, that should be recognized. The Task Force reached a consensus on this Issue. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty This Issue addresses the following:
240
Accounting: N35 NONMONETARY TRANSACTIONS (12/08) The circumstances under which two or more inventory purchase and sales transactions (which may involve cash) with the same counterparty should be viewed as a single exchange transaction subject to APB Opinion 29, and Whether there are circumstances under which nonmonetary exchanges of inventory within the same line of business should be recognized at fair value.
Yes
No
Disclosure: N35 NONMONETARY TRANSACTIONS (12/08) 1. If there have been nonmonetary transactions other than (a) business combinations, (b) transfers of nonmonetary assets solely between parties under common control or between corporate joint ventures and their owners, (c) acquisitions of nonmonetary assets or services on issuance of capital stock of an enterprise, (d) stock issued or received in stock dividends and stock splits that are accounted for in accordance with ARB 43 Chapter 7B, (e) transfers of assets to an entity in exchange for an equity interest in that entity, (f) a pooling of assets to find, develop, or produce oil or gas from a particular property or group of properties as described in paragraph 44 of FASB 19 (as amended), (g) exchanges of a part of an operating interest owned for part of an operating interest owned by another party that is subject to paragraph 47(e) of FASB 19 (as amended), (h) transfers of financial assets within the scope of FASB 140: [APB 29.04, as amended by FASB 153.2b] a. Do the financial statements disclose: [APB 29.28] (1) The nature of the transactions? (2) The basis of accounting for assets transferred? (3) The gains or losses recognized on transfers? Accounting: P16 PENSION COSTS (12/08) FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) was issued in September 2006. The recognition and related disclosure provisions of FASB 158 are effective as of the end
Yes
No
Yes
No
241
Accounting: P16 PENSION COSTS (12/08) of the fiscal year ending after December 15, 2006, for an employer with publicly traded equity securities and as of the end of the fiscal year ending after June 15, 2007, for all other entities. Retrospective application is prohibited. Application as of the end of an earlier fiscal year is permitted; however, early application shall be for all of an employer's benefit plans. The measurement date provisions of FASB 158 are effective for fiscal years ending after December 15, 2008, for all entities and shall not be applied retrospectively. Earlier application is permitted; however, early application shall be for all of an employer's benefit plans. The following section(s) of this checklist should be completed: Section I in the year(s) of adoption of FASB 158's recognition and measurement provisions, AND Section II if FASB 158's recognition provisions have been adopted OR Section III if FASB 158's recognition provisions have not been adopted.
Yes
No
SECTION I UPON ADOPTION OF FASB 158

This section is only applicable in the year(s) of adoption of the recognition AND measurement provisions of FASB 158. The references in {brackets} to unrestricted net assets and changes in net assets in the statement of activities apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented, refer to not-for-profit entities only. For a defined benefit plan(s), have the following steps being applied? In the year of adoption of the recognition requirements in FASB 158: Step 1 1. Has the entity applied the provisions of FASB 87 for the fiscal year before considering the effects of FASB 158, based on the measurement date the entity used for the current year-end,, including recording changes to the Additional Minimum Liability as a component of current period comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other
242
Accounting: P16 PENSION COSTS (12/08) intermediate measure of operations, if one is presented}? [FASB 158. 16] Step 2 2. Has the entity fully recognized the funded status of the defined benefit pension plan as of the end of the fiscal year by adjusting the amounts recognized in the end-ofyear balance sheet (after applying Step 1 above) and recording the impact of gains or losses, prior service costs or credits, and transition assets or obligations, that have not yet been included in net periodic benefit cost as an adjustment to the ending balance of accumulated other comprehensive income (AOCI) {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented}? [FASB 158.16a] The funded status is measured as the difference between the fair value of plan assets and the benefit obligation. Note that this adjustment is recorded directly in equity and is NOT included in comprehensive income for the year. Not-for-profit entities include this adjustment in their changes in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented, for the year. Also, any Additional Minimum Liability recorded in equity in the ending balance sheet is eliminated as part of this adjustment. In the year of adoption of the measurement requirements in FASB 158 for companies that previously used a measurement date of up to three months prior to fiscal year-end under FASB 87 (measurement requirements are effective for fiscal years ending after December 15, 2008; early adoption is permitted in certain circumstances): Is the entity transitioning to a fiscal year-end measurement date? If yes, has the entity chosen either Approach 1 or Approach 2 below? Approach 1 3. Has the entity elected to remeasure plan assets and benefit obligations as of the beginning of the fiscal year that the measurement date provisions are applied? If so, has the entity used those new measurements to determine the effects of the measurement date change as of the beginning of the fiscal year that the measurement date provisions are applied [FASB 158.18] including the following:
Yes
No
243
Accounting: P16 PENSION COSTS (12/08) a. Has the entity recognized as a separate adjustment of the opening balance of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the net periodic benefit cost, net of tax, for the period between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied, exclusive of any curtailment or settlement gain or loss? (That is, the pretax amount recognized as an adjustment to retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} is the net periodic benefit cost that, without a change in measurement date, otherwise would have been recognized on a delayed basis during the first interim period for the fiscal year that the measurement date provisions are applied.) [FASB 158.18; FASB 158.18.a] b. If the entity has adopted the recognition provisions of FASB 158 in a prior fiscal year, has the entity recognized as a separate adjustment of the opening balance of AOCI {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the corresponding adjustments to the unrecognized amounts in AOCI {unrestricted net assets} resulting from including in the adjustment to opening retained earnings {a change in unrestricted net assets, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} in a, above, any amortization of gain or loss, prior service costs or credits and transition asset or obligation? [FASB 158.16] c. Has the entity recognized in net income {the statement of activities} for the immediately preceding fiscal year-end before the adoption of FASB 158 any gain or loss arising from a curtailment or settlement between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied?
Yes
No
244
Accounting: P16 PENSION COSTS (12/08) This provision prohibits an entity from early application of the measurement date provisions when the entity has issued financial statements for the prior year without recognition of such a settlement or curtailment. [FASB 158.18; FASB 158.18.b] d. Has the entity recognized, as a separate adjustment of the opening balance of accumulated other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented}, net of tax, for the fiscal year that the measurement date provisions are applied other changes in the fair value of plan assets and the benefit obligations (e.g., gains or losses) for the period between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied? [FASB 158.18; FASB 158.18c] Approach 2 4. Has the entity elected to continue to use the measurements determined for the prior fiscal year-end reporting to estimate the effects of the change? a. Has the entity allocated proportionately between amounts to be recognized as an adjustment of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} and net periodic benefit cost for the fiscal year that the measurement date provisions are applied the net periodic benefit cost for the period between the earlier measurement date and the end of the fiscal year that the measurement date provisions are applied, exclusive of any curtailment or settlement gain or loss? For example, a calendar-year employer that uses a September 30 measurement date and has no settlement or curtailment during the period would allocate as an adjustment of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} three-fifteenths of
Yes
No
245
Accounting: P16 PENSION COSTS (12/08) net periodic benefit cost determined for the period from September 30, 2007, to December 31, 2008. The remaining twelve-fifteenths would be recognized as net periodic benefit cost for the fiscal year that the measurement date provisions first are applied. [FASB 158.19a; FASB 158.19] b. If the entity has adopted the recognition provisions of FASB 158 in a prior fiscal year, has the entity recognized as a separate adjustment of AOCI {a separate change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the corresponding adjustments to the unrecognized amounts in AOCI {unrestricted net assets} resulting from including in the adjustment to retained earnings {the change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} in a, above, any amortization of gain or loss, prior service costs or credits and transition asset or obligation? [FASB 158.16] c. Has the entity recognized in net income {the statement of activities} for the immediately preceding fiscal year-end before the adoption of FASB 158 any gain or loss arising from a curtailment or settlement between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied? This provision prohibits an entity from early application of the measurement date provisions when the entity has issued financial statements for the prior year without recognition of such a settlement or curtailment (see c in Approach 1 above). [FASB 158.19; FASB 158.19b] d. Has the entity recognized as other comprehensive income {changes in unrestricted net assets, apart from expenses} for the fiscal year that the measurement date provisions are applied other changes in the fair value of plan assets and the benefit obligations (e.g., gains or losses) for the period between the earlier measurement date and the end of the fiscal year that the measurement date provisions are applied? [FASB
Yes
No
246
Accounting: P16 PENSION COSTS (12/08) 158.19; FASB 158.19c] e. If an entity elects to remeasure plan assets and benefit obligations or there is an event, such as a settlement or curtailment, that requires an intervening measurement during the period between the earlier measurement date and the beginning of the fiscal year that the change in measurement date occurs: Has the entity revised net periodic benefit cost for the remainder of that period by prorating the revised net periodic benefit cost for the period from the date of the intervening remeasurement to the end of the fiscal year that the measurement date provisions are applied?
Yes
No
SECTION II POST-ADOPTION OF FASB 158 RECOGNITION PROVISIONS

Entities that have adopted the recognition provisions of FASB 158 should complete the following section. The references in {brackets} to unrestricted net assets refer to not-for-profit entities only. 1. If a defined benefit plan(s) exists, have the following requirements with respect to assumptions been met: [FASB 87.43-48] a. Each assumption represents the best estimate for that assumption and assumes the plan will continue in effect in the absence of evidence that it will not continue? [FASB 87.43] b. Assumed discount rates reflect the rates at which the pension benefits could be effectively settled? [FASB 87.44, .44A] c. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation? [FASB 87.45] d. The service cost component of net periodic pension cost and the projected benefit obligation reflect future compensation levels to the extent that the pension benefit formula defines pension benefits wholly or partially as a function of future compensation levels? [FASB 87.46] e. The service cost component of net periodic pension cost and the projected benefit obligation reflect future increases in service cost for which a present
247
Accounting: P16 PENSION COSTS (12/08) substantive commitment exists? [FASB 87.41 and .46] f. Assumed compensation levels reflect an estimate of the actual future compensation levels of the individual employees involved, including future changes attributed to general price levels, productivity, seniority, promotion, and other factors? [FASB 87.46]
Yes
No
g. All assumptions that reflect expectations of the same future economic conditions, such as future rates of inflation, are consistent? [FASB 87.46] h. The accumulated benefit obligation is measured based on employees' history of service and compensation without an estimate of future compensation levels? [FASB 87.18, .47] i. In measuring the accumulated benefit obligation, projected years of service are included only in determining employees' eligibility for particular benefits, such as increased benefits based on a specified number of years of service, early retirement benefits, death benefits, and disability benefits? [FASB 87.47] Automatic benefit increases specified by the plan that are expected to occur are included in measurements of the projected, accumulated and vested benefit obligations and the service cost component required by FASB 87? [FASB 87.48]
j.
k. Retroactive plan amendments are included in the computation of the projected and accumulated benefit obligations once they have been contractually agreed to, even if some provisions take effect only in future periods? [FASB 87.48] 2. For pension plan benefit obligations and assets: a. Is the projected benefit obligation measured using an assumption as to future compensation levels if the pension benefit formula is based on those future compensation levels? [FASB 87.17] b. Have plan assets been segregated and restricted and do they include amounts contributed by the employer (and employees if a contributory plan) and amounts earned from investing the contributions, less benefits paid? [FASB 87.19]
248
Accounting: P16 PENSION COSTS (12/08) c. Have the plan assets and benefit obligations been measured as of the date of the annual financial statements except in specific situations outlined in paragraph 52 of FASB 87 (as amended)? [NOTE: If the entity has not adopted the measurement date provisions of FASB 158 (which are effective for fiscal years ending after December 15, 2008 for all entities), the entity may use a measurement date as of a date not more than three months prior to its fiscal year end, if it is used consistently from year to year, until the entity adopts FASB 158's measurement date provisions.] [FASB 158.C2(p), FASB 87.52] 3. If the entity has two or more defined benefit plans: a. Have net periodic pension cost, liabilities, and assets been determined separately for each plan? [FASB 87.55] b. If the employer does not have the right to use the assets of one plan to pay the benefits of another, have the net periodic pension cost and the recognition of an underfunded pension liability or an overfunded pension asset, as required by paragraph 35 of FASB 87, been determined separately for each plan? [FASB 87.55] 4. If benefits are covered by annuity or other insurance contracts, has the accounting conformed to the provisions of FASB 87? [FASB 87.57-.62] 5. If the entity has a defined contribution plan(s): a. Has the required contribution for the period in which an individual renders service been recognized as net pension cost? [FASB 87.64] b. If the plan calls for contributions after an individual retires or terminates, has a portion of the cost been accrued for employee service during the current period? [FASB 87.64] 6. If the entity participates in a multiemployer plan(s): a. Has the required contribution for the period been recognized as net pension cost? [FASB 87.68] b. Has a liability been recognized for any unpaid contributions required for the period? [FASB 87.68] c. If withdrawal from a multiemployer plan under circumstances that would give rise to an obligation is
Yes
No
249
Accounting: P16 PENSION COSTS (12/08) probable or reasonably possible, has the entity complied with the provisions of FASB 5? [FASB 87.70] 7. For employers with multiple-employer plans, has the employer's accounting been based on its respective interest in the plan? [FASB 87.71] 8. Have non-U.S. plans that are in substance similar to U.S. plans been accounted for in accordance with FASB 87? [FASB 87.72-.73] 9. See Business Combinations B50, Section G question 1i., as applicable, for questions regarding accounting for pensions in a business combination. [FASB 158.C2(r), FASB 87.74] 10. Does the gain or loss component of net periodic pension cost consist of (a) the difference between the actual return on plan assets and the expected return on plan assets and (b) amortization of the net gain or loss included in accumulated other comprehensive income (if any is required pursuant to paragraph 32 of FASB 87) {unrestricted net assets}? [FASB 158.C2(i); FASB 87.31, .32, .34] 11. Has the transition net asset or obligation been amortized in accordance with FASB 87 in determining net periodic pension cost? [FASB 87.20, .77] 12. Has the prior service cost or credit been amortized in accordance with FASB 87 in determining net periodic pension cost? [FASB 87.20, .24-.28] 13. Regarding the recognition of pension assets and liabilities: a. Has a liability been recognized that equals the unfunded projected benefit obligation if the projected benefit obligation exceeds the fair value of plan assets? [FASB 158.C2(j); FASB 87.35] b. Has an asset been recognized that equals the overfunded projected benefit obligation if the fair value of plan assets exceeds the projected benefit obligation? [FASB 158.C2(j); FASB 87.35] 14. If the entity had a settlement: [FASB 158.C6(a); FASB 88.3-4, .7, .9-.11, .21b] a. Has the amount of the maximum gain or loss included any net gain or loss remaining in accumulated other comprehensive income {unrestricted net assets} plus any transition asset remaining in accumulated other
Yes
No
250
Accounting: P16 PENSION COSTS (12/08) comprehensive income{unrestricted net assets}? [FASB 158.C6(a); FASB 88.9] (1) If the entire projected benefit obligation was settled, has the maximum amount been recognized? [FASB 88.9] (2) If only part of the projected benefit obligation was settled, has only a pro rata portion of the maximum amount, equal to the percentage reduction in the projected benefit obligation, been recognized? [FASB 88.9] b. If the settlement occurred due to the purchase of a participating annuity contract, has the maximum gain been reduced by the cost of the participation right before determining the amount to be recognized in earnings? [FASB 88.10] c. Has the accounting policy adopted for recognition of settlement gains and losses when the costs for the year are less than or equal to the sum of the service and interest cost components for the year been followed consistently? [FASB 88.11] d. If the gain or loss on the settlement is directly related to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)] 15. If the entity had a curtailment: [FASB 88.6, .12-.14, .21] a. Has the prior service cost included in accumulated other comprehensive income {unrestricted net assets} and associated with years of service no longer expected to be rendered been recognized as a loss? [FASB 158.C6(b); FASB 88.12] (1) Has the prior service cost for this purpose included the cost of retroactive amendments and any transition obligation remaining in accumulated other comprehensive income {unrestricted net assets}? [FASB 158.C6(b); FASB 88.12] b. Has the projected benefit obligation (PBO) been increased (loss) or decreased (gain) by the effects of the curtailment? [FASB 158.C6(c); FASB 88.13] (1) Has any transition asset remaining in accumulated other comprehensive income {unrestricted net assets} been treated as a net
Yes
No
251
Accounting: P16 PENSION COSTS (12/08) gain for this purpose and combined with the net gain or loss arising after the transition to FASB 87 remaining in accumulated other comprehensive income {unrestricted net assets}? [FASB 158.C6(c); FASB 88.13] (2) Has the increase (loss) in the PBO first been offset against any gain as measured in b(1), above, and has any excess loss been treated as a curtailment loss? [FASB 88.13] (3) Has the decrease (gain) in the PBO first been offset against any loss as measured in b(1), above, and has any excess loss been treated as a curtailment gain? [FASB 88.13] c. Has the net loss or gain calculated in b(2) or b(3) been combined with the prior service cost loss determined in a, above? [FASB 88.13] d. If the total determined in c, above, is a net loss, has it been recognized when it is probable that a curtailment will occur and the net effect is reasonably estimable? [FASB 88.14] e. If the total determined in c, above, is a net gain, has it been recognized when the related employees terminated or the plan suspension or amendment was adopted? [FASB 88.14] f. If the gain or loss on the curtailment is directly related to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)]
Yes
No
16. If the entity is adopting the measurement date provisions of FASB 158 in the next fiscal year, and had a curtailment or settlement between the measurement date used in the current year and the beginning of the next fiscal year: a. Has the entity recognized in net income for the current year (e.g., 2007) any gain or loss arising from a curtailment or settlement between the measurement date that is used in the current year (e.g., September 30, 2007) and the beginning of the fiscal year that the measurement date provisions are applied (January 1, 2008, for a calendar-year entity)? [FASB 158.18 b, .19b] 17. If the entity provided benefits to employees in connection with their termination of employment (special termination benefits or contractual termination benefits) [FASB
252
Accounting: P16 PENSION COSTS (12/08) 88.15]: a. For special termination benefits, has a liability and a loss been recognized when the employees accepted the offer and the amount can be reasonably estimated? b. For contractual termination benefits, has a liability and a loss been recognized when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated? c. Has the cost of termination benefits recognized as a liability and a loss included the amount of any lumpsum payments and the present value of any expected future payments? d. If the termination benefits are directly related to disposal of a component of an entity, is the cost included in determining the gain or loss associated with that event? [FASB 144.44(c)] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit (ATZ) Early Retirement Arrangements) This Issue addresses (1) how to account for the bonus feature and additional contributions into the German government pension scheme under a Type II arrangement and (2) how to account for the government subsidy under Type I and Type II ATZ arrangements. 03-4, Determining the Classification and Benefit Attribution Method for a "Cash Balance" Pension Plan This Issue addresses (1) whether, for purposes of applying FASB 87, cash balance plans should be considered defined benefit plans or defined contribution plans and (2) if that cash balance plan is determined to be a defined benefit plan, the nature of the benefit promise and the appropriate benefit attribution approach based on that promise. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities This Issue addresses how an employer should account for the separation of the substitutional portion of the benefit obligation of an Employees' Pension Fund plan from the corporate portion and the transfer of the substitutional portion and related assets to the Japanese government. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in
Yes
No
253
Accounting: P16 PENSION COSTS (12/08) Anticipation of a Business Combination This Issue addresses whether a liability for the contractual termination benefits and the curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination should be recognized when (1) it is probable that the business combination will be consummated or (2) the business combination is consummated. 93-3, Plan Assets Under FASB Statement No. 106 This Issue addresses whether a trust established to pay postretirement benefits must be determined to be bankruptcyproof in order for the assets in the trust to qualify as plan assets under FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises This Issue addresses what criteria or evidence is needed for a rate-regulated enterprise to satisfy the requirements of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, to recognize a regulatory asset for FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, costs. 91-7, Accounting for Pension Benefits Paid by Employers after Insurance Companies Fail to Provide Annuity Benefits This Issue addresses how an employer should account for the cost of making up a deficiency in annuity payments to the retirees due to an insurance company becoming insolvent or unable to make the payments. 90-3, Accounting for Employers' Obligations for Future Contributions to a Multiemployer Pension Plan This Issue addresses whether an employer that participates in a multiemployer pension plan must record a liability for the total future payments for prior service costs pursuant to an agreement at the date the employer enters the plan or improves benefits under the plan. 88-23, Lump-Sum Payments under Union Contracts This Issue relates to a lump-sum cash payment or payments in lieu of all or a portion of an increase in a union members base wage rate and whether the lump-sum payment or payments should be (1) charged to expense immediately or (2) amortized over all or some portion of the contract period. 88-1, Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan This Issue addresses whether the vested benefit obligation is the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately or the actuarial present value
Yes
No
254
Accounting: P16 PENSION COSTS (12/08) of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement. 86-27, Measurement of Excess Contributions to a Defined Contribution Plan or Employee Stock Ownership Plan This Issue addresses how an employer accounts for excess contributions not allocated to individual participants' accounts in defined contribution plans or employee stock ownership plans. D-36, Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Postretirement Benefit Plans Other Than Pensions This Issue provides guidance for selecting discount rates. D-27, Accounting for the Transfer of Excess Pension Assets to a Retiree Health Care Benefits Account This Issue states that the transfer of excess pension assets to a retiree health care benefit account should be recognized as a negative contribution to (withdrawal of funds from) the pension plan and a positive contribution to the retiree health care plan. No gain or loss arises from the transfer of the excess pension assets.
Yes
No
SECTION III PRE-ADOPTION OF FASB 158'S RECOGNITION PROVISIONS

Entities that have NOT adopted the recognition provisions of FASB 158 should complete the following section. The references in {brackets} to the statement of activities refer to not-for-profit entities only. 1. If a defined benefit plan(s) exists, have the following requirements with respect to assumptions been met: [FASB 87.43-48] a. Each assumption represents the best estimate for that assumption and assumes the plan will continue in effect in the absence of evidence that it will not continue? [FASB 87.43] b. Assumed discount rates reflect the rates at which the pension benefits could be effectively settled? [FASB 87.44, .44A] c. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation? [FASB 87.45] d. The service cost component of net periodic pension
255
Accounting: P16 PENSION COSTS (12/08) cost and the projected benefit obligation reflect future compensation levels to the extent that the pension benefit formula defines pension benefits wholly or partially as a function of future compensation levels? [FASB 87.46] e. The service cost component of net periodic pension cost and the projected benefit obligation reflect future increases in service cost for which a present substantive commitment exists? [FASB 87.41 and .46] f. Assumed compensation levels reflect an estimate of the actual future compensation levels of the individual employees involved, including future changes attributed to general price levels, productivity, seniority, promotion, and other factors? [FASB 87.46]
Yes
No
g. All assumptions that reflect expectations of the same future economic conditions, such as future rates of inflation, are consistent? [FASB 87.46] h. The accumulated benefit obligation is measured based on employees' history of service and compensation without an estimate of future compensation levels? [FASB 87.18, .47] i. In measuring the accumulated benefit obligation, projected years of service are included only in determining employees' eligibility for particular benefits, such as increased benefits based on a specified number of years of service, early retirement benefits, death benefits, and disability benefits? [FASB 87.47] Automatic benefit increases specified by the plan that are expected to occur are included in measurements of the projected accumulated, and vested benefit obligations and the service cost component required by FASB 87? [FASB 87.48]
j.
k. Retroactive plan amendments are included in the computation of the projected and accumulated and vested benefit obligations once they have been contractually agreed to, even if some provisions take effect only in future periods? [FASB 87.48] 2. For pension plan benefit obligations and assets: a. Is the projected benefit obligation measured using an assumption as to future compensation levels if the
256
Accounting: P16 PENSION COSTS (12/08) pension benefit formula is based on those future compensation levels? [FASB 87.17] b. Have plan assets been segregated and restricted and do they include amounts contributed by the employer (and employees if a contributory plan) and amounts earned from investing the contributions, less benefits paid? [FASB 87.19] c. Have the plan assets and benefit obligations been measured as of the date of the annual financial statements, or if used consistently from year to year, as of a date not more than three months prior to that date? [FASB 87.52] 3. If the entity has two or more defined benefit plans: a. Have net periodic pension cost, liabilities, and assets been determined separately for each plan? [FASB 87.55] b. If the employer does not have the right to use the assets of one plan to pay the benefits of another, have the unfunded accrued pension cost, prepaid pension cost, and recognition of an additional minimum liability, if required by paragraph 35 or 36 of FASB 87, been determined separately for each plan? [FASB 87.55] 4. If benefits are covered by annuity or other insurance contracts, has the accounting conformed to the provisions of FASB 87? [FASB 87.57-.62] 5. If the entity has a defined contribution plan(s): a. Has the required contribution for the period in which an individual renders service been recognized as net pension cost? [FASB 87.64] b. If the plan calls for contributions after an individual retires or terminates, has a portion of the cost been accrued for employee service during the current period? [FASB 87.64] 6. If the entity participates in a multiemployer plan(s): a. Has the required contribution for the period been recognized as net pension cost? [FASB 87.68] b. Has a liability been recognized for any unpaid contributions required for the period? [FASB 87.68] c. If withdrawal from a multiemployer plan under circumstances that would give rise to an obligation is
Yes
No
257
Accounting: P16 PENSION COSTS (12/08) probable or reasonably possible, has the entity complied with the provisions of FASB 5? [FASB 87.70] 7. For employers with multiple-employer plans, has the employer's accounting been based on its respective interest in the plan? [FASB 87.71] 8. Have non-U.S. plans that are in substance similar to U.S. plans been accounted for in accordance with FASB 87? [FASB 87.72-.73] 9. See Business Combinations B50, Section G question 1i., as applicable, for questions regarding accounting for pensions in a business combination. [FASB 87.74] 10. Does the gain or loss component of net periodic pension cost consist of (a) the difference between the actual return on plan assets and the expected return on plan assets and (b) amortization of the unrecognized net gain or loss from previous periods (if any is required pursuant to paragraph 32 of FASB 87)? [FASB 87.31, .32, .34] 11. Has the unrecognized transition net asset or obligation been amortized in accordance with FASB 87 in determining net periodic pension cost? [FASB 87.20, .77] 12. Has the unrecognized prior service cost or credit been amortized in accordance with FASB 87 in determining net periodic pension cost? [FASB 87.20, .24-.28] 13. Regarding the recognition of pension assets and liabilities: a. Has a liability been recognized if the net periodic pension cost recognized pursuant to FASB 87 exceeds amounts the employer has contributed to the plan? [FASB 87.35] b. Has an asset been recognized if net periodic pension cost recognized is less than the amounts the employer has contributed to the plan? [FASB 87.35] c. If the accumulated benefit obligation exceeds the fair value of plan assets, has a minimum liability (including unfunded accrued pension cost) been recognized that is at least equal to the unfunded accumulated benefit obligation? [FASB 87.36] d. If recognition of an additional minimum liability is required pursuant to paragraph 36 of FASB 87, has an equal amount been recognized as an intangible asset, not to exceed the total unrecognized prior service costs and unrecognized transition obligation, with any
Yes
No
258
Accounting: P16 PENSION COSTS (12/08) excess being reported in other comprehensive income (net of tax)? [FASB 87.37] 14. If the entity had a settlement: [FASB 88.3-4, .7, .9-.11, .21b] a. Has the amount of the maximum gain or loss included any unrecognized net gain or loss plus any remaining unrecognized transition asset? [FASB 88.9] (1) If the entire projected benefit obligation was settled, has the maximum amount been recognized? [FASB 88.9] (2) If only part of the projected benefit obligation was settled, has only a pro rata portion of the maximum amount, equal to the percentage reduction in the projected benefit obligation, been recognized? [FASB 88.9] b. If the settlement occurred due to the purchase of a participating annuity contract, has the maximum gain been reduced by the cost of the participation right before determining the amount to be recognized in earnings? [FASB 88.10] c. Has the accounting policy adopted for recognition of settlement gains and losses when the costs for the year are less than or equal to the sum of the service and interest cost components for the year been followed consistently? [FASB 88.11] d. If the gain or loss on the settlement is directly related to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)] 15. If the entity had a curtailment: [FASB 88.6, .12-.14, .21] a. Has the unrecognized prior service cost associated with years of service no longer expected to be rendered been recognized as a loss? [FASB 88.12] (1) Has the unrecognized prior service cost for this purpose included the cost of retroactive amendments and any remaining unrecognized net obligation? [FASB 88.12] b. Has the projected benefit obligation (PBO) been increased (loss) or decreased (gain) by the effects of the curtailment? [FASB 158.C6(c); FASB 88.13] (1) Has any remaining unrecognized transition asset
Yes
No
259
Accounting: P16 PENSION COSTS (12/08) that existed at initial application of FASB 87 been treated as an unrecognized net gain for this purpose and combined with the unrecognized net gain or loss arising after the transition to FASB 87? [FASB 88.13]
Yes
No
(2) Has the increase (loss) in the PBO first been offset against any gain as measured in b(1) above, and has any excess loss been treated as a curtailment loss? [FASB 88.13]
(3) Has the decrease (gain) in the PBO first been offset against any loss as measured in b(1), above,and has any excess gain been treated as a curtailment gain? [FASB 88.13] c. Has the net loss or gain calculated in b(2) or b(3) been combined with the prior service cost loss determined in a, above? [FASB 88.13] d. If the total determined in c, above, is a net loss, has it been recognized when it is probable that a curtailment will occur and the net effect is reasonably estimable? [FASB 88.14] e. If the total determined in c, above, is a net gain, has it been recognized when the related employees terminated or the plan suspension or amendment was adopted? [FASB 88.14] f. If the gain or loss on the curtailment is directly related to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)]
16. If the entity provided benefits to employees in connection with their termination of employment (special termination benefits or contractual termination benefits): [FASB 88.15] a. For special termination benefits, has a liability and a loss been recognized when the employees accepted the offer and the amount can be reasonably estimated? b. For contractual termination benefits, has a liability and a loss been recognized when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated? c. Has the cost of termination benefits recognized as a liability and a loss included the amount of any lumpsum payments and the present value of any expected
260
Accounting: P16 PENSION COSTS (12/08) future payments? d. If the termination benefits are directly related to disposal of a component of an entity, is the cost included in determining the gain or loss associated with that event? [FASB 144.44(c)] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit (ATZ) Early Retirement Arrangements) This Issue addresses (1) how to account for the bonus feature and additional contributions into the German government pension scheme under a Type II arrangement and (2) how to account for the government subsidy under Type I and Type II ATZ arrangements. 03-4, Determining the Classification and Benefit Attribution Method for a "Cash Balance" Pension Plan This Issue addresses (1) whether, for purposes of applying FASB 87, cash balance plans should be considered defined benefit plans or defined contribution plans and (2) if that cash balance plan is determined to be a defined benefit plan, the nature of the benefit promise and the appropriate benefit attribution approach based on that promise. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities This Issue addresses how an employer should account for the separation of the substitutional portion of the benefit obligation of an Employees' Pension Fund plan from the corporate portion and the transfer of the substitutional portion and related assets to the Japanese government. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in Anticipation of a Business Combination This Issue addresses whether a liability for the contractual termination benefits and the curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination should be recognized when (1) it is probable that the business combination will be consummated or (2) the business combination is consummated. 93-3, Plan Assets Under FASB Statement No. 106 This Issue addresses whether a trust established to pay postretirement benefits must be determined to be bankruptcyproof in order for the assets in the trust to qualify as plan assets under FASB Statement No. 106, Employers' Accounting
Yes
No
261
Accounting: P16 PENSION COSTS (12/08) for Postretirement Benefits Other Than Pensions. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises This Issue addresses what criteria or evidence is needed for a rate-regulated enterprise to satisfy the requirements of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, to recognize a regulatory asset for FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, costs. 91-7, Accounting for Pension Benefits Paid by Employers after Insurance Companies Fail to Provide Annuity Benefits This Issue addresses how an employer should account for the cost of making up a deficiency in annuity payments to the retirees due to an insurance company becoming insolvent or unable to make the payments. 90-3, Accounting for Employers' Obligations for Future Contributions to a Multiemployer Pension Plan This Issue addresses whether an employer that participates in a multiemployer pension plan must record a liability for the total future payments for prior service costs pursuant to an agreement at the date the employer enters the plan or improves benefits under the plan. 88-23, Lump-Sum Payments under Union Contracts This Issue relates to a lump-sum cash payment or payments in lieu of all or a portion of an increase in a union members base wage rate and whether the lump-sum payment or payments should be (1) charged to expense immediately or (2) amortized over all or some portion of the contract period. 88-1, Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan This Issue addresses whether the vested benefit obligation is the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately or the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement. 86-27, Measurement of Excess Contributions to a Defined Contribution Plan or Employee Stock Ownership Plan This Issue addresses how an employer accounts for excess contributions not allocated to individual participants' accounts in defined contribution plans or employee stock ownership plans. D-106, Clarification of Q&A No. 37 of FASB Special Report, A Guide to Implementation of Statement 87 on Employers'
Yes
No
262
Accounting: P16 PENSION COSTS (12/08) Accounting for Pensions This Issue revised the answer to Q&A 37, which addresses how an employer should determine whether an additional minimum liability is required if it has a measurement date earlier than its financial report date. D-36, Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Postretirement Benefit Plans Other Than Pensions This Issue provides guidance for selecting discount rates. D-27, Accounting for the Transfer of Excess Pension Assets to a Retiree Health Care Benefits Account This Issue states that the transfer of excess pension assets to a retiree health care benefit account should be recognized as a negative contribution to (withdrawal of funds from) the pension plan and a positive contribution to the retiree health care plan. No gain or loss arises from the transfer of the excess pension assets. For entities that have adopted any of the provisions of FASB 158, the following section should be completed.
Yes
No
263
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R), was issued in September 2006. The recognition and related disclosure provisions of FASB 158 are effective as of the end of the fiscal year ending after December 15, 2006, for an employer with publicly traded equity securities and as of the end of the fiscal year ending after June 15, 2007, for all other entities. Retrospective application is prohibited. Application as of the end of an earlier fiscal year is permitted; however, early application shall be for all of an employer's benefit plans. The measurement date provisions of FASB 158 are effective for fiscal years ending after December 15, 2008, for all entities and shall not be applied retrospectively. Earlier application is permitted; however, early application shall be for all of an employer's benefit plans. The following section(s) of this checklist should be completed: Section I in the year(s) of adoption of FASB 158 recognition and measurement provisions, AND Section II if FASB 158s recognition provisions have been adopted OR Section III if FASB 158s recognition provisions have not been adopted.
Yes
No

This section is only applicable in the year(s) of adoption of the recognition AND measurement provisions of FASB 158. The references in {brackets} to unrestricted net assets and changes in net assets in the statement of activities apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented, refer to not-for-profit entities only. For a defined benefit plan(s), have the following disclosures been made:
264
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) In the year of adoption of the recognition requirements in FASB 158: 1. Has the entity disclosed, in the notes to the annual financial statements, the incremental effect of applying FASB 158 on individual line items in the year-end statement of financial position? [FASB 158. 21] In the year of adoption of the measurement requirements in FASB 158 for companies that previously used a measurement date of up to three months prior to fiscal year-end under FASB 87/FASB 106 (measurement requirements are effective for fiscal years ending after December 15, 2008; early adoption is permitted in certain circumstances): 2. Has the entity disclosed the separate adjustments of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} and accumulated other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} resulting from applying FASB 158? [FASB 158.21] SECTION II POST-ADOPTION OF FASB 158'S RECOGNITION PROVISIONS 1. Annual Disclosures Public Entities a. If an employer sponsors one or more defined benefit pension plans or one or more other defined benefit postretirement plans, has the following information been provided separately for pension plans and other postretirement benefit plans: [FASB 132(R).5] (1) The amounts related to the employer's results of operations (including items of other comprehensive income) {including changes in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} disclosed for each period for which a statement of income is presented? [FASB
Yes
No
265
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) 158.E1(b); FASB 132(R).5] (2) The amounts related to the employer's statement of financial position, unless otherwise stated, disclosed as of the measurement date used for each statement of financial position presented? [NOTE: Once the measurement date provisions of FASB 158 have been adopted (which are effective for fiscal years ending after December 15, 2008 for all entities), the measurement date will the same as the date of the yearend statement of financial position.] [FASB 158.E1(b); FASB 132(R).5] b. Have the following disclosures been made: (1) A reconciliation of beginning and ending balances of the benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: [FASB 132(R).5(a)] (a) Service cost? (b) Interest cost? (c) Contributions by plan participants? (d) Actuarial gains and losses? (e) Foreign currency exchange rate changes? (f) Benefits paid? (g) Plan amendments? (h) Business combinations? (i) Divestitures? (j) Curtailments? (k) Settlements? (l) Special termination benefits? (2) A reconciliation of beginning and ending balances of the fair value of plan assets showing separately, if applicable the effects during the period attributable to each of the following: [FASB 132(R).5(b)] (a) Actual return on plan assets?
Yes
No
266
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (b) Foreign currency exchange rate changes? (c) Contributions by the employer? (d) Contributions by plan participants? (e) Benefits paid? (f) Business combinations? (g) Divestitures? (h) Settlements? (3) The funded status of the plans and the amounts recognized in the statement of financial position, showing separately the assets and current and noncurrent liabilities recognized? [FASB 158.E1(c); FASB 132(R).5(c)] (4) Information about plan assets: [FASB 132(R).5(d)] (a) For each major category of plan assets (equity securities, debt securities, real estate, and all other assets), the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented? (b) A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date of the latest statement of financial position presented (if applicable), and other pertinent factors such as investment goals, risk management practices, allowable and prohibited investment types including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations? (c) A narrative description of the basis used to determine the overall expected long-term rate-of-return on assets assumption, such as the general approach used, the extent to which the overall rate-of-return on assets
Yes
No
267
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined? (d) Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected longterm rate of return on assets? (5) For defined benefit pension plans, the accumulated benefit obligation? [FASB 132(R).5(e)] (6) The benefits (as of the date of the latest statement of financial position presented), expected to be paid in each of the next five years, and in the aggregate for the next succeeding five years? The expected benefits should be estimated based on the same assumptions used to measure the entity's benefit obligation at the end of the year and should include estimated future employee service. [FASB 132(R).5(f)] (7) The employer's best estimate, as soon as it can be reasonably determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position? Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).5(g)] (8) The amount of net periodic benefit cost recognized, showing separately: [FASB 158.E1(d); FASB 132(R).5(h)] (a) Service cost component? (b) Interest cost component? (c) Expected return on plan assets for the
Yes
No
268
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) period? (d) Gain or loss component? (e) Prior service cost or credit component? (f) Transition asset or obligation component? (g) Gain or loss recognized due to settlements or curtailments? (9) Separately, the net gain or loss and net prior service cost or credit recognized in other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} for the period pursuant to paragraphs 25 and 29 of FASB 87 and paragraphs 52 and 56 of FASB 106, as amended, and reclassification adjustments of other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} for the period, as those amounts, including amortization of the net transition asset or obligation, are recognized as components of net periodic benefit cost? [FASB 158.7(a)-(b), FASB 158.E1(e), FASB 132(R).5(i)] (10) The amounts in accumulated other comprehensive income {unrestricted net assets} that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation? [FASB 158.7(c), FASB 158.E1(f), FASB 132(R).5(ii)] (11) On a weighted-average basis, the following assumptions used in the accounting for the plans, specifying, in tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost: [FASB 132(R).5(j)]
Yes
No
269
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (a) Assumed discount rates? (b) Rates of compensation increase (for payrelated plans)? (c) Expected long-term rates of return on plan assets? (12) The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations? [NOTE: This disclosure will no longer be required when the measurement date provisions of FASB 158 have been adopted, which will be effective for fiscal years ending after December 15, 2008.] [FASB 158.E1(g), FASB 132(R).5(k)] (13) The assumed health care cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges), and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? [FASB 132(R).5(l)] (14) The effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on: [FASB 132(R).5(m)] (a) The aggregate of the service and interest cost components of net periodic postretirement health care benefit costs? (b) The accumulated postretirement benefit obligation for health care benefits? (For purposes of this disclosure, all other assumptions shall be held constant, and the effects shall be measured based on the substantive plan that is the basis for the accounting.) (15) If applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future
Yes
No
270
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period? [FASB 132(R).5(n)] (16) If applicable, any alternative method used to amortize prior service amounts or net gains and losses pursuant to paragraphs 26 and 33 of FASB 87 or paragraphs 53 and 60 of FASB 106? [FASB 158.E1(h); FASB 132(R).5(o)] (17) If applicable, any substantive commitment, such as past practice or a history of regular benefit increases, used as the basis for accounting for the benefit obligation? [FASB 132(R).5(p)] (18) If applicable, the cost of providing special or contractual termination benefits recognized during the period and a description of the nature of the event? [FASB 132(R).5(q)] (19) An explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures required by FASB 132(R)? [FASB 132(R).5(r)] (20) The amounts in accumulated other comprehensive income {unrestricted net assets} expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation? [FASB 158.7(d), FASB 158.E1(i), FASB 132(R).5(s)] (21) The amount and timing of any plan assets expected to be returned to the employer during the 12-month period, or operating cycle if longer, that follows the most recent annual statement of financial position presented. [FASB 158.7(e); FASB 158.E1(j); FASB 132(R).5(t)] (22) If applicable, the existence and nature of substantive commitments for future increases in nonpay-related benefits or benefits under a
Yes
No
271
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) career-average-pay plan, where the substance of the plan is to provide benefits attributable to prior service that are greater than the benefits defined by the written forms of the plan? [FASB 87.41] 2. Reduced Annual Disclosure Requirements for Nonpublic Entities a. If an employer sponsors one or more defined benefit pension plans or one or more other defined benefit postretirement plans, has the following information been provided separately for pension plans and other postretirement benefit plans: [FASB 132(R).8] (1) The amounts related to the employer's results of operations (including items of other comprehensive income) {including changes in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} disclosed for each period for which a statement of income is presented? [FASB 158.E1(l); FASB 132(R).8] The amounts related to the employer's statement of financial position, disclosed as of the measurement date used for each statement of financial position presented? [NOTE: Once the measurement date provisions of FASB 158 have been adopted, which are effective for fiscal years ending after December 15, 2008, the above disclosure should be as of the date of each financial statement presented.] [FASB 158.E1(l); FASB 132(R).8] The benefit obligation, fair value of plan assets, and funded status of the plan? [FASB 132(R).8(a)] Employer contributions, participant contributions, and benefits paid? [FASB 132(R).8(b)] Information about plan assets: [FASB 132(R).8(c)] (a) For each major category of plan assets
Yes
No
(2)
(3)
(4)
(5)
272
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (equity securities, debt securities, real estate, and all other assets), the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented? (b) A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date(s) of the latest statement of financial position presented, if applicable, and other pertinent factors such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations? (c) A narrative description of the basis used to determine the overall expected long-term rate of return on assets assumption, such as the general approach used, the extent to which the overall rate of return assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined? Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected long-term rate of return on assets.
Yes
No
(d)
(6) For defined benefit pension plans, the accumulated benefit obligation? [FASB 132(R).8(d)]
273
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (7) The benefits (as of the date of the latest statement of financial position presented), expected to be paid in each of the next five years, and in the aggregate for the next succeeding five years? The expected benefits should be estimated based on the same assumptions used to measure the company's benefit obligation at the end of the year and should include estimated future employee service. [FASB 132(R).8(e)] (8) The employer's best estimate, as soon as it can be reasonably determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position? Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).8(f)] (9) The amounts recognized in the statements of financial position, showing separately the postretirement benefit assets and current and noncurrent postretirement benefit liabilities? [FASB 158.E1(m); FASB 132(R).8(g)] (10) Separately, the net gain or loss and net prior service cost or credit recognized in other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} for the period pursuant to paragraphs 25 and 29 of FASB 87 and paragraphs 52 and 56 of FASB 106, as amended, and reclassification adjustments of other comprehensive income {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} for the period, as those amounts, including amortization of the net transition asset or obligation, are recognized as components of net
Yes
No
274
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) periodic benefit cost? [FASB 158.7(a)-(b); FASB 158.E1(n); FASB 132(R).8(h)] (11) The amounts in accumulated other comprehensive income {unrestricted net assets} that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation? [FASB 158.7(c); FASB 158.E1(o); FASB 132(R).8(h)] (12) On a weighted-average basis, the following assumptions used in the accounting for the plans, specifying, in tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost: [FASB 132(R).8(i)] (a) Assumed discount rates? (b) Rates of compensation increase (for payrelated plans)? (c) Expected long-term rates of return on plan assets? (13) The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations? [NOTE: This disclosure will no longer be required when the measurement date provisions of FASB 158 have been adopted, which will be effective for fiscal years ending after December 15, 2008.] [FASB 158.E1(p), FASB 132(R).8(j)] (14) The assumed healthcare cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges), and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? [FASB 132(R).8(k)] (15) If applicable, the amounts and types of securities
Yes
No
275
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period? [FASB 132(R).8(l)] (16) The nature and effect of significant nonroutine events, such as amendments, combinations, divestitures, curtailments, and settlements? [FASB 132(R).8(m)] (17) The amounts in accumulated other comprehensive income {unrestricted net assets} expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation? [FASB 158.7(d); FASB 158.E1(q); FASB 132(R).8(n)] (18) The amount and timing of any plan assets expected to be returned to the employer during the 12-month period, or operating cycle if longer, that follows the most recent annual statement of financial position presented? [FASB 158.7(e); FASB 158.E1(r); FASB 132(R).8(o)] 3. Employers With Two or More Plans Public and Nonpublic Entities a. Have required disclosures been aggregated for all of an employer's defined benefit pension plans and for all of an employer's other defined benefit postretirement plans unless disaggregating in groups is considered to provide useful information or is otherwise required by paragraphs 6 and 7 of FASB 132(R)? [FASB 132(R).6] b. Are disclosures as of the measurement date for each statement of financial position presented? [NOTE: Once the measurement date provisions of FASB 158 have been adopted, which are effective for fiscal years ending after December 15, 2008, the
Yes
No
276
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) disclosures should be as of the date of each statement of financial position presented.] [FASB 158.E1(k); FASB 132(R).6] c. If aggregated disclosures are presented, is the following disclosed: (1) The aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets as of the measurement date of each statement of financial position presented? [FASB 132(R).6(a)]
Yes
No
(2) The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets? [FASB 132(R).6(b)] 4. Employers With Foreign Plans Public and Nonpublic Entities a. If the benefit obligations of U.S. and foreign plans use significantly different assumptions, have disclosures been made separately for both the U.S. and foreign plans? [FASB 132(R).7] b. If a foreign reporting entity prepares financial statements in conformity with U.S. generally accepted accounting principles (GAAP), did it apply the preceding guidance to its domestic and foreign plans? [FASB 132(R).7] 5. Postretirement Medical Plans Public and Nonpublic Entities a. For postretirement medical plans that have prescription drug benefits affected by the Medicare Prescription Drug, Improvement and Modernization Act (the "Act"), have the following been disclosed: [FSP FAS 106-2] (1) If a determination cannot be made as to whether the medical benefits provided by a postretirement benefit plan are actuarially equivalent to those provided by the Act, is the following disclosed in financial statements for interim or annual periods: [FSP FAS 106-2.20] (a) The existence of the Act? [FSP FAS 106277
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) 2.20(a)] (b) The fact that measures of the accumulated postretirement benefit obligation (APBO) or net periodic postretirement benefit cost do not reflect any amount associated with the subsidy because the employer is unable to conclude whether the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act? [FSP FAS 106-2.20(b)] (2) If a determination can be made as to whether medical benefits provided by a postretirement benefit plan are actuarially equivalent, for the first interim and annual periods that includes the effects of the subsidy in measuring the APBO and the first period in which the effects of the subsidy in measuring net periodic postretirement benefit cost is included, is the following disclosed: [FSP FAS 106-2.21] (a) The reduction in the APBO for the subsidy related to benefits attributed to past service? [FSP FAS 106-2.21(a)] (b) The effect of the subsidy on the measurement of net periodic postretirement benefit cost for the current period? That effect includes (1) any amortization of the actuarial experience gain in (a) as a component of the net amortization called for by paragraph 59 of FASB 106, (2) the reduction in current period service cost due to the subsidy, and (3) the resulting reduction in interest cost on the APBO as a result of the subsidy. [FSP FAS 1062.21(b)] (c) Any other disclosures required by paragraph 5(r) of FASB 132(R)? Paragraph 5(r) of FASB 132(R) requires disclosure of "an explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures required by this Statement." [FSP FAS 1062.21(c)]
Yes
No
278
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (3) For purposes of the disclosures required by paragraphs 5(a) and 5(f) of FASB 132(R), does the disclosure include the gross benefit payments (paid and expected, respectively), including prescription drug benefits, and separately the gross amount of the subsidy receipts (received and expected, respectively)? [FSP FAS 1062.22] 6. Defined Contribution Plans Public and Nonpublic Entities a. For a defined contribution plan, have the following been disclosed: (1) The amount of cost recognized for defined contribution pension plans or other postretirement benefit plans for all periods presented separately from the amount of cost recognized for defined benefit plans? [FASB 132(R).11] (2) A description of the nature and effect of any significant changes during the period affecting comparability, such as a change in the rate of employer contributions, a business combination, or a divestiture? [FASB 132(R).11] (3) If the substance of the plan is to provide a defined benefit, does the accounting conform to the requirements for defined benefit plans with disclosures in accordance with paragraphs 5 and 8 of FASB 132(R)? [FASB 87.66] 7. Multiemployer Plans Public and Nonpublic Entities a. For multiemployer plans, have the following been disclosed: (1) The amount of contributions to multiemployer plans for each annual period for which an income statement {statement of activities} is presented? (Total contributions to multiemployer plans may be disclosed without disaggregating the amounts attributable to pension plans and other postretirement benefit plans.) [FASB 132(R).12] (2) A description of the nature and effect of any
Yes
No
279
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) changes affecting comparability, such as a change in the rate of employer contributions, a business combination, or a divestiture? [FASB 132(R).12] (3) Have the accounting and disclosure provisions of FASB Statement No. 5, Accounting for Contingencies, been applied if: [FASB 132(R).13] (a) Withdrawal from a multiemployer plan has occurred and there is an obligation to the plan for a portion of the pension plan's and other postretirement benefit plan's unfunded benefit obligations that is either probable or reasonably possible? (b) It is either probable or reasonably possible that (i) an employer would withdraw from the plan under circumstances that would give rise to an obligation or (ii) an employer's contribution to the fund would be increased during the remainder of the contract period to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage (a "maintenance of benefits" clause)? 8. Interim Disclosures Public and Nonpublic Entities a. For a publicly traded entity, has the following information been disclosed in its interim financial statements that include a statement of income: [FASB 132(R).9(a)] (1) The amount of net periodic benefit cost recognized, for each period in which a statement of income {statement of activities} is presented, showing separately: [FASB 158.E1(s); FASB 132(R).9(a)] (a) Service cost component? (b) Interest cost component? (c) Expected return on plan assets for the period? (d) Gain or loss component?
Yes
No
280
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (e) Prior service cost or credit component? (f) Transition asset or obligation component? (g) The gain or loss recognized due to a settlement or curtailment? (2) The total amount of employer's contribution paid, and expected to be paid during the current fiscal year, if significantly different from amounts previously disclosed pursuant to paragraph 5(g) of FASB 132(R)? Estimated contributions may be presented in the aggregate, combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).9(b)] b. For a nonpublic entity, for interim periods, for which a complete set of financial statements is presented, has the total amount of employer's contributions paid and expected to be paid during the current fiscal year been disclosed, if significantly different from previous disclosures pursuant to paragraph 8(f) of FASB 132(R)? Estimated contributions may be presented in the aggregate, combining (a) contributions required by funding regulations or laws, (b) discretionary contributions, and (c) noncash contributions. [FASB 132(R).10] 9. Presentation and Classification Public and Nonpublic Entities a. Have all overfunded plans been aggregated and presented as a single asset in the statement of financial position? [FASB 158.4(b), .C2(k), .D2(d), FASB 87.36, FASB 106.44B] b. If a classified statement of financial position is presented, has the asset for overfunded plans been classified as a noncurrent asset? [FASB 158.4(b), .C2(k), D2(d), FASB 87.36, FASB 106.44B] c. Have all underfunded plans been aggregated and presented as a single liability in the statement of financial position? [FASB 158.4(b), .C2(k), D2(d), FASB 87.36, FASB 106.44B]
Yes
No
281
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) d. If a classified statement of financial position is presented, has the liability for underfunded plans been classified as a noncurrent liability, except to the extent that the actuarial present value of benefits included in the benefit obligation payable in the next 12 months, or operating cycle if longer, exceeds the fair value of plan assets, and in such cases, has that excess been classified as a current liability? [FASB 158.4(b), .C2(k), D2(d), FASB 87.36, FASB 106.44B]. SECTION III PRE-ADOPTION OF FASB 158 RECOGNITION PROVISIONS Entities that have NOT adopted the recognition provisions of FASB 158 should complete the following section. The references in {brackets} to the statement of activities and unrestricted net assets refer to not-for-profit entities only. 1. Annual Disclosures Public Entities a. If an employer sponsors one or more defined benefit pension plans or one or more other defined benefit postretirement plans, has the following information been provided separately for pension plans and other postretirement benefit plans: [FASB 132(R).5] (1) The amounts related to the employer's results of operations disclosed for each period for which a statement of income is presented? [FASB 132(R).5] (2) The amounts related to the employer's statement of financial position, unless otherwise stated, disclosed as of the measurement date used for each statement of financial position presented? [FASB 132(R).5] b. Have the following disclosures been made: (1) A reconciliation of beginning and ending balances of the benefit obligation showing separately, if applicable, the effects during the period attributable to each of the following: [FASB 132(R).5(a)] (a) Service cost? (b) Interest cost? (c) Contributions by plan participants?
Yes
No
282
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (d) Actuarial gains and losses? (e) Foreign currency exchange rate changes? (f) Benefits paid? (g) Plan amendments? (h) Business combinations? (i) Divestitures? (j) Curtailments? (k) Settlements? (l) Special termination benefits? (2) A reconciliation of beginning and ending balances of the fair value of plan assets showing separately, if applicable the effects during the period attributable to each of the following: [FASB 132(R).5(b)] (a) Actual return on plan assets? (b) Foreign currency exchange rate changes? (c) Contributions by the employer? (d) Contributions by plan participants? (e) Benefits paid? (f) Business combinations? (g) Divestitures? (h) Settlements? (3) The funded status of the plans, the amounts not recognized in the statement of financial position, and the amounts recognized in the statement of financial position, including: [FASB 132(R).5(c)] (a) The amount of any unamortized prior service cost? (b) The amount of any unrecognized net gain or loss (including asset gains and losses not yet reflected in market-related value)?
Yes
No
283
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (c) The amount of any remaining unamortized, unrecognized net obligation, or net asset existing at the initial date of application of FASB 87 or FASB 106? (d) The net pension or other postretirement benefit prepaid assets or accrued liabilities? (e) Any intangible asset and the amount of accumulated other comprehensive income recognized pursuant to paragraph 37 of FASB 87, as amended? (4) Information about plan assets: [FASB 132(R).5(d)] (a) For each major category of plan assets (equity securities, debt securities, real estate, and all other assets), the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented? (b) A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date of the latest statement of financial position presented (if applicable), and other pertinent factors such as investment goals, risk management practices, allowable and prohibited investment types including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations? (c) A narrative description of the basis used to determine the overall expected long-term rate-of-return on assets assumption, such as the general approach used, the extent to which the overall rate-of-return on assets assumption was based on historical returns, the extent to which adjustments were made to those historical returns in order to reflect expectations of future returns, and how those adjustments were determined?
Yes
No
284
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (d) Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected longterm rate of return on assets. (5) For defined benefit pension plans, the accumulated benefit obligation? [FASB 132(R).5(e)] (6) The benefits (as of the date of the latest statement of financial position presented), expected to be paid in each of the next five years, and in the aggregate for the next succeeding five years? The expected benefits should be estimated based on the same assumptions used to measure the entitys benefit obligation at the end of the year and should include estimated future employee service. [FASB 132(R).5(f)] (7) The employer's best estimate, as soon as it can be reasonably determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position? Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions? [FASB 132(R).5(g)] (8) The amount of net periodic benefit cost recognized, showing separately: [FASB 132(R).5(h)] (a) Service cost component? (b) Interest cost component? (c) Expected return on plan assets for the period? (d) Amortization of the unrecognized transition obligation or transition asset? (e) Amount of recognized gains and losses?
Yes
No
285
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (f) Amount of prior service cost recognized? (g) Amount of gains or losses recognized due to a settlement or curtailment? (9) The amount included within other comprehensive income {changes in unrestricted net assets, apart from expenses} for the period arising from a change in the additional minimum pension liability recognized pursuant to paragraph 37 of FASB 87, as amended? [FASB 132(R).5(i)] (10) On a weighted-average basis, the following assumptions used in the accounting for the plans, specifying, in tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost: [FASB 132(R).5(j)] (a) Assumed discount rates? (b) Rates of compensation increase (for payrelated plans)? (c) Expected long-term rates of return on plan assets? (11) The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations? [FASB 132(R).5(k)] (12) The assumed health care cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges), and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? [FASB 132(R).5(l)] (13) The effect of a one-percentage-point increase and the effect of a one-percentage-point decrease in the assumed health care cost trend rates on: [FASB 132(R).5(m)] (a) The aggregate of the service and interest cost
Yes
No
286
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) components of net periodic postretirement health care benefit costs? (b) The accumulated postretirement benefit obligation for health care benefits? (For purposes of this disclosure, all other assumptions shall be held constant, and the effects shall be measured based on the substantive plan that is the basis for the accounting.) (14) If applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period? [FASB 132(R).5(n)] (15) If applicable, any alternative method used to amortize prior service amounts or unrecognized net gains and losses pursuant to paragraphs 26 and 33 of FASB 87 or paragraphs 53 and 60 of FASB 106? [FASB 132(R).5(o)] (16) If applicable, any substantive commitment, such as past practice or a history of regular benefit increases, used as the basis for accounting for the benefit obligation? [FASB 132(R).5(p)]
(17) If applicable, the cost of providing special or
Yes
No
contractual termination benefits recognized during the period and a description of the nature of the event? [FASB 132(R).5(q)] (18) An explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures required by FASB 132(R)? [FASB 132(R).5(r)]
287
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (19) If applicable, the existence and nature of substantive commitments for future increases in nonpay-related benefits or benefits under a career-average-pay plan, where the substance of the plan is to provide benefits attributable to prior service that are greater than the benefits defined by the written forms of the plan? [FASB 87.41] 2. Reduced Annual Disclosure Requirements for Nonpublic Entities a. If an employer sponsors one or more defined benefit pension plans or one or more other defined benefit postretirement plans, has the following information been provided separately for pension plans and other postretirement benefit plans: [FASB 132(R).8] (1) The amounts related to the employer's results of operations disclosed for each period for which a statement of income {statement of activities} is presented? [FASB 132(R).8] (2) The amounts related to the employer's statement of financial position, unless otherwise stated, disclosed as of the measurement date used for each statement of financial position presented? [FASB 132(R).8] (3) The benefit obligation, fair value of plan assets, and funded status of the plan? [FASB 132(R).8(a)] (4) Employer contributions, participant contributions, and benefits paid? [FASB 132(R).8(b)] (5) Information about plan assets: [FASB 132(R).8(c)] (a) For each major category of plan assets (equity securities, debt securities, real estate, and all other assets), the percentage of the fair value of total plan assets held as of the measurement date used for each statement of financial position presented?
Yes
No
288
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (b) A narrative description of investment policies and strategies, including target allocation percentages or range of percentages for each major category of plan assets presented on a weighted-average basis as of the measurement date(s) of the latest statement of financial position presented, if applicable, and other pertinent factors such as investment goals, risk management practices, permitted and prohibited investments including the use of derivatives, diversification, and the relationship between plan assets and benefit obligations? (c) A narrative description of the basis used to determine the overall expected long-term rate of return on assets assumption, such as the general approach used, the extent to which the overall rate of return assumption was based on historical returns, the extent to which adjustments were made to those historical returns, in order to reflect expectations of future returns and how those adjustments were determined? (d) Disclosure of additional asset categories and additional information about specific assets within a category is encouraged if that information is expected to be useful in understanding the risks associated with each asset category and the overall expected longterm rate of return on assets? (6) For defined benefit pension plans, the accumulated benefit obligation. [FASB 132(R).8(d)] (7) The benefits (as of the date of the latest statement of financial position presented), expected to be paid in each of the next five years, and in the aggregate for the next succeeding five years? The expected benefits should be estimated based on the same assumptions used to measure the company's benefit obligation at the end of the year and should include estimated future employee service. [FASB 132(R).8(e)]
Yes
No
289
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (8) The employer's best estimate, as soon as it can be reasonably determined, of contributions expected to be paid to the plan during the next fiscal year beginning after the date of the latest statement of financial position? Estimated contributions may be presented in the aggregate, combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).8(f)] (9) The amounts recognized in the statements of financial position, including net pension and other postretirement benefit prepaid assets or accrued liabilities and any intangible asset and the amount of accumulated other comprehensive income recognized pursuant to paragraph 37 of FASB 87, as amended? [FASB 132(R).8(g)] (10) The amount of net periodic benefit cost recognized and the amount included within other comprehensive income {changes in unrestricted net assets, apart from expenses} arising from a change in the minimum pension liability recognized pursuant to paragraph 37 of FASB 87, as amended? [FASB 132(R).8(h)] (11) On a weighted-average basis, the following assumptions used in the accounting for the plans, specifying, in tabular format, the assumptions used to determine the benefit obligation and the assumptions used to determine net benefit cost: [FASB 132(R).8(i)] (a) Assumed discount rates? (b) Rates of compensation increase (for payrelated plans)? (c) Expected long-term rates of return on plan assets? (12) The measurement date(s) used to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans that make up at least the majority of plan assets and benefit obligations? [FASB 132(R).8(j)]
Yes
No
290
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (13) The assumed healthcare cost trend rate(s) for the next year used to measure the expected cost of benefits covered by the plan (gross eligible charges), and a general description of the direction and pattern of change in the assumed trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? [FASB 132(R).8(k)] (14) If applicable, the amounts and types of securities of the employer and related parties included in plan assets, the approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties, and any significant transactions between the employer or related parties and the plan during the period? [FASB 132(R).8(l)] (15) The nature and effect of significant nonroutine events, such as amendments, combinations, divestitures, curtailments, and settlements? [FASB 132(r).8(M)] 3. Employers With Two or More Plans Public and Nonpublic Entities a. Have required disclosures been aggregated for all of an employer's defined benefit pension plans and for all of an employer's other defined benefit postretirement plans unless disaggregating in groups is considered to provide useful information or is otherwise required by paragraphs 6 and 7 of FASB 132(R)? [FASB 132(R).6] b. Are disclosures as of the measurement date for each statement of financial position presented? [FASB 132(R).6] c. Have disclosures of amounts recognized in the statement of financial position been presented separately for prepaid benefit costs and accrued benefit liabilities? [FASB 132(R).6] d. If aggregated disclosures are presented, is the following disclosed: (1) The aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets as of the
Yes
No
291
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) measurement date of each statement of financial position presented? [FASB 132(R).6(a)] (2) The aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets? [FASB 132(R).6(b)] 4. Employers With Foreign Plans Public and Nonpublic Entities a. If the benefit obligations of U.S. and foreign plans use significantly different assumptions, have disclosures been made separately for both the U.S. and foreign plans? [FASB 132(R).7] b. If a foreign reporting entity prepares financial statements in conformity with U.S. generally accepted accounting principles, did it apply the preceding guidance to its domestic and foreign plans? [FASB 132(R).7] 5. Postretirement Medical Plans Public and Nonpublic Entities a. For postretirement medical plans that have prescription drug benefits affected by the Medicare Prescription Drug Improvement and Modernization Act (the "Act") have the following been disclosed: [FSP FAS 106-2] (1) If a determination cannot be made as to whether the medical benefits provided by a postretirement benefit plan are actuarially equivalent to those provided by the Act, is the following disclosed in financial statements for interim or annual periods: [FSP FAS 106-2.20] (a) The existence of the Act? [FSP FAS 1062.20(a)] (b) The fact that measures of the accumulated pension benefit obligation (APBO) or net periodic postretirement benefit cost do not reflect any amount associated with the subsidy because the employer is unable to conclude whether the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act? [FSP FAS 106-
Yes
No
292
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) 2.20(b)] (2) If a determination can be made as to whether medical benefits provided by a postretirement benefit plan are actuarially equivalent, for the first interim and annual periods that includes the effects of the subsidy in measuring the APBO and the first period in which the effects of the subsidy in measuring net periodic postretirement benefit cost is included, is the following disclosed: [FSP FAS 106-2.21] (a) The reduction in the APBO for the subsidy related to benefits attributed to past service? [FSP FAS 106-2.21(a)] (b) The effect of the subsidy on the measurement of net periodic postretirement benefit cost for the current period? That effect includes (1) any amortization of the actuarial experience gain referred to in (a) as a component of the net amortization called for by paragraph 59 of FASB 106, (2) the reduction in current period service cost due to the subsidy, and (3) the resulting reduction in interest cost on the APBO as a result of the subsidy. [FSP FAS 106-2.21(b)] (c) Any other disclosures required by paragraph 5(r) of FASB Statement No. 132(R). Paragraph 5(r) of that Statement requires disclosure of "an explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the other disclosures required by this Statement." [FSP FAS 106-2.21(c)] (3) For purposes of the disclosures required by paragraphs 5(a) and 5(f) of FASB 132(R), does the disclosure include the gross benefit payments (paid and expected, respectively), including prescription drug benefits, and separately the gross amount of the subsidy receipts (received and expected, respectively)? [FSP FAS 1062.22]
Yes
No
293
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) 6. Defined Contribution Plans Public and Nonpublic Entities a. For a defined contribution plan, have the following been disclosed: (1) The amount of cost recognized for defined contribution pension plans or other postretirement benefit plans for all periods presented separately from the amount of cost recognized for defined benefit plans? [FASB 132(R).11] (2) A description of the nature and effect of any significant changes during the period affecting comparability, such as a change in the rate of employer contributions, a business combination, or a divestiture? [FASB 132(R).11] (3) If the substance of the plan is to provide a defined benefit, does the accounting conform to the requirements for defined benefit plans with disclosures in accordance with paragraphs 5 and 8 of FASB 132(R)? [FASB 87.66] 7. Multiemployer Plans Public and Nonpublic Entities a. For multiemployer plans, have the following been disclosed: (1) The amount of contributions to multiemployer plans for each annual period for which an income statement {statement of activities} is presented? (Total contributions to multiemployer plans may be disclosed without disaggregating the amounts attributable to pension plans and other postretirement benefit plans.) [FASB 132(R).12] (2) A description of the nature and effect of any changes affecting comparability, such as a change in the rate of employer contributions, a business combination, or a divestiture? [FASB 132(R).12]
Yes
No
294
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (3) Have the accounting and disclosure provisions of FASB Statement No. 5, Accounting for Contingencies been applied if: [FASB 132(R).13] (a) Withdrawal from a multiemployer plan has occurred and there is an obligation to the plan for a portion of the pension plan's and other postretirement benefit plan's unfunded benefit obligations that is either probable or reasonably possible? [FASB 87, paragraph 70] (b) It is either probable or reasonably possible that (1) an employer would withdraw from the plan under circumstances that would give rise to an obligation or (2) an employer's contribution to the fund would be increased during the remainder of the contract period to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage (a "maintenance of benefits" clause)? 8. Interim Disclosures Public and Nonpublic Entities a. For a publicly traded entity, has the following information been disclosed in its interim financial statements that include a statement of income {statement of activities}: [FASB 132(R).9(a)] (1) The amount of net periodic benefit cost recognized, for each period in which a statement of income is presented, showing separately: [FASB 132(R).9(a)] (a) Service cost component? (b) Interest cost component? (c) Expected return on plan assets for the period? (d) Amortization of the unrecognized transition obligation or transition asset? (e) The amount of recognized gains or losses? (f) The amount of prior service cost recognized?
Yes
No
295
Disclosure: P16 PENSION LIABILITIES, ASSETS, AND COSTS (INCLUDING OTHER POSTRETIREMENT BENEFIT PLANS) (12/08) (g) The amount of gain or loss recognized due to a settlement or curtailment? (2) The total amount of employer's contribution paid, and expected to be paid during the current fiscal year, if significantly different from amounts previously disclosed pursuant to paragraph 5(g) of FASB 132(R)? Estimated contributions may be presented in the aggregate combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).9(b)] b. For a nonpublic entity, for interim periods, for which a complete set of financial statements is presented, has the total amount of employer's contributions paid and expected to be paid during the current fiscal year been disclosed, if significantly different from previous disclosures pursuant to paragraph 8(f) of FASB 132(R)? Estimated contributions may be presented in the aggregate, combining (1) contributions required by funding regulations or laws, (2) discretionary contributions, and (3) noncash contributions. [FASB 132(R).10] 9. Disclosures Required Prior to the Adoption of the Recognition Provisions of FASB 158 Entities Without Publicly Traded Equity Securities a. Has an entity without publicly traded equity securities disclosed the following in the notes to the financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of FASB 158 in preparing those financial statements: [FASB 158.14] (1) A brief description of the provisions of FASB 158? (2) The date that adoption is required? (3) The date the employer plans to adopt the recognition provisions of FASB 158, if earlier?
Yes
No
296
Accounting: P32 POSTEMPLOYMENT BENEFITS (12/08) 1. Has the company evaluated all postemployment benefits provided to former and inactive employees, their beneficiaries, and covered dependents after employment but before retirement to determine whether a liability should be accrued under FASB 112? (These benefits will include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits (including workers' compensation), job training and counseling, and continuation of benefits such as health care and life insurance coverage.) [FASB 112.01, .04] 2. Has a liability for postemployment benefits been recognized in accordance with the provisions of FASB 43 if all of the following criteria are met: [FASB 112.06] a. The employer's obligation relating to employees' rights to receive the benefits is attributable to services already rendered, b. The obligation relates to rights that accumulate or vest, c. Payment of the compensation is probable, and d. The amount can be reasonably estimated? 3. Has a liability for postemployment benefits been recognized in accordance with the provisions of FASB 5 if the above four criteria are not met and it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated? [FASB 112.06] 4. If the cost of postemployment benefits, as determined under FASB 112, is directly related to the disposal of a component of an entity, is the cost recognized pursuant to the requirements of FASB 144 and classified in discontinued operations? [FASB 144.44(c)] 5. See Business Combinations, B50, Section G, question 1j, as applicable, for questions regarding accounting for postemployment benefits in a business combination. Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit (ATZ) Early Retirement Arrangements) This Issue addresses (1) how to account for the bonus feature and additional contributions into the German government pension scheme under a Type II arrangement and (2) how to account
Yes
No
297
Accounting: P32 POSTEMPLOYMENT BENEFITS (12/08) for the government subsidy under Type I and Type II ATZ arrangements. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in Anticipation of a Business Combination This Issue addresses whether a liability for the contractual termination benefits and the curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination should be recognized when (1) it is probable that the business combination will be consummated or (2) the business combination is consummated.
Yes
No
Disclosure: P32 POSTEMPLOYMENT BENEFITS (12/08) 1. If an obligation for post employment benefits is not accrued in accordance with FASB 5 or FASB 43 only because the amount cannot be reasonably estimated, is that fact disclosed in the financial statements? [FASB 112.07]
Yes
No
NA
Comments/References
Accounting: Q15 QUASI-REORGANIZATIONS (12/08) 1. If a quasi-reorganization or corporate readjustment has occurred, has the proper accounting treatment been applied? [ARB 43, Ch. 7A] 2. Is the new retained earnings account dated to show that it runs from the effective date of the readjustment, until such time as the effective date is no longer deemed to possess any special significance? [ARB 43, Ch. 7A.10] [The dating of retained earnings following a quasireorganization would rarely, if ever, be of significance after a period of 10 years and there may be exceptional circumstances in which the discontinuance of the dating of retained earnings could be justified at the conclusion of a period less than 10 years. [ARB 46.02]] [NOTE: Entities registered with the SEC or that are contemplating registering with the SEC should ensure compliance with the provisions of SAB Topic 5-S.]
Yes
No
298
Accounting: R10 REAL ESTATE TRANSACTIONS (12/08) 1. If the entity had any sales of real estate (as defined by FIN 43) during the period, (regardless of the nature of the entity's business), has the appropriate accounting ("sale" recognition and profit or loss recognition) been determined in accordance with the principles in FASB 66, as amended by FASB 144 and FASB 152, unless the entity also had a leaseback of such real estate, which is addressed separately in item 2 below? [Note: FASB 144 amends FASB 66.65 to state, "The seller continues to charge depreciation to expense as a period cost for the property for which deposits have been received unless the property has been classified as held for sale in accordance with paragraph 30 of FASB 144, Accounting for the Impairment or Disposal of Long-Lived Assets." Refer to section D60 for further guidance on accounting for long-lived assets held for sale. Also, FASB 152 amends FASB 66 and 67 to note that real estate time-sharing transactions should be accounted for as nonretail land sales as provided in the guidance of AICPA Statement of Position 04-2.] 2. If the entity had any sales of real estate (as defined by FIN 43) during the period (regardless of the nature of the entitys business) and entered into a leaseback of the real estate sold, has the appropriate accounting been determined in accordance with the principles of FASB 66, as amended by FASB 98, and FASB 13, as amended? [Note: Refer to section L11, Accounting for Leases by Lessees, section J for further guidance on accounting for sale leasebacks involving real estate.] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 07-6, Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a Buy-Sell Clause - At issue is whether a buy-sell clause represents a prohibited form of continuing involvement (e.g., an option to reacquire the real estate) under FASB 66 that precludes partial sale-and-profit recognition upon transfer of the real estate to the venture by the selling investor. 06-8, Applicability of the Assessment of a Buyer's Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums The Issue is whether, in a sale of an individual condominium unit, an entity needs to evaluate the adequacy of the buyer's continuing
Yes
No
NA
Comments/References
299
Accounting: R10 REAL ESTATE TRANSACTIONS (12/08) investment pursuant to paragraph 12 of FASB 66 to recognize profit under the percentage-of-completion method. 01-2, Interpretations of APB Opinion No. 29 The Task Force addressed several issues, including Issues 10(a) and 10(b), related to whether FASB 66 applies to an exchange of similar real estate that is not subject to APB 29 because the transaction involves enough boot for the exchange to be considered monetary and, if applicable, how FASB 66 should be applied. 98-8, Accounting for Transfers of Investments That Are in Substance Real Estate The issue is whether the sale or transfer of an investment in the form of a financial asset that is in substance real estate should be accounted for in accordance with FASB 66 or FASB 125. 88-24, Effect of Various Forms of Financing under FASB Statement No. 66 The issue is how profit should be recognized under FASB 66 when a real estate sales transaction involves various forms of financing. 88-12, Transfer of Ownership Interest as Part of Down Payment under FASB Statement No. 66 The issues are: (1) whether the buyers ownership interest in a purchased property that is pledged as security for a note should be included as part of the buyers initial investment in determining whether profit may be recognized under the full accrual method, and (2) if so, in other situations in which a note is collateralized by assets other than the purchased property (e.g., other real estate properties or marketable securities), whether those asset should be included as part of the buyers initial investment. 87-9, Profit Recognition on Sales of Real Estate with Insured Mortgages or Surety Bonds The issues are: (1) whether a financial instrument (such as a surety bond) with certain characteristics may be considered equivalent to an irrevocable letter of credit in determining whether it is appropriate to recognize income under the full accrual method and (2) whether government or private mortgage insurance covering a part of the mortgage balance should be considered equivalent to an irrevocable letter of credit and included as part of the buyers initial and continuing investment. [NOTE: A related issue was addressed in Issue 84-17, Profit Recognition on Sales of Real Estate with Graduated Payment Mortgages or Insured Mortgages.] 86-7, Recognition by Homebuilders of Profit from Sales of Land and Related Construction Contracts The issue is how the homebuilder should recognize earnings from the contract
Yes
No
NA
Comments/References
300
Accounting: R10 REAL ESTATE TRANSACTIONS (12/08) related to the lot sale and the construction of the house. 86-6, Antispeculation Clauses in Real Estate Sales Contracts The issue is whether FASB 66 precludes the seller from accounting for the transaction as a sale when an antispeculation clause exists.
Yes
No
NA
Comments/References
Accounting: R36 RELATED PARTIES (12/08) 1. When a principal stockholder issues stock to an employee of an entity as compensation of services provided to the entity, has the corporation generally accounted for this type of transaction as a contribution to capital with the offsetting charge accounted for in the same manner as other compensatory plans? [FASB 123(R).11] 2. Enterprises that are members of a group that file a consolidated tax return are considered related parties. Has the consolidated amount of current and deferred tax expense for a group that files consolidated tax returns been allocated among the members of the group when those members issue separate financial statements? [FASB 109.40] 3. Is income from related-party transactions not recognized where substantial doubt exists concerning realization or where the relationship was created for the primary purpose of permitting income recognition? 4. Were transactions between the controlling shareholder and the company for capital stock, other consideration, or no consideration generally viewed as parent-subsidiary transactions and transfers between entities under common control and accounted for at historical cost of the assets transferred? 5. Were the transactions that resulted in receivables or payables to or from equity owners or other related parties evaluated to determine their substance and the appropriate reporting in the financial statements as either asset and liabilities, or as debits and credits within the equity section? 6. Has profit been recognized on inventory transactions between related parties unless the substance of the transaction is creating the illusion of profits? (Profit should be recognized if the inventory transactions are in
Yes
No
301
Accounting: R36 RELATED PARTIES (12/08) the ordinary course of business of the transacting parties, the inventory has a highly reliable market value, and the accounts receivable terms are comparable to terms provided to unrelated third parties.) 7. Have noninventory transactions between related parties generally been recorded at historical cost? 8. Has the Company only recognized a gain on transfers of assets between related parties when the transaction has economic substance and the transfer price is a reasonable estimate of the fair market value of the asset? 9. When it is clear that the terms of a real estate transaction have been affected significantly by the fact that the parties to the transactions are related, has the accounting for the transaction been modified as necessary to recognize the economic substance rather than the legal form of the transaction? Transfers of real estate between commonly controlled entities are accounted for at historical cost with any realized differences accounted for as equity adjustments.
Yes
No
Disclosure: R36 RELATED PARTIES (12/08) 1. Have the following disclosures as to material related-party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, been made: [FASB 57.02] a. The nature of the relationship(s) involved? b. A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements? c. The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period? d. Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement?
Yes
No
302
Disclosure: R36 RELATED PARTIES (12/08) 2. For an entity that is a member of a group that files a consolidated tax return, have the following disclosures been made in its separately issued financial statements: [FASB 57.02e; FASB 109.49] a. The aggregate amount of current and deferred tax expense for each statement of earnings presented and the amount of any tax-related balances due to or from affiliates as of the date of each statement of financial position presented? b. The principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to members of the group and the nature and effect of any changes in that method (and in determining related balances to or from affiliates) during the years for which the disclosures in (a) above are presented? 3. Do the financial statements of the entity not duplicate disclosures in a set of separate financial statements that is presented in the financial report of another enterprise (the primary reporting enterprise) if those separate financial statements also are consolidated or combined in a complete set of financial statements and both sets of financial statements are presented in the same financial report? [FASB 57.02 footnote 2] 4. Do representations made about transactions with related parties not imply that the transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated? [FASB 57.03] 5. Has the nature of common control been disclosed if the company is one of two or more entities under common ownership or management control, and the existence of that control could result in operating results or financial position of the reporting enterprise significantly different from those that would have been obtained if the enterprises were autonomous, even if related-party transactions do not exist? [FASB 57.04] 6. Are notes and accounts receivable due from officers, employees, or affiliated companies shown separately from those of third parties or customers? [ARB 43, Ch. 1A.05]
Yes
No
303
Accounting: R50 RESEARCH AND DEVELOPMENT (12/08) 1. Has research and development been defined as follows? a. Research is a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service (hereinafter "product") or a new process or technique (hereinafter "process") or in bringing about a significant improvement to an existing product or process? b. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. It includes the conceptual formulation, design, and testing of product alternatives, construction of prototypes, and operation of pilot plants. It does not include routine or periodic alterations to existing products, production lines, manufacturing processes, and other ongoing operations even though those alterations may represent improvements and it does not include market research or market testing activities? [FASB 2.08] Examples of activities typically included in research and development can be found in paragraph 9 of FASB 2. Examples of activities typically excluded from research and development can be found in paragraph 10 of FASB 2. 2. Have elements of costs been identified with research and development activities as follows: a. Have the costs of materials (whether from the enterprise's normal inventory or acquired specially for research and development activities) and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) been capitalized as tangible assets when acquired or constructed? [FASB 2.11a] b. Are the cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities included in research and development costs? [FASB 2.11a]
Yes
No
304
Accounting: R50 RESEARCH AND DEVELOPMENT (12/08) c. Are the costs of materials, equipment, or facilities that are acquired or constructed for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values, research and development costs at the time the costs are incurred? [FASB 2.11a] d. Have salaries, wages, and other related costs of personnel engaged in research and development activities been included in research and development costs? [FASB 2.11b] e. Have the costs of intangible assets that are purchased from others for use in research and development activities and that have alternative future uses (in research and development projects or otherwise) been accounted for in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets? [FASB 2.11c] f. Has the amortization of those intangible assets used in research and development activities been included as a research and development cost? [FASB 2.11c]
Yes
No
g. Are the costs of intangibles that are purchased from others for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values, research and development costs at the time the costs are incurred? [FASB 2.11c] h. Have the costs of services performed by others in connection with the research and development activities of an enterprise, including research and development conducted by others on behalf of the enterprise, been included in research and development costs? [FASB 2.11d] i. Do research and development costs include a reasonable allocation of indirect costs? General and administrative costs that are not clearly related to research and development activities should be excluded from research and development costs. [FASB 2.11e]
3. If the company has research and development costs (as defined in paragraphs 8-11 of FASB 2), have all such costs been charged to expense when incurred? [FASB
305
Accounting: R50 RESEARCH AND DEVELOPMENT (12/08) 2.12] 4. Have costs incurred to purchase or lease computer software developed by others not been accounted for as research and development costs unless the software is for use in research and development activities, including tools used to facilitate research and development or components of a product or process that are undergoing research and development activities? [FIN 6.05] 5. Have costs incurred by a company in developing computer software internally for use in its research and development activities been accounted for as research and development costs and, therefore, been charged to expense when incurred? [FIN 6.08] 6. To the extent that the acquisition, development, or improvement of a process by a company for use in its selling or administrative activities includes costs for computer software, have those costs not been accounted for as research and development costs? [FIN 6.04] 7. Have costs assigned to assets acquired in a business combination to be used in a particular research and development activity that have no alternative future use been charged to expense at the date of consummation of the combination? [FIN 4.05] [EITF 86-14] 8. Is the company a party to an arrangement through which it can obtain the results of research and development funded partially or entirely by others? (If yes, complete "Research and Development Arrangements.") 9. Has the entity accounted for the following costs of internal-use computer software as research and development in accordance with the provisions of FASB 2? a. Purchased or leased computer software used in research and development activities where the software does not have alternative future uses. b. All internally developed internal-use computer software (including software developed by third parties, e.g., programmer consultants) if (1) the software is a pilot project (i.e., software of a nature similar to a pilot plant as noted in paragraph 9(h) of FASB 2) or (2) the software is used in a particular research and development project, regardless of whether the software has alternative future uses. Has the entity complied with the following Issues discussed
Yes
No
306
Accounting: R50 RESEARCH AND DEVELOPMENT (12/08) by the Emerging Issues Task Force, when applicable? 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities This Issue addresses whether nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed or goods have been provided. The Task Force reached a consensus that nonrefundable advance payments for future R&D activities should be capitalized and recognized as an expense as the goods are delivered or services are performed. 00-2, Accounting for Web Site Development Costs This Issue addresses how an entity should account for costs incurred to develop a web site. The Task Force reached consensuses in this Issue related to the following costs: Costs incurred in the planning stage, Costs incurred in the web site application and infrastructure development stage, Costs incurred to develop graphics, Costs incurred to develop content, and Costs incurred in the operating stage.
Yes
No
99-5, Accounting for Pre-Production Costs Related to LongTerm Supply Arrangements This Issue addresses the accounting for pre-production costs related to products that will be supplied to customers under long-term supply arrangements. The Task Force reached consensuses on the following issues: Issue 1: How an entity should account for costs incurred to design and develop products that will be sold under a long-term supply arrangement. Issue 2: How an entity should account for costs incurred to design and develop molds, dies, and other tools that it will own and that will be used to produce products that will be sold under a long-term supply arrangement. Issue 3: How an entity should account for costs incurred to design and develop molds, dies, and other tools that it will not own and that will be used to produce products that will be sold under a long-term supply arrangement. Issue 4: Whether the accounting for Issues 1 through 3
307
Accounting: R50 RESEARCH AND DEVELOPMENT (12/08) would be affected if a supplier will be reimbursed for design and development costs. An SEC Observer stated that registrants would be expected to disclose their accounting policy for pre-production design and development costs as well as the aggregate amount of assets recognized pursuant to this Issue. 97-13, Accounting for Costs Incurred in Connection with a Consulting Contract That Combines Business Process Reengineering and Information Technology Transformation This Issue addresses the accounting for certain costs incurred in connection with a consulting contract that combines business process reengineering and information technology transformation. The Task Force reached consensuses on the following issues: Issue 1: How an entity should account for third-party or internally generated costs associated with projects that combine business process reengineering activities and information technology transformation. Issue 2: How the total costs of a business process reengineering consulting contract performed by a third party should be allocated to the project's various individual activities.
Yes
No
96-6, Accounting for the Film and Software Costs Associated with Developing Entertainment and Educational Software Products This Issue addresses how companies should account for film and software costs associated with developing entertainment and educational (EE) software products. At the May 23, 1996 meeting discussing this Issue, the SEC Observer announced that the SEC staff believes that EE products (and film costs associated with those products) that are sold, leased, or otherwise marketed are subject to the accounting requirements of FASB 86. In addition, exploitation costs should be expensed as incurred unless those costs include advertising costs that qualify for capitalization in accordance with the provisions of SOP 93-7. Due to the SEC staff's position, the Task Force was not asked to reach a consensus on this Issue.
Disclosure: R50 RESEARCH AND DEVELOPMENT (12/08) 1. Do the financial statements disclose the total research and development costs charged to expense in each period for which an income statement is presented? [FASB 2.13]
Yes
No
308
Accounting: R70 RETAINED EARNINGS (12/08) 1. Is the balance of retained earnings or deficit of a purchased subsidiary at the date of acquisition excluded from consolidated retained earnings? [ARB 51.9] 2. Are dividends declared out of the retained earnings of a subsidiary attributable to periods prior to its acquisition excluded from the income account of the parent entity? [ARB 43, Ch. 1A.3] 3. If the company has classified a portion of retained earnings as "appropriated" for loss contingencies: [FASB 5.15] a. Have no costs or losses been charged to the appropriation and has no part of the appropriation been transferred to income?
Yes
No
NA
Comments/References
Disclosure: R70 RETAINED EARNINGS (12/08) 1. If the company has classified a portion of retained earnings as "appropriated" for loss contingencies: [FASB 5.15] a. Is the appropriation shown within the stockholders' equity section of the balance sheet and clearly identified as an appropriation of retained earnings? 2. Are restrictions as to dividend payments disclosed? [FASB 5.18-.19]
Yes
No
Accounting: R75 REVENUE RECOGNITION (12/08) [NOTE: Significant activity has occurred in recent years relating to EITF and SEC interpretations of the authoritative accounting literature relating to revenue recognition. Companies should ensure that they are in compliance with the EITF issues related to revenue recognition. Companies registered with the SEC or that are contemplating registering with the SEC should ensure compliance with the provisions of SAB 104 (SAB 101, as amended on December 17, 2003 (SAB Topic 13, as amended)) and the frequently asked questions related to SAB 101, as amended.] Additionally, private companies should ensure compliance with SAB 104 unless there is a
Yes
No
309
Accounting: R75 REVENUE RECOGNITION (12/08) more appropriate revenue recognition model to apply. A. Revenue Recognition General 1. Revenue is generally realized or realizable and earned when all of the following criteria are met: [SAB 104] a. There is persuasive evidence that an arrangement exists. Examples of persuasive evidence often include written agreements, on-line authorizations and purchase orders but is dependent upon a company's business practices and processes. b. Delivery has occurred or services have been rendered. Delivery generally is not considered to have occurred unless the customer has taken title and assumed the risks and rewards of ownership of the products specified in the customer's purchase order or sales agreement. After delivery of a product or performance of a service, if uncertainty exists about customer acceptance, revenue should not be recognized until acceptance occurs. c. The seller's price to the buyer is fixed or determinable. A company's contracts may include customer cancellation or termination clauses. Cancellation or termination provisions may be indicative of a demonstration period or an otherwise incomplete transaction. The sales price in arrangements that are cancelable by the customer are neither fixed nor determinable until the cancellation privileges lapse. If the cancellation privileges expire ratably over a stated contractual term, the sales price is considered to become determinable ratably over the stated term. Short-term rights of return, such as 30-day moneyback guarantees, and other customary rights to return products are not considered to be cancellation privileges, but should be accounted for in accordance with FASB Statement 48. d. Collectibility of the revenue is reasonably assured. B. Reporting Revenue Gross Versus Net [EITF 99-19] The issue is whether a company should report revenue based on (a) the gross amount billed to a customer because it has earned revenue from the sale of the goods or services or (b) the net amount retained (that is, the amount billed to the customer less the amount paid to a supplier) because it has earned a commission or fee. In assessing whether revenue should be reported gross
Yes
No
310
Accounting: R75 REVENUE RECOGNITION (12/08) with separate display of cost of sales to arrive at gross profit or on a net basis, the [SEC] staff considers whether the registrant: 1. Acts as principal in the transaction, 2. Takes title to the products, 3. Has risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns, and 4. Acts as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis. There are many factors that must be considered in determining whether an enterprise is acting as the principal or the agent or broker in a transaction. The enterprise should consult EITF 99-19 and review the applicable indicators in determining whether to record a transaction gross or net based on their individual facts and circumstances. C. Revenue Arrangements With Multiple Deliverables [EITF 00-21] A vendor should evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. That evaluation must be performed at the inception of the arrangement and as each item in the arrangement is delivered. 1. If an enterprise is party to an arrangement with multiple deliverables, the delivered item(s) should be considered a separate unit of accounting if all of the following criteria are met: a. The delivered item(s) has value to the customer on a standalone basis. That item(s) has value on a standalone basis if it is sold separately by any vendor or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer's ability to resell the delivered item(s), the Task Force observed that this criterion does not require the existence of an observable market for that deliverable(s). b. There is objective and reliable evidence of the fair value of the undelivered item(s). c. If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and
Yes
No
311
Accounting: R75 REVENUE RECOGNITION (12/08) substantially in the control of the vendor. 2. If the enterprise is party to an arrangement in which the amount received is contingent upon delivery of one of the units of accounting, the amount allocable to a delivered item(s) is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (the noncontingent amount). That is, the amount allocable to the delivered item(s) is the lesser of the amount otherwise allocable in accordance with paragraphs 12 and 13, of EITF 00-21, or the noncontingent amount. Additionally, although FASB 48 may impact the amount of revenue recognized, the allocated amount is not adjusted for the impact of a general right of return pursuant to that Statement. [NOTE: See full text of EITF 00-21 for additional issues covered by EITF 00-21.] D. Accounting for Consideration Given by a Vendor to a Customer [EITF 01-9] 1. Cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement. That presumption is overcome and the consideration should be characterized as a cost incurred if, and to the extent that, both of the following conditions are met: a. The vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration. In order to meet this condition, the identified benefit must be sufficiently separable from the recipient's purchase of the vendor's products such that the vendor could have entered into an exchange transaction with a party other than a purchaser of its products or services in order to receive that benefit. b. The vendor can reasonably estimate the fair value of the benefit identified under condition (a). If the amount of consideration paid by the vendor exceeds the estimated fair value of the benefit received, that excess amount should be characterized as a reduction of revenue when recognized in the vendor's income statement. [NOTE: See the full text of EITF 01-9 for additional issues covered by EITF 01-9.]
Yes
No
312
Accounting: R75 REVENUE RECOGNITION (12/08) E. Accounting by a Customer (Including a Reseller) for Certain Consideration Received From a Vendor [EITF 02-16] 1. Cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the customer's income statement. However, that presumption can be overcome and the consideration may be classified as revenue (or other income, as appropriate) if the payment is for assets or services delivered to the vendor. In order to meet the criteria and be classified as revenue (or other income, as appropriate), the vendor must receive, now or in the future, an identifiable benefit (goods or services) in exchange for the consideration. In order to meet that condition, the identified benefit must be sufficiently separable from the customer's purchase of the vendor's products such that the customer would have entered into an exchange transaction with a party other than the vendor in order to provide that benefit, and the customer can reasonably estimate the fair value of the benefit provided. If the amount of cash consideration paid by the vendor exceeds the estimated fair value of the benefit received, that excess amount should be characterized as a reduction of cost of sales when recognized in the customer's income statement. [NOTE: See the full text of EITF 02-16 for additional issues covered by EITF 02-16.] F. REVENUE RECOGNITION WHEN RIGHT OF RETURN EXISTS [FASB 48] 1. If the enterprise sells its product but gives the buyer the right to return the product, whether as a matter of contract or as a matter of existing practice, other than for return of defective goods under warranty, is revenue from the sales transaction recognized at the time of sale only if all of the following conditions are met: [FASB 48.03, 48.04, 48.06] a. The seller's price to the buyer is substantially fixed or determinable at the date of sale? b. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product? c. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product?
Yes
No
313
Accounting: R75 REVENUE RECOGNITION (12/08) d. The buyer acquiring the product for resale has economic substance apart from that provided by the seller? e. The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer? f. The amount of future returns can be reasonably estimated?
Yes
No
[NOTE: The provisions of FASB 48 are not applicable to service revenue if part or all of the service revenue may be returned under cancellation privileges granted to the buyer or to transactions involving real estate or leases.] [FASB 48.04] 2. If the foregoing conditions are not met, are sales revenue and cost of sales recognized either when the return privilege has substantially expired or when those conditions are subsequently met, whichever occurs first? [FASB 48.06] 3. If sales revenue is recognized because the conditions mentioned in question 1 above are met, have costs or losses that may be expected in connection with any returns been accrued in accordance with FASB 5 and have sales revenue and cost of sales reported in the income statement been reduced to reflect estimated returns? [FASB 48.07] G. INSTALLMENT METHOD OF ACCOUNTING [APB 10] 1. Does the company recognize revenues when sales in the ordinary course of business are effected and use the installment method or cost recovery method only if the collection of the sale price is not reasonably assured (see R10 for real estate transactions)? [APB 10.12] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities This issue addresses whether nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed or goods have been provided. The Task Force reached a consensus that nonrefundable advance payments for future R&D activities should be capitalized and recognized as an expense as the goods are delivered or services are
314
Accounting: R75 REVENUE RECOGNITION (12/08) performed. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) This Issue addresses the presentation in the income statement of taxes collected from customers and remitted to governmental authorities (including but not limited to sales, use, value added, and some excise taxes). The Task Force reached a consensus that the presentation of taxes within the scope of this Issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed pursuant to APB Opinion 22. This Issue is effective for interim and annual reporting periods beginning after December 15, 2006. Early application is permitted. 06-1, Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider This Issue addresses (1) whether the consideration given by a service provider to a manufacturer or reseller (that is not a customer of the service provider) that, in turn, provides a benefit to the service provider's customer should be characterized as "cash consideration" or "other than cash" consideration for purposes of applying EITF Issue 01-9; (2) whether the consideration given by a service provider to a manufacturer or a reseller of equipment that benefits a customer of both the service provider and the equipment manufacturer or reseller, when the equipment is necessary for a customer to receive a service from the service provider, is, in substance, the same as the service provider giving the consideration directly to the endcustomer; (3) whether the consideration given by a service provider to a manufacturer or a reseller (that is not a customer of the service provider) of equipment, when the equipment is necessary for an endcustomer to receive a service from the service provider and the consideration can be linked to the benefit received by the service provider's customer, should be accounted for in accordance with the model used in EITF Issue 01-9. This Issue is effective for the first annual reporting period beginning after June 15, 2007. Early application is permitted for financial statements not yet issued. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty This Issue relates to when an entity sells inventory to another entity in the same line of business from which it also purchases inventory. The purchase and sale transactions may be pursuant to a single contractual
Yes
No
315
Accounting: R75 REVENUE RECOGNITION (12/08) arrangement or separate contractual arrangements, and the inventory purchased or sold may be in the form of raw materials, work-in-process (WIP), or finished goods. 03-12, Impact of FASB Interpretation No. 45 on EITF Issue No. 95-1 The Task Force reached a consensus that Interpretation 45 does not affect Issue 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value, because Interpretation 45 does not apply to a guarantee for which the underlying is related to an asset of the guarantor. 03-10, Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers The Task Force reached a consensus that sales incentive arrangements that meet certain criteria described therein (i.e., certain manufacturer coupons) are not subject to the guidance in Issue 02-16. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software The Task Force reached a consensus that the scope of SOP 97-2 includes deliverables for which software is essential to the functionality. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor The Task Force addressed the accounting by a customer for consideration received from a vendor including classification and measurement. (See expanded discussion in the checklist above.) 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) The Task Force addressed the accounting by a vendor for consideration given to a customer including classification and measurement. (See expanded discussion in the checklist above.) 01-4, Accounting for Sales of Fractional Interests in Equipment The Task Force discussed the Issue but was not asked to reach a consensus. Most Task Force members expressed the view that, depending on their terms, fractional sales arrangements could contain multiple deliverables (typically consisting of the fractional interest in the equipment and the services under the management agreement) or could consist of only a single deliverable (i.e., services involving the equipment to which the fractional interest relates). 00-24, Revenue Recognition: Sales Arrangements That Include Specified-Price Trade-In Rights The Task Force discussed how a vendor should account for a specified-price
Yes
No
316
Accounting: R75 REVENUE RECOGNITION (12/08) trade-in right in connection with the sale of the underlying equipment, including its effect on revenue recognition, from the date the equipment is sold to the date the trade-in right is exercised or expires. No consensus was reached. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future This Issue provides guidance on loyalty programs including: (a) vendor-sponsored programs that offer awards consisting of the vendor's products or services, (b) broad-based programs operated by program operators whose business consists solely of administering the loyalty program, and (c) combination programs operated by vendors for their own customers as well as other participating vendors and their customers. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables This Issue addresses the accounting for revenue arrangements with multiple deliverables by providing criteria that must be met to account for items as separate units of accounting. (See expanded discussion in the checklist above.) 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware The Task Force determined which arrangements that provide a customer with use of software fall within SOP 97-2 and which are service arrangements. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent The Task Force developed indicators to determine when revenue transactions should be reported gross as a principal vs. net as an agent. (See expanded discussion in the checklist above.) 99-17, Accounting for Advertising Barter Transactions This Issue addresses whether barter transactions that involve a nonmonetary exchange of advertising should result in recorded revenues and expenses at the more readily determinable fair value of the advertising surrendered or received in the exchange, or book value, because fair value cannot be determined within reasonable limits. 96-17, Revenue Recognition under Long-Term Power Sales Contracts That Contain both Fixed and Variable Pricing Terms The Issue is how revenue should be recognized on a long-term power sales contract that contains separate, specified terms for (1) a fixed or scheduled price per kilowatt hour (kWh) for one period of time and (2) a variable price per kWh (based on market prices, actual avoided costs, or
Yes
No
317
Accounting: R75 REVENUE RECOGNITION (12/08) formula-based pricing arrangements) for a different period of time, where neither a tracker account nor any other form of adjustment determines or limits the total revenues to be billed under the contract over its entire period. 95-4, Revenue Recognition on Equipment Sold and Subsequently Repurchased Subject to an Operating Lease This Issue addresses whether a manufacturer is precluded from recognizing a sale of a product to a dealer if the customer subsequently enters into an operating lease with the manufacturer or its finance affiliate who acquires that product subject to the lease. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value This Issue addresses whether a manufacturer is precluded from recognizing a sale of equipment if the manufacturer guarantees the resale value of the equipment to the purchaser. 91-9, Revenue and Expense Recognition for Freight Services in Process This Issue addresses what the appropriate accounting method(s) should be for recognizing revenue and expense related to a freight service company's freight-intransit at the end of a reporting period. 91-6, Revenue Recognition of Long-Term Power Sales Contracts The Task Force addressed several recognition methods for revenue recognition of long-term power sales contracts. 88-18, Sales of Future Revenues The Task Force identified criteria to determine whether cash received from an investor should be classified as debt or deferred income. D-96, Accounting for Management Fees Based on a Formula This Issue addresses the acceptable revenue recognition methods for management fees that are based on a formula.
Yes
No
Disclosure: R75 REVENUE RECOGNITION (12/08) 1. Has the Company appropriately disclosed, in a transparent fashion, its revenue recognition policy and subjective or complex judgments that affect revenue recognition? For example, has the Company adequately disclosed the following, as applicable (which may include, but is not necessarily limited to): a. The Company's revenue recognition model (e.g., SOP 81-1) and the relevant criteria that clarify when
Yes
No
318
Disclosure: R75 REVENUE RECOGNITION (12/08) revenue is realized or realizable and earned, for example, when all of the four criteria described in SAB 104 (SAB 101 as amended on December 17, 2003) are met? b. The Company's revenue recognition policy when there are multiple deliverables in the arrangement, for example, the Company's methodology in determining separate deliverables or units of accounting and its revenue allocation methodology to the separate deliverables or units of accounting? If revenue is allocated based on fair value, is the method of determining fair value disclosed (and as applicable, how the Company determines vendor-specific objective evidence (VSOE) of fair value)? c. The Company's accounting policy when there are promotional allowances/sales incentives received from vendors and other entities, which include but are not limited to payments under buydown agreements, slotting fees, rebates, coupons, cooperative advertising, free products or services and other consideration (including the nature and magnitude of allowances or other credits received from vendors)? d. The Company's policies related to its accounting for sales allowances (e.g., current or potential future discounts from regular prices, rebate-type arrangements, coupons, price adjustments, charge backs, free gift promotions and other potential adjustments), for example, how the Company estimates or determines the amount? e. The Company's revenue recognition policy with respect to reporting revenue gross versus net, for example, the indicators that point to gross or net reporting, and if net reporting is used, are the gross amounts disclosed as appropriate? f. The Company's revenue recognition policies when there are customer acceptance provisions (or other significant conditions of sale such as testing or installation), rights of return, refund or cancellation clauses or price protection clauses, for example, how such terms affect revenue recognition?
Yes
No
g. The Company's shipping terms that support revenue recognition, for example, clarification of when risk of loss and title transfer occur? h. The Company's policy with respect to up-front fees,
319
Disclosure: R75 REVENUE RECOGNITION (12/08) activation fees and other similar fees, for example, the circumstances requiring deferral of revenue and the period over which deferred revenues are recognized? i. The Company's revenue recognition policy when there are warranty obligations, for example, when and how the Company accounts for its obligations? The Company's revenue recognition policy for sales through multiple distribution channels?
Yes
No
j.
k. The Company's revenue recognition policy for barter transactions? l. The terms and conditions of the Company's gift card program, including any significant accounting policies related to the gift card program (e.g., breakage)?
m. The Company's accounting policy for post-contract customer support arrangements? n. Any other terms and/or subjective/complex judgments that would be essential for transparent disclosure? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) This Issue addresses the presentation in the income statement of taxes collected from customers and remitted to governmental authorities (including but not limited to sales, use, value added, and some excise taxes). The Task Force reached a consensus that the presentation of taxes within the scope of this issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed pursuant to APB Opinion 22. This Issue is effective for interim and annual reporting periods beginning after December 15, 2006. Early application is permitted. 06-1, Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider This Issue addresses (1) whether the consideration given by a service provider to a manufacturer or reseller (that is not a customer of the service provider) that, in turn, provides a benefit to the service provider's customer should be characterized as "cash consideration" or "other than cash" consideration for purposes of applying EITF Issue 01-9; (2) whether the consideration given by a service provider to a
320
Disclosure: R75 REVENUE RECOGNITION (12/08) manufacturer or a reseller of equipment that benefits a customer of both the service provider and the equipment manufacturer or reseller, when the equipment is necessary for a customer to receive a service from the service provider, is, in substance, the same as the service provider giving the consideration directly to the end-customer; (3) whether the consideration given by a service provider to a manufacturer or a reseller (that is not a customer of the service provider) of equipment, when the equipment is necessary for an endcustomer to receive a service from the service provider and the consideration can be linked to the benefit received by the service provider's customer, should be accounted for in accordance with the model used in EITF Issue 01-9. This Issue is effective for the first annual reporting period beginning after June 15, 2007. Early application is permitted for financial statements not yet issued. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty This Issue relates to when an entity sells inventory to another entity in the same line of business from which it also purchases inventory. The purchase and sale transactions may be pursuant to a single contractual arrangement or separate contractual arrangements, and the inventory purchased or sold may be in the form of raw materials, work-in-process (WIP), or finished goods. 03-12, Impact of FASB Interpretation No. 45 on EITF Issue No. 95-1 (Revenue Recognition on Sales with a Guaranteed Minimum Resale Value) The Task Force reached a consensus that Interpretation 45 does not affect Issue 95-1 because Interpretation 45 does not apply to a guarantee for which the underlying is related to an asset of the guarantor. 03-10, Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers The Task Force reached a consensus that sales incentive arrangements that meet certain criteria described therein (i.e. certain manufacturer coupons) are not subject to the guidance in Issue 02-16. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software The Task Force reached a consensus that the scope of SOP 97-2 includes deliverables for which software is essential to the functionality 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor The Task Force addressed the accounting by a customer for consideration received from a vendor including classification
Yes
No
321
Disclosure: R75 REVENUE RECOGNITION (12/08) and measurement. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) The Task Force addressed the accounting by a vendor for consideration given to a customer including classification and measurement. 01-4, Accounting for Sales of Fractional Interests in Equipment The Task Force discussed the Issue but was not asked to reach a consensus. Most Task Force members expressed the view that, depending on their terms, fractional sales arrangements could contain multiple deliverables (typically consisting of the fractional interest in the equipment and the services under the management agreement) or could consist of only a single deliverable (i.e., services involving the equipment to which the fractional interest relates). 00-24, Revenue Recognition: Sales Arrangements That Include Specified-Price Trade-In Rights The Task Force discussed how a vendor should account for a specified-price trade-in right in connection with the sale of the underlying equipment, including its effect on revenue recognition, from the date the equipment is sold to the date the trade-in right is exercised or expires. No consensus was reached. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future This Issue provides guidance on loyalty programs including: (a) vendor-sponsored programs that offer awards consisting of the vendor's products or services, (b) broad-based programs operated by program operators whose business consists solely of administering the loyalty program, and (c) combination programs operated by vendors for their own customers as well as other participating vendors and their customers. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables This Issue addresses the accounting for revenue arrangements with multiple deliverables by providing criteria that must be met to account for items as separate units of accounting. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware The Task Force determined which arrangements that provide a customer with use of software fall within SOP 97-2 and which are service arrangements. 99-19, Reporting Revenue Gross as a Principal versus Net as
Yes
No
322
Disclosure: R75 REVENUE RECOGNITION (12/08) an Agent The Task Force developed indicators to determine when revenue transactions should be reported gross as a principal vs. net as an agent. 99-17, Accounting for Advertising Barter Transactions This Issue addresses whether barter transactions that involve a nonmonetary exchange of advertising should result in recorded revenues and expenses at the more readily determinable fair value of the advertising surrendered or received in the exchange, or book value, because fair value cannot be determined within reasonable limits. 96-17, Revenue Recognition under Long-Term Power Sales Contracts That Contain both Fixed and Variable Pricing Terms The Issue is how revenue should be recognized on a long-term power sales contract that contains separate, specified terms for (1) a fixed or scheduled price per kilowatt hour (kWh) for one period of time and (2) a variable price per kWh (based on market prices, actual avoided costs, or formula-based pricing arrangements) for a different period of time, where neither a tracker account nor any other form of adjustment determines or limits the total revenues to be billed under the contract over its entire period. 95-4, Revenue Recognition on Equipment Sold and Subsequently Repurchased Subject to an Operating Lease This Issue addresses whether a manufacturer is precluded from recognizing a sale of a product to a dealer if the customer subsequently enters into an operating lease with the manufacturer or its finance affiliate who acquires that product subject to the lease. 95-1, Revenue Recognition on Sales with a Guaranteed Minimum Resale Value This Issue addresses whether a manufacturer is precluded from recognizing a sale of equipment if the manufacturer guarantees the resale value of the equipment to the purchaser. 91-9, Revenue and Expense Recognition for Freight Services in Process This Issue addresses what the appropriate accounting method(s) should be for recognizing revenue and expense related to a freight service company's freight-intransit at the end of a reporting period. 91-6, Revenue Recognition of Long-Term Power Sales Contracts The Task Force addressed several recognition methods for revenue recognition of long-term power sales contracts. 88-18, Sales of Future Revenues The Task Force identified criteria to determine whether cash received from an investor
Yes
No
323
Disclosure: R75 REVENUE RECOGNITION (12/08) should be classified as debt or deferred income. D-96, Accounting for Management Fees Based on a Formula This Issue addresses the acceptable revenue recognition methods for management fees that are based on a formula.
Yes
No
Disclosure: T10 TAXES: REAL AND PERSONAL PROPERTY TAXES (12/08) 1. Has an accrued liability for real and personal property taxes, whether estimated or definitely known, been included in current liabilities? [ARB 43, Ch. 10A.16] 2. If estimates of liability for real and personal property taxes are subject to a substantial measure of uncertainty, is the accrued liability described as estimated? [ARB 43, Ch. 10A.16]
3.
Yes
No
While it is sometimes proper to capitalize in property accounts the amount of real estate taxes applicable to property that is being developed for use or sale, these taxes are generally regarded as an expense of doing business. Is the amount of real estate taxes capitalized in property accounts which are being developed for use or sale? If not, is the amount of real estate taxes (a) charged to operating expenses, (b) shown as a separate deduction from income, or (c) distributed among the several accounts to which they are deemed to apply, such as factory overhead, rent income, and selling or general expenses? [ARB 43, Ch 10A.17]
4. Are the amounts expensed for real and personal property taxes during the period not combined with taxes on income in the condensed income statement? [ARB 43, Ch. 10A.18]
Accounting: V18 VALUATION: USE OF VALUATION ALLOWANCES (12/08) Are accumulated allowances for depreciation and depletion and asset valuation allowances for losses, such as those on receivables and investments, deducted from the assets or groups of assets to which they relate and appropriately disclosed? [APB 12.02-.03]
Yes
No
324
Disclosure: COEXISTING FINANCIAL STATEMENTS (12/08) When coexisting financial statements are required, any additional financial statement details or disclosures that are not necessary for conformity with GAAP but are shown for compliance with Regulation S-X or for other acceptable reasons should be included in a separate supplemental section accompanying the basic financial statements. Has this been complied with? [AU 551.03] When coexisting financial statements are required, the auditor should be satisfied that information accompanying the basic financial statements in an auditor submitted document would not support a contention that the basic financial statements in the other document were not presented in conformity with generally accepted accounting principles because of inadequate disclosure of material information known to the auditor. Has this been complied with? [AU 551.22]
Yes
No
Disclosure: OTHER COMPREHENSIVE BASIS OF ACCOUNTING (12/08) Have the financial statements been prepared in conformity with a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America? 1. Are the financial statements appropriately titled (e.g., Balance Sheet Cash Basis or Statement of Operations Income Tax Basis)? [AU 623.07, TPA TIS Section 1500.04] 2. Does the summary of significant accounting policies included in the accompanying notes to the financial statements discuss the basis of presentation used to prepare the financial statements and describe how the basis used differs from accounting principles generally accepted in the United States of America (GAAP)? [AU 623.10] 3. If the financial statements contain items that are the same as, or similar to, those in financial statements prepared in conformity with GAAP, have similar informative disclosures been made in the entitys financial statements? [AU 623.10] 4. Are financial-statement disclosures related to matters that
Yes
No
325
Disclosure: OTHER COMPREHENSIVE BASIS OF ACCOUNTING (12/08) are not specifically identified on the face of the financial statements such as, (1) related-party transactions, (2) restrictions on assets and owners' equity, (3) subsequent events, and (4) uncertainties comparable to those in financial statements prepared in conformity with GAAP? [AU 623.10]
Yes
No
Disclosure: PUBLIC ENTERPRISES (12/08) I. E11 EARNINGS PER SHARE (12/08) Earnings-per-share presentation is required by all entities that have issued common stock or potential common stock (i.e., securities such as options, warrants, convertible securities, contingent stock agreements, or publicly traded partnership units) if those securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market, including securities quoted only locally or regionally. In addition, FASB 128 requires presentation of earnings per share by an entity that has made a filing or is in the process of filing with a regulatory agency in preparation for the sale of those securities in a public market. FASB 128 does not require presentation of earnings per share for investment companies or in statements of wholly owned subsidiaries. Any entity that is not required by FASB 128 to present earnings per share in its financial statements that chooses to present earnings per share in its financial statements shall do so in accordance with the provisions of FASB 128. [FASB 128.06] As part of its international convergence efforts, the FASB and the IASB have been working together to resolve the remaining convergence differences between FASB 128 and IAS 33. As a result, the FASB and the IASB plan to issue separate exposure drafts that propose to amend FASB 128 and IAS 33 in the first quarter of 2008 for public comment. The public comment period is expected to be 120 days. The amendments to FASB 128 should be effective for fiscal years beginning after December 15, 2008. 1. Did entities with simple capital structures (i.e., those with only common stock outstanding) present basic per-share amounts for income from continuing operations and for net income on the face of the income statement? [FASB
Yes
No
326
Disclosure: PUBLIC ENTERPRISES (12/08) 128.36] 2. Did all other entities present basic and diluted per-share amounts for income from continuing operations and for net income on the face of the income statement with equal prominence? [FASB 128.36] 3. Did an entity that reports a discontinued operation, an extraordinary item, or the cumulative effect of an accounting change in a period present basic and diluted per-share amounts for those line items either on the face of the income statement or in the notes to the financial statements? [FASB 128.37] 4. Were per-share amounts not required to be presented by FASB 128 that an entity chooses to disclose, computed in accordance with FASB 128, disclosed only in the notes to the financial statements and clearly noted as to whether the per-share amounts were pretax or net of tax? [FASB 128.37] A. Periods Presented 5. Were earnings-per-share data presented for all periods for which an income statement or summary of earnings is presented? [FASB 128.38] 6. If diluted EPS data are reported for at least one period, were they reported for all periods presented, even if they are the same amounts as basic EPS? If basic and diluted EPS are the same amount, dual presentation can be accomplished in one line on the income statement. [FASB 128.38] B. Disclosure Requirements 7. For each period for which an income statement is presented, did the entity disclose the following: [FASB 128.40] a. A reconciliation of the numerators and the denominators of the basic and diluted per-share computations for income from continuing operations? (1) Did the reconciliation include the individual income and share amount effects of all securities that affect earnings per share? [FASB 128.40a] Insignificant reconciling items need not be itemized as part of the reconciliation and can be combined (aggregated) [FASB 128.138]. An entity is encouraged to refer to pertinent information about securities included in the EPS
Yes
No
327
Disclosure: PUBLIC ENTERPRISES (12/08) computations that is provided elsewhere in the financial statements as prescribed by FASB 129, Disclosure of Information About Capital Structure, and other accounting pronouncements. [FASB 128.40A footnote 23] b. The effect that has been given to preferred dividends in arriving at income available to common stockholders in computing basic EPS? [FASB 128.40b] c. Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period(s) presented? [FASB 128.40c] 8. For the latest period for which an income statement is presented, did the entity provide a description of any transaction that occurred after the end of the most recent period, but before issuance of the financial statements, that would have changed materially the number of common shares or potential common shares outstanding at the end of the period if the transaction had occurred before the end of the period? (Examples of those transactions include the issuance or acquisition of common shares; the issuance of warrants, options, or convertible securities; the resolution of a contingency pursuant to a contingent stock agreement; and the conversion or exercise of potential common shares outstanding at the end of the period into common shares.) [FASB 128.41] C. Basic Earnings Per Share 9. Was basic EPS computed by dividing income available to common stockholders (the numerator) by the weightedaverage number of common shares outstanding (the denominator) during the period? (Shares issued during the period and shares reacquired during the period need to be weighted for the portion of the period that they were outstanding.) [FASB 128.08] a. If the entity participated in an accelerated share repurchase program, were the shares acquired included as a reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for both basic and diluted EPS? [EITF Issue No. 99-7] 10. Was income available to common stockholders computed
Yes
No
328
Disclosure: PUBLIC ENTERPRISES (12/08) by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income? (If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends.) [FASB 128.09] 11. If the carrying amount of redeemable preferred stock has been increased by periodic accretions or by amounts representing dividends not currently declared or paid that will be payable under the mandatory redemption features, was the change in the carrying value reflected as an adjustment in income available to common stockholders in computing EPS? [SAB Topic 3.C] 12. If the carrying amount of increasing rate preferred stock has been increased by periodic accretions of a discount was the change in the carrying value reflected as an adjustment to income available to common stockholders in computing EPS? [SAB Topic 5.Q] 13. If the entity redeemed all or a portion of its preferred stock that is not mandatorily redeemable as defined in FASB 150, was the excess of the fair value of the consideration transferred to the holders of the preferred stock over the carrying amount of the preferred stock in the entity's balance sheet subtracted from net income to arrive at net income available to common stockholders in the calculation of EPS? [EITF Topic D-42] 14. If convertible preferred stock that is not mandatorily redeemable as defined in FASB 150 was converted to other securities issued by the entity pursuant to an inducement offer, was the excess of the fair value of all securities and other consideration transferred in the transaction (by the entity to the holders of the convertible preferred stock) over the fair value of securities issuable pursuant to the original conversion terms subtracted from net income to arrive at net income available to common stockholders in the calculation of EPS? [EITF Topic D42] 15. If the entity redeemed mandatorily redeemable preferred stock, was the excess (shortfall) of the fair value transferred over (under) the carrying amount of the preferred stock accounted for as a loss (gain) on extinguishment of debt and reflected in the entity's net
Yes
No
329
Disclosure: PUBLIC ENTERPRISES (12/08) income (and thus numerator when calculating earnings per share)? [EITF Topic D-42 as amended by FASB 150] 16. If the entity has issued convertible preferred securities with beneficial conversion features, was any increase in the carrying value resulting from amortization of the recorded discount for the beneficial conversion feature subtracted from net income to arrive at net income available to common stockholders in the calculation of EPS? [EITF 98-5] 17. Were shares issuable for little or no cash consideration upon the satisfaction of certain conditions (contingently issuable shares) considered outstanding common shares and included in the computation of basic EPS as of the date that all necessary conditions have been satisfied (in essence, when issuance of the shares is no longer contingent)? [FASB 128.10] 18. Were outstanding common shares that are contingently returnable (i.e., subject to recall) treated in the same manner as contingently issuable shares? [FASB 128.10] D. Diluted Earnings Per Share 19. Was diluted EPS computed similar to basic EPS with the following adjustments: [FASB 128.11] a. Was the denominator in the basic EPS calculation increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued? b. When computing the dilutive effect of convertible securities, was the numerator adjusted to add back (1) any convertible preferred dividends and (2) the aftertax amount of interest recognized in the period associated with any convertible debt? c. Was the numerator also adjusted for any other changes in income or loss that would result from the assumed conversion of those potential common shares, such as profit-sharing expenses? (Similar adjustments may also be necessary for certain contracts that provide the issuer or holder with a choice between settlement methods.) 20. Was diluted EPS based on the most advantageous conversion rate or exercise price from the standpoint of the security holder? [FASB 128.12] 21. Were previously reported diluted EPS data not
Yes
No
330
Disclosure: PUBLIC ENTERPRISES (12/08) retroactively adjusted for subsequent conversions or subsequent changes in the market price of the common stock? [FASB 128.12] 22. Did the computation of diluted EPS properly not assume conversion, exercise, or contingent issuance of securities that would have had an antidilutive effect on earnings per share? [FASB 128.13] 23. Were shares issued on actual conversion, exercise, or satisfaction of certain conditions for which the underlying potential common shares were antidilutive included in the computation as outstanding common shares from the date of conversion, exercise, or satisfaction of those conditions, respectively? [FASB 128.13] 24. In determining whether potential common shares were dilutive or antidilutive, was each issue or series of issues of potential common shares considered separately rather than in the aggregate? [FASB 128.13] 25. Convertible securities may be dilutive on their own but antidilutive when included with other potential common shares in computing diluted EPS. To reflect maximum potential dilution, was each issue or series of issues of potential common shares considered in sequence from the most dilutive to the least dilutive (i.e., were dilutive potential common shares with the lowest "earnings per incremental share" included in diluted EPS before those with a higher earnings per incremental share)? [FASB 128.14] 26. If the entity reported a discontinued operation, an extraordinary item, or the cumulative effect of an accounting change in the period, was income from continuing operations (adjusted for preferred dividends) used as the "control number" in determining whether potential common shares were dilutive or antidilutive? [FASB 128.15] 27. Were the same number of potential common shares used in computing the diluted per-share amount for income from continuing operations used in computing all other reported diluted per-share amounts even if those amounts were antidilutive to their respective basic per-share amounts? [FASB 128.15] 28. Were potential common shares not included in the denominator of the diluted per-share computation for continuing operations if the entity had a loss from continuing operations or a loss from continuing operations
Yes
No
331
Disclosure: PUBLIC ENTERPRISES (12/08) available to common stockholders? [FASB 128.16] 29. Even though including potential common shares in the other diluted per-share computations may have been dilutive to their comparable basic per-share amounts, were no potential common shares included in the computation of any diluted per-share amount when a loss from continuing operations exists, even if the entity reported net income? [FASB 128.16] E. Options and Warrants and Their Equivalents 30. Was the dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity reflected in diluted EPS by application of the treasury stock method unless the item (a) required the reporting entity to repurchase its own stock, such as put options and forward purchase contracts other than forward purchase contracts accounted for under paragraph 21 and 22 of FASB 150 (written put option) [FASB 128.24 as amended by FASB 150], (b) was an option, warrant, or other security whose exercise price may be settled in either cash or other debt or equity securities [FASB 128.51], (c) restricts the use of proceeds the company was to receive [FASB 128.52], (d) or are convertible securities that permit or require the payment of cash by the holder of the security at conversion [FASB 128.53]? [FASB 128.17] 31. For the purpose of computation of diluted EPS, have the option, warrant, or other security whose exercise price may be settled in debt or other securities of the company (or its parent or its subsidiary), been assumed to be exercised and the debt or other securities assumed to be tendered? [FASB 128.51] 32. For the purpose of computation of diluted EPS, have the options or warrants that restrict the use of proceeds by the company been assumed to be exercised and the proceeds applied to purchase the debt at its average market price rather than to purchase common stock under treasury stock method? [FASB 128.52] 33. In accordance with the treasury stock method, (a) was the exercise of options and warrants and resulting issuance of common shares assumed at the beginning of the period (or at time of issuance, if later), (b) were the proceeds from exercise assumed to be used to purchase common stock at the average market price during the period, and (c) the incremental shares (the difference between the number of
Yes
No
332
Disclosure: PUBLIC ENTERPRISES (12/08) shares assumed issued and the number of shares assumed purchased) included in the denominator of the diluted EPS computation? [FASB 128.17] 34. Were options and warrants included in dilutive EPS under the treasury stock method only when the average market price of the common stock during the period exceeded the exercise price of the options or warrants (they are "in the money")? [FASB 128.18] 35. Were previously reported EPS data not retroactively adjusted as a result of changes in market prices of common stock? [FASB 128.18] 36. Were dilutive options or warrants that were issued during the period or that expired, or were canceled during the period, included in the denominator of diluted EPS for the period that they were outstanding? [FASB 128.19] 37. Were dilutive options or warrants exercised during the period included in the denominator for the period prior to actual exercise? [FASB 128.19] 38. Were common shares issued upon exercise of options or warrants included in the denominator for the period after the exercise date? [FASB 128.19] 39. Were incremental shares assumed issued weighted for the period the options or warrants were outstanding, and were common shares actually issued weighted for the period the shares were outstanding? [FASB 128.19] F. Share-Based Compensation Arrangements 40. Were fixed awards and nonvested stock or share options and nonvested shares (as defined in FASB 123, Accounting for Stock-Based Compensation), or FASB 123(R), Share-Based Payment, respectively) to be issued to an employee under a share-based compensation arrangement considered options for purposes of computing diluted EPS? [FASB 128.20] 41. Were all share-based awards considered to be outstanding, as of the grant date for purposes of computing diluted EPS even though their exercise may be contingent upon vesting? [FASB 128.20] 42. Was the dilutive effect of share-based compensation arrangements computed using the treasury stock method? [FASB 128.20] 43. If the share-based awards were granted during the period, were the shares issuable weighted to reflect the portion of
Yes
No
333
Disclosure: PUBLIC ENTERPRISES (12/08) the period during which the awards were outstanding? [FASB 128.20] 44. In applying the treasury stock method were the assumed proceeds the sum of (a) the amount, if any, the employee must pay upon exercise, (b) the amount of compensation cost attributed to future services and not yet recognized, and (c) the amount of tax benefits (both deferred and current), if any, that would be credited to additional paidin capital assuming exercise of the options? [FASB 128.21] 45. Was the determination of whether share-based compensation arrangements are potential common shares, which are payable in common stock or in cash at the election of either the entity or the employee, made based on the assumption that the contract will be settled in common stock if the effect is more dilutive unless past experience or a stated policy provides a reasonable basis to believe the contract will be paid partially or wholly in cash? [FASB 128.22-.29] 46. If an entity has a tandem plan (as defined in FASB 123 or FASB 123(R)) that allows the entity or the employee to make an election involving two or more types of equity instruments, was diluted EPS for the period computed based on the terms used in the computation of compensation expense for that period? [FASB 128.22] 47. Were performance awards (as defined in FASB 123) or awards with a market condition, a performance condition or any combination thereof (as defined in FASB 123(R)) included in diluted EPS pursuant to the contingent share provisions of FASB 128? [FASB 128.23] G. Written Put Options 48. Were contracts that require the reporting entity to repurchase its own stock, such as written put options and forward purchase contracts other than forward purchase contracts accounted for under paragraphs 21 and 22 of FASB 150, reflected in the computation of diluted EPS if the effect is dilutive? [FASB 128.24 amended by FASB 150] 49. If those contracts were "in the money" during the reporting period (the exercise price is above the average market price for that period), was the potential dilutive effect on EPS computed using the reverse treasury stock method? [FASB 128.24]
Yes
No
334
Disclosure: PUBLIC ENTERPRISES (12/08) H. Purchased Options 50. Were contracts, such as purchased put options and purchased call options (options held by the entity on its own stock), not included in the computation of diluted EPS because including them would be antidilutive? [FASB 128.25] I. Convertible Securities 51. Was the dilutive effect of convertible securities reflected in diluted EPS by application of the if-converted method? [FASB 128.26] 52. Was the effect of contingently convertible debt investments ("Co-Cos") considered in computing EPS (both basic and diluted) following the guidance and transition provisions? [EITF 04-8] 53. In applying the if-converted method, was conversion not assumed for purposes of computing diluted EPS if the effect would be antidilutive? (Convertible preferred stock is antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion exceeds basic EPS. Convertible debt is antidilutive whenever its interest per common share obtainable on conversion exceeds basic EPS.) [FASB 128.27] 54. Were dilutive securities that were issued during the period and dilutive convertible securities for which conversion options lapsed, for which preferred stock was redeemed, or for which related debt was extinguished during the period included in the denominator of diluted EPS for the period that they were outstanding? [FASB 128.28] 55. Were dilutive convertible securities converted during the period included in the denominator for the period prior to actual conversion? And were the common shares issued upon actual conversion included in the denominator for the period after the date of conversion? And were shares assumed issued weighted for the period the convertible securities were outstanding, and common shares actually issued weighted for the period the shares were outstanding? [FASB 128.28] [NOTE: See the note preceding question 1 regarding the exposure draft to amend FASB 128.] J. Contracts That May be Settled in Stock or Cash 56. Were contracts that may be settled in common stock or in
Yes
No
335
Disclosure: PUBLIC ENTERPRISES (12/08) cash at the election of either the entity or the holder, reflected in the computation of diluted EPS based on the facts available at the end of each period and was it presumed that the contract would be settled in common stock and the resulting potential common shares included in diluted EPS (in accordance with the relevant provisions of FASB 128) if the effect was more dilutive unless past experience or a stated policy provides a reasonable basis to believe the contract will be paid partially or wholly in cash? [FASB 128.29] K. Contingently Issuable Shares 57. Were shares whose issuance is contingent upon the satisfaction of certain conditions considered outstanding and included in the computation of diluted EPS if all necessary conditions had been satisfied by the end of the period (i.e., the events have occurred)? [FASB 128.30] a. Were all contingently issuable shares included as of the beginning of the period in which the conditions were satisfied (or as of the date of the contingent stock agreement, if later)? b. If all necessary conditions had not been satisfied by the end of the period, was the number of contingently issuable shares included in diluted EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period (e.g., the number of shares that would be issuable based on current period earnings or period-end market price) and if the result would be dilutive? [FASB 128.30] 58. If attainment or maintenance of a specified amount of earnings is the condition and if that amount has been attained, were the additional shares considered to be outstanding for the purpose of computing diluted EPS if the effect is dilutive? [FASB 128.31] a. Did the diluted EPS computation include those shares that would be issued under the conditions of the contract based on the assumption that the current amount of earnings will remain unchanged until the end of the agreement, only if the effect would be dilutive? [FASB 128.31] b. Because the amount of earnings may change in a future period, did basic EPS not include such contingently issuable shares because all necessary conditions have not been satisfied? [FASB 128.31]
Yes
No
336
Disclosure: PUBLIC ENTERPRISES (12/08) 59. If the number of shares contingently issuable depends on the market price of the stock at a future date, did computations of diluted EPS reflect the number of shares that would be issued based on the current market price at the end of the period being reported on if the effect is dilutive? [FASB 128.32] a. If the number of shares contingently issuable depends on an average of market prices over some period of time, was the average for that period used for computations of diluted EPS? [FASB 128.32] b. Because the market price may change in a future period, did basic EPS not include contingently issuable shares because all necessary conditions have not been satisfied? [FASB 128.32] 60. If the number of shares contingently issuable depends on both future earnings and the market price of the stock at a future date, did the computation of diluted EPS include the number of shares based on both conditions? (If both conditions are not met at the end of the reporting period, no contingently issuable shares shall be included in diluted EPS.) [FASB 128.33] 61. If the contingency is based on a condition other than earnings or market price (e.g., opening a certain number of retail stores), were the contingent shares included in the computation of diluted EPS based on the assumption that the current status of the condition will remain unchanged until the end of the contingency period? [FASB 128.34] 62. Were contingently issuable potential common shares (other than those covered by a contingent stock agreement, such as contingently issuable convertible securities) included in diluted EPS by (a) determining whether the potential common shares may be assumed to be issuable based on the conditions specified for their issuance and (b) if those potential common shares should be reflected in diluted EPS, did the entity determine their impact on the computation of diluted EPS by following the provisions for options and warrants, the provisions for convertible securities, and the provisions for contracts that may be settled in stock or cash, as appropriate? [FASB 128.35] 63. If the number of common shares outstanding increased as a result of a stock dividend or stock split or decreased as a result of a reverse stock split, were the computations of basic and diluted EPS adjusted retroactively for all periods
Yes
No
337
Disclosure: PUBLIC ENTERPRISES (12/08) presented to reflect that change in capital structure? [FASB 128.54] 64. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before issuance of the financial statements, were the per-share computations for those and any prior-period financial statements presented based on the new number of shares? [FASB 128.54] 65. If the entity restated previously presented EPS for the effects of stock dividends, stock splits, or reverse stock splits, was that fact disclosed? [FASB 128.54] 66. If an entity had a rights issue offered to all existing shareholders whose exercise price at issuance is less than the fair value of the stock, were basic and diluted EPS adjusted retroactively for the bonus element for all periods presented? (If the ability to exercise the rights issue is contingent on some event other than the passage of time, EPS should not be adjusted until that contingency is resolved.) [FASB 128.55] 67. If an APB or FASB Statement required that a restatement of the results of operations of a prior period be included in the income statement or summary of earnings, were previously presented basic and diluted EPS recomputed as if the restated income or loss had been reported originally in the prior period or periods, and was the effect of the restatement disclosed in per-share terms? [FASB 128.57] 68. If an entity issued common shares to acquire a business in a transaction accounted for as a purchase business combination, did the computations of earnings per share recognize the existence of the new shares only from the acquisition date? [FASB 128.59] 69. If the capital structure of the entity included securities that contractually participate (conditionally or otherwise) in undistributed earnings with common stock, regardless of whether the payment to the security holder was referred to as a dividend, and the securities were not convertible into a class of common stock, did the entity use the "two class" method of computing EPS? [FASB 128.60, .61, EITF 036] a. If the terms of a security do not specify objectively determinable, nondiscretionary participation rights or, if an entity could avoid distributions of undistributed earnings to participating security holders even if all earnings of the period had been distributed, then were
Yes
No
338
Disclosure: PUBLIC ENTERPRISES (12/08) undistributed earnings not allocated based on arbitrary assumptions? [EITF 03-6] b. Were losses allocated to nonconvertible participating securities if that security has a contractual obligation to share in those losses even if the effect is antidilutive? [EITF 03-6] c. Were participation rights that are contingent on or subject to the discretion of the company fully disclosed? [FASB 129.4] d. In computing diluted EPS, was the if-converted method used for those securities that are convertible into common stock if the effect is dilutive? [FASB 128.60, .61] 70. If the entity has a subsidiary that has issued common stock or potential common shares to parties other than the parent company, EPS should be calculated using the following general guidelines: [FASB 128.62] a. If the securities issued by the subsidiary enable their holders to obtain the subsidiary's common stock, were those securities included in computing the subsidiary's EPS and the subsidiary's per-share earnings included in the consolidated EPS computations based on the consolidated group's holding of the subsidiary's securities? b. If the securities issued by the subsidiary are convertible into the parent company's common stock, were the securities considered as potential common shares of the parent company for the purpose of computing consolidated diluted EPS? c. If the securities issued by the subsidiary include options or warrants to purchase common stock of the parent company, were the securities considered as potential common shares of the parent company in computing consolidated diluted EPS? d. Were the above provisions applied to investments in common stock of corporate joint ventures and investee companies accounted for under the equity method? 71. Was the if-converted method used in determining the EPS impact of securities issued by a parent company that are convertible into common stock of a subsidiary company or an investee company accounted for under the equity method? [FASB 128.63]
Yes
No
339
Disclosure: PUBLIC ENTERPRISES (12/08) 72. If the entity has common shares issued in a partially paid form and those shares are entitled to dividends in proportion to the amount paid, were the common-share equivalent of those partially paid shares included in the computation of basic EPS to the extent that they were entitled to participate in dividends? [FASB 128.64] 73. If an entity has common shares issued in partially paid form that do not share in dividends until fully paid, were those securities considered the equivalent of warrants and included in diluted EPS by use of the treasury stock method? [FASB 128.64] 74. Are dividends per share adjusted for stock splits and stock dividends? 75. If dividends per share are reported on other than a historical basis, is the basis of presentation disclosed? L. FASB 150 Earnings Per Share Issues 76. If the entity has issued mandatorily redeemable shares of common stock or entered into forward contracts that require physical settlement by repurchase of a fixed number of the issuer's equity shares of common stock in exchange for cash, were the common shares that are to be redeemed or repurchased excluded in calculating basic and diluted earnings per share? [FASB 150.25] 77. Were any amounts, including contractual (accumulated) dividends and participation rights in undistributed earnings, attributable to shares that are to be redeemed or repurchased that have not been recognized as interest costs in accordance with paragraph 22 of FASB 150, deducted in computing income available to common shareholders (the numerator of the earnings per share calculation), consistently with the "two-class" method set forth in paragraph 61 of FASB 128? [FASB 150.25] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 04-12, Determining Whether Equity-Based Compensation Awards Are Participating Securities This Issue addresses whether unvested instruments issued as equity-based compensation that provide the right to receive a dividend or dividend equivalent with common stock are participating securities. This Issue includes dividends and dividend equivalents regardless of the accounting for the dividends-that is, whether the dividends are recognized either as compensation expense or as a charge to equity. This Issue
Yes
No
340
Disclosure: PUBLIC ENTERPRISES (12/08) does not address vested equity-based compensation, which is addressed in Issue 2(a) of Issue 03-6 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings per Share This Issue addresses when contingently convertible instruments should be included in diluted earnings per share. For purposes of this Issue, contingently convertible instruments are instruments that have embedded conversion features that are contingently convertible or exercisable based on (a) a market price trigger or (b) multiple contingencies if one of the contingencies is a market price trigger and the instrument can be converted or share settled based on meeting the specified market condition. A market price trigger is a market condition that is based at least in part on the issuer's own share price. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 FASB 128 requires the use of the two-class method of computing EPS for those enterprises with participating securities or multiple classes of common stock. This Issue addresses a number of issues relating to the application of the two-class method including how to identify participating securities. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock Included in this Issue is a discussion of the how to account for the dilutive effect of written put options and similar contracts that are "in the money" during the reporting period and of those contracts that provide the company with a choice of settlement methods. 99-7, Accounting for an Accelerated Share Repurchase Program An accelerated share repurchase program is a combination of transactions that permits an entity to purchase a targeted number of shares immediately with the final purchase price of those shares determined by an average market price over a fixed period of time. The implications of an accelerated share repurchase program for earnings-pershare (EPS) calculations are described in this Issue. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested This Issue addresses the accounting for deferred compensation arrangements where amounts earned by an employee are invested in the stock of the employer and placed in a "rabbi trust," including implications on the earnings per share computation 92-3, Earnings-per-Share Treatment of Tax Benefits for Dividends on Unallocated Stock Held By an Employee Stock
Yes
No
341
Disclosure: PUBLIC ENTERPRISES (12/08) Ownership Plan The Issue is whether, under FASB 109, the tax benefits related to dividends paid on unallocated common stock held by an ESOP should be an adjustment to net income for purposes of computing earnings per share (EPS). The same issue applies to sponsors with convertible preferred stock ESOPs when computing EPS under the ifconverted method. 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion A company issues a debt instrument that is convertible into a fixed number of common shares. Upon conversion, the issuer is either required or has the option to satisfy all or part of the obligation in cash. Three variants of this instrument have been identified. Issue 3 of this Issue describes how each instrument should be treated in earningsper-share computations. 90-4, Earnings-per-Share Treatment of Tax Benefits for Dividends on Stock Held By an Employee Stock Ownership Plan A sponsor establishes an employee stock ownership plan (ESOP). The cash dividends on the stock held by the ESOP are deductible by the sponsor for tax purposes. The sponsor reports the tax benefit from those dividends as a credit directly to retained earnings in accordance with Opinion 11. The issues are: (1) Whether dividends on preferred stock held by an ESOP should be deducted from net income net of any applicable income tax benefit when computing primary earnings per share, and (2) Whether the tax benefits related to dividends on common stock held by the ESOP should be an adjustment to net income for purposes of computing earnings per share. 89-12, Earnings-per-Share Issues Related to Convertible Preferred Stock Held By an Employee Stock Ownership Plan A company (sponsor) issues high-yield convertible preferred stock to an employee stock ownership plan (ESOP). The purchase of stock by the ESOP is financed with debt. The debt is serviced by a combination of dividends on the convertible preferred stock and sponsor contributions. In accordance with SOP 76-3, the dividends paid on the convertible preferred stock are charged to retained earnings. This Issue describes the issues related to the calculation of earnings per share under the if-converted method when such instruments are issued. 86-27, Measurement of Excess Contributions to a Defined Contribution Plan or Employee Stock Ownership Plan When an employer terminates a defined benefit plan and contributes the assets withdrawn to either a defined contribution plan or an employee stock ownership plan
Yes
No
342
Disclosure: PUBLIC ENTERPRISES (12/08) (ESOP) and the amount contributed is in excess of the employer's required (or maximum) annual contribution to the plan, the assets in excess of the required contribution are maintained in a suspense account pending allocation to plan participants. Those assets are not allocated to individual participants' accounts, and the risks and rewards of ownership of the assets are retained by the employer. Excess contributions made to an ESOP must be converted to employer's stock within 90 days of the asset reversion (or used to retire debt incurred to acquire the employer's stock). Issue 2(e) describes how the employer's common stock that is unallocated to participants is treated in determining earnings per share. 85-18, Earnings-per-Share Effect of Equity Commitment Notes Debt instruments known as equity commitment notes and equity contract notes have been issued by enterprises that agree to repay the debt from the issuance of, at their discretion, either common stock or perpetual preferred stock. Equity commitment notes are repaid with cash proceeds from the sale of either common or preferred stock, whereas equity contract notes obligate the holder to take either common or preferred stock in lieu of cash. The issue is whether those securities should be included in the issuer's earnings per share computations and whether distinction should be made between equity commitment notes and equity contract notes. D-98, Classification and Measurement of Redeemable Securities The SEC staff has received inquiries about the financial statement classification and measurement of securities subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. Under this Topic, increases or decreases in the carrying amount shall reduce or increase income applicable to common stockholders in the calculation of earnings per share and the ratio of earnings to combined fixed charges and preferred stock dividends. D-82, Effect of Preferred Stock Dividends Payable in Common Shares on Computation of Income Available to Common Stockholders This Topic discusses whether preferred stock dividends that an issuer has paid or intends to pay in its own common shares should be deducted from net income (or added to the amount of a net loss) in computing income available to common stockholders pursuant to paragraphs 8 and 9 of FASB Statement No. 128, Earnings per Share. D-72, Effect of Contracts That May Be Settled in Stock or Cash on the Computation of Diluted Earnings per Share
Yes
No
343
Disclosure: PUBLIC ENTERPRISES (12/08) This Topic discusses the FASB staff's position regarding the effect on the computation of diluted earnings per share (EPS) of contracts indexed to and potentially settled in a company's own stock. D-62, Computing Year-to-Date Diluted Earnings per Share under FASB 128 This Topic discusses how to compute year-to-date diluted earnings per share (EPS) (a) when a company has a year-to-date loss from continuing operations including one or more quarters with income from continuing operations and (b) when in-the-money options or warrants were not included in one or more quarterly diluted EPS computations because there was a loss from continuing operations in those quarters. D-53, Computation of Earnings per Share for a Period That Includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock This Topic describes the SEC staff's position on the computation of earnings per share (EPS) for a period that includes a redemption or an induced conversion of a portion of a class of preferred stock. D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock This Topic describes the SEC staff's position on the effect on the calculation of earnings per share for the redemption or induced conversion of preferred stock. II. I73 DISCLOSURE OF FOURTH QUARTER RESULTS (12/08) 1. If a publicly traded company does not issue a separate fourth quarter report or disclose the results for that quarter in the annual report, do the notes to the annual financial statements disclose: [APB 28.31] a. Disposals of components of an entity in the fourth quarter? b. Extraordinary, unusual, or infrequently occurring items recognized in the fourth quarter? c. The aggregate effect of year-end adjustments that are material to the results of the fourth quarter? d. Accounting changes made in the fourth quarter? [FASB 154.16] [NOTE: Regulation S-K, Item 302(a), requires selected quarterly financial data to be disclosed for any SEC registrant, except a foreign private issuer, that has securities registered pursuant to sections 12(b) or 12(g) of the Exchange
Yes
No
344
Disclosure: PUBLIC ENTERPRISES (12/08) Act.] III. S30 SEGMENTS OF A BUSINESS ENTERPRISE (FASB 131) (12/08) [NOTE: FSP FAS 126-1 amends FASB 131 to clarify the definition of a "public entity." The definition now includes entities that are obligors for conduit debt securities, including those that participate in a pooled conduit debt security and that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets). The guidance in this FSP shall be applied prospectively in fiscal periods beginning after December 15, 2006. An entity may elect to retrospectively apply the guidance to all prior periods. If an entity issues interim financial statements, this FSP shall be applied to the first interim period after the date of adoption.] A. Operating Segments 1. An operating segment may engage in business activities for which it has yet to earn revenues. For example, startup operations may be operating segments before earning revenues. Are all components of the enterprise evaluated as operating segments if they have all of the three following characteristics: [FASB 131.10] a. A component engaged in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise)? b. Whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance? c. For which discrete financial information is available? 2. Does the enterprise appropriately consider the chief operating decision maker as the person or group with responsibility to allocate resources to and assess the performance of the segments of the enterprise? [FASB 131.12] 3. If the chief operating decision maker uses more than one set of segment information, did other factors identify a single set of components as constituting an enterprise's operating segments, including the nature of the business
Yes
No
345
Disclosure: PUBLIC ENTERPRISES (12/08) activities of each component, the existence of managers responsible for them, and information presented to the board of directors? [FASB 131.13] B. Aggregation Criteria 4. Were two or more operating segments only aggregated into a single operating segment if aggregation is consistent with the objective and basic principles of FASB 131, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas: [FASB 131.17] a. The nature of the products and services? b. The nature of the production processes? c. The type or class of customer for their products and services? d. The methods used to distribute their products or provide their services? e. If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities? C. Quantitative Thresholds 5. Did the enterprise report separately information about an operating segment that meets any of the following quantitative thresholds: [FASB 131.18] a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments? b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss or (2) the combined reported loss of all operating segments that did report a loss? c. Its assets are ten percent or more of the combined assets of all operating segments? 6. Did the enterprise consider combining information about operating segments that did not meet the quantitative thresholds with information about other operating segments that did not meet the quantitative thresholds to produce a reportable segment only if aggregation is consistent with the objective and basic principles of FASB
Yes
No
346
Disclosure: PUBLIC ENTERPRISES (12/08) 131, if the segments have similar economic characteristics, and the segments share a majority of the aggregation criteria listed in a-e in question 4 above? [FASB 131.19 and EITF Issue 04-10] 7. If the total external revenue reported by operating segments constituted less than 75 percent of total consolidated revenue, were additional operating segments identified as reportable segments (even if they do not meet the criteria identified in 5 above) until at least 75 percent of total consolidated revenue is included in reportable segments? [FASB 131.20] 8. If information about other business activities and operating segments that are not reportable was combined and disclosed in an "all other" category, separate from other reconciling items in the reconciliations, were the sources of the revenue included in the "all other" category described? [FASB 131.21] 9. Were all reportable segments that met the quantitative criteria for reportability for the immediately preceding period included as separate reportable segments, even if they no longer met the quantitative criteria for reportability specified in 5 above, if management judged the segments to be of continuing significance? [FASB 131.22] 10. If an operating segment is identified as a reportable segment in the current period due to the quantitative thresholds, were prior-period segment data presented for comparative purposes restated to reflect the newly reportable segment as a separate segment even if that segment did not satisfy the criteria for reportability in the prior period, unless it is impracticable to do so? (For purposes of applying FASB 131, impracticable means that the information is not available and the cost to develop it would be excessive.) [FASB 131.23]
Yes
No
347
Disclosure: PUBLIC ENTERPRISES (12/08) D. General Information 11. Did the enterprise disclose the following general information: [FASB 131.26] a. Factors used to identify the enterprise's reportable segments, including the basis of organization (e.g., whether management has chosen to organize the enterprise around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated)? b. Types of products and services from which each reportable segment derives its revenues? E. Information About Profit or Loss and Assets 12. Did the enterprise report a measure of profit or loss and total assets for each reportable segment? (Only those assets that are included in the measure of the segment's assets that is used by the chief operating decision maker should be reported for that segment. If amounts are allocated to reported segment assets, those amounts should be allocated on a reasonable basis.) [FASB 131.27, 131.29] 13. Did the enterprise also disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker: [FASB 131.27] a. Revenues from external customers? b. Revenues from transactions with other operating segments of the same enterprise? c. Interest revenue? (An enterprise shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment's revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, an enterprise may report that segment's interest revenue net of its interest expense and disclose that it has done so.) d. Interest expense?
Yes
No
348
Disclosure: PUBLIC ENTERPRISES (12/08) e. Depreciation, depletion, and amortization expense? f. Unusual items as described in paragraph 26 of APB 30?
Yes
No
g. Equity in the net income of investees accounted for by the equity method? h. Income tax expense or benefit? i. j. Extraordinary items? Significant noncash items other than depreciation, depletion, and amortization expense?
14. Did the enterprise disclose the following about each reportable segment if the specified amounts are included in the determination of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker: [FASB 131.28] a. The amount of investment in equity method investees? b. Total expenditures for additions to long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets? F. Measurement 15. Were adjustments and eliminations made in preparing the enterprises general-purpose financial statements and allocations of revenues, expenses, and gains or losses included in determining reported segment profit or loss only if they were included in the measure of the segment's profit or loss that is used by the chief operating decision maker? [FASB 131.29] 16. If the chief operating decision maker uses only one measure of a segment's profit or loss and only one measure of a segment's assets in assessing segment performance and deciding how to allocate resources, were segment profit or loss and assets reported at those measures? [FASB 131.30] 17. If the chief operating decision maker uses more than one measure of a segment's profit or loss and more than one measure of a segment's assets, were the reported measures those that management believes are determined in accordance with the measurement principles most
349
Disclosure: PUBLIC ENTERPRISES (12/08) consistent with those used in measuring the corresponding amounts in the enterprise's consolidated financial statements? [FASB 131.30] 18. Did the enterprise provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment, including the following, at a minimum: [FASB 131.31] a. The basis of accounting for any transactions between reportable segments? b. The nature of any differences between the measurements of the reportable segments' profits or losses and the enterprise's consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles? (Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.) c. The nature of any differences between the measurements of the reportable segment's assets and the enterprise's consolidated assets? (Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.) d. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss? e. The nature and effect of any asymmetrical allocations to segments? (For example, an enterprise might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.) G. Reconciliations 19. Did the enterprise provide reconciliations of all of the following: [NOTE: All significant reconciling items shall be separately identified and described. For example, the amount of each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the enterprise's consolidated amounts shall be separately identified and described.] [FASB 131.32] a. The total of the reportable segments' revenues to the
Yes
No
350
Disclosure: PUBLIC ENTERPRISES (12/08) enterprise's consolidated revenues? b. The total of the reportable segments' measures of profit or loss to the enterprise's consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles? (If an enterprise allocates items such as income taxes and extraordinary items to segments, the enterprise may choose to reconcile the total of the segments' measures of profit or loss to consolidated income after those items.) c. The total of the reportable segments' assets to the enterprise's consolidated assets? d. The total of the reportable segments' amounts for every other significant item of information disclosed to the corresponding consolidated amount? (For example, an enterprise may choose to disclose liabilities for its reportable segments, in which case the enterprise would reconcile the total of reportable segments' liabilities for each segment to the enterprise's consolidated liabilities if the segment liabilities are significant.) H. Interim Period Information 20. Did the enterprise disclose the following about each reportable segment in condensed financial statements of interim periods: [FASB 131.33] a. Revenues from external customers? b. Intersegment revenues? c. A measure of segment profit or loss? d. Total assets for which there has been a material change from the amount disclosed in the last annual report? e. A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss?
Yes
No
351
Disclosure: PUBLIC ENTERPRISES (12/08) f. A reconciliation of the total of the reportable segments' measures of profit or loss to the enterprise's consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles? (If an enterprise allocates items such as income taxes and extraordinary items to segments, the enterprise may choose to reconcile the total of the segments' measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.)
Yes
No
I.
Restatement of Previously Reported Information 21. If the enterprise changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change, was the corresponding information for earlier periods, including interim periods, restated unless it is impracticable to do so? (Following a change in the composition of its reportable segments, an enterprise shall disclose whether it has restated the corresponding items of segment information for earlier periods.) [FASB 131.34] 22. If the enterprise has changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change and if segment information for earlier periods, including interim periods, is not restated to reflect the change, did the enterprise disclose in the year in which the change occurs segment information for the current period under both the old basis and the new basis of segmentation, unless it is impracticable to do so? [FASB 131.35]
352
Disclosure: PUBLIC ENTERPRISES (12/08) J. Enterprise-Wide Disclosures 23. The required enterprise-wide disclosures related to products and services, geographic area, and major customers apply to all enterprises subject to FASB 131, including those enterprises that have a single reportable segment. Some enterprises' business activities are not organized on the basis of differences in related products and services or differences in geographic areas of operations. That is, an enterprise's segments may report revenues from a broad range of essentially different products and services, or more than one of its reportable segments may provide essentially the same products and services. Similarly, an enterprise's segments may hold assets in different geographic areas and report revenues from customers in different geographic areas, or more than one of its segments may operate in the same geographic area. Has information required about products and services, geographic area and major customers been provided if it is not already provided as part of the reportable operating segment information? [FASB 131.36] K. Information About Products and Services 24. Did the enterprise report the revenues from external customers for each product and service or each group of similar products and services (unless it is impracticable to do so, which fact should be disclosed) and were the amounts of revenues reported based on the financial information used to produce the enterprise's generalpurpose financial statements? [FASB 131.37] L. Information About Geographic Areas 25. Did the enterprise report the following geographic information (unless it is impracticable to do so, which fact should be disclosed): [FASB 131.38] a. Revenues from external customers (1) attributed to the enterprise's country of domicile and (2) attributed to all foreign countries in total from which the enterprise derives revenues? (If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately.) b. The basis for attributing revenues from external customers to individual countries?
Yes
No
353
Disclosure: PUBLIC ENTERPRISES (12/08) c. Long-lived assets (other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets) (1) located in the enterprise's country of domicile and (2) located in all foreign countries in total in which the enterprise holds assets? If assets in an individual foreign country are material, those assets shall be disclosed separately. 26. Were the amounts reported for geographic information based on the financial information used to produce the general-purpose financial statements? An enterprise may also wish to provide subtotals of geographic information about groups of countries. [FASB 131.38] M. Information About Major Customers 27. If revenues from transactions with a single external customer amount to 10 percent or more of an enterprise's revenues, did the enterprise disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues? [FASB 131.39] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 04-10, Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds This Issue addresses how an enterprise should evaluate the aggregation criteria in paragraph 17 of FASB 131 when determining whether operation segments that do not meet the quantitative thresholds may be aggregated in accordance with paragraph 19 of FASB 131. D-70, Questions Related to the Implementation of FASB Statement No. 131 This Issue addresses two questions: (1) Assume the chief operating decision maker evaluates the performance of its segments based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Included in the management reports reviewed by the chief operating decision maker are summaries of depreciation and amortization expense related to each of the segments. Should depreciation and amortization expense be disclosed for each of the reportable segments? (2) How is the quantitative threshold for segment profit or loss applied when the measure of segment profit or loss that is used by the chief operating decision maker is a different measure for each segment (for example, if the chief operating decision maker uses net
Yes
No
354
Disclosure: PUBLIC ENTERPRISES (12/08) income for purposes of evaluating the performance of three segments but uses operating income for purposes of evaluating the performance of two other segments)? IV. C28 FINANCIAL REPORTING AND CHANGING PRICES (12/08) 1. If disclosure is made of current cost/constant purchasing power information, have the measurement guidelines in FASB 89 been followed?
Yes
No
Accounting: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) F60 FOREIGN CURRENCY TRANSLATION (12/08) 1. For each separable and distinct operation of a foreign entity (e.g., subsidiary, division, branch, joint venture), is the functional currency the currency of the primary economic environment in which cash is generated and expended (unless the foreign entity is in a country that has a highly inflationary economy)? [FASB 52.05-.08, .11, Appendix A] 2. If the foreign entity operates in the economic environment of a country that has a highly inflationary economy (defined as having cumulative inflation of approximately 100 percent or more over a three-year period), are the financial statements remeasured as if the functional currency were the reporting currency? [FASB 52.11] [Foreign Private Issuers should consider SEC guidance (International Reporting and Disclosure Issues in the Division of Corporation Finance, Nov 1, 2004) that allows the possibility of using APB Statement 3 when using the local currency as the reporting currency]. 3. If an entity's books of record are not maintained in its functional currency, have such books of record been remeasured into the functional currency and have gains and losses from remeasurement been reported as transaction gains and losses and included in the determination of net income? [FASB 52.10; .15-.16] 4. Have changes in the determination of the functional currency for a distinct operation of a foreign entity resulted only from significant changes in economic facts and circumstances that indicate clearly that the functional currency has changed? [FASB 52.09]
Yes
No
355
Accounting: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) 5. Have the functional-currency financial statements been translated into the reporting currency using the current exchange rate (the rate in effect on the balance-sheet date for assets and liabilities and the weighted average exchange rate for income statement elements)? [FASB 52.12] 6. Have translation adjustments, resulting from the process of translating an entity's financial statements into the reporting currency, been excluded from the determination of net income and reported in other comprehensive income? [FASB 52.13] 7. Have gains and losses from foreign currency transactions, other than those meeting the conditions described in question 9 below, been included in determining net income for the period in which the exchange rate changes? [FASB 52.15] 8. Have foreign currency transactions (those transactions not denominated in the functional currency) other than derivative instruments been accounted for in accordance with the following: [FASB 52.16] a. At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date? b. At each balance-sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity shall be adjusted to reflect the current exchange rate? 9. Have gains and losses on the following foreign currency transactions been excluded from the determination of net income and reported in the same manner as translation adjustments: [FASB 52.20] a. Foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date? b. Intercompany foreign currency transactions that are of a long-term investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) when entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting
Yes
No
356
Accounting: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) enterprise's financial statements? 10. Have the applicable deferred taxes been recognized in accordance with FASB 109 and APB 23 for transaction gains and losses and translation adjustments that are temporary differences? [FASB 52.22-.24] 11. Have the appropriate exchange rates been used in: [FASB 52.27] a. Recording foreign currency transactions the rate at which a particular transaction could be settled at the transaction date? b. Translating foreign currency financial statements the rate applicable to conversion of a currency for purposes of dividend remittances? 12. Where a sale or complete (or substantially complete) liquidation of an investment in a foreign entity has occurred, has the amount accumulated in the translation adjustment component of equity attributable to that entity been reported as part of the gain or loss on sale or liquidation of the investment? (Where only a part of an investment is sold, a pro rata portion of the accumulated translation adjustment component of equity attributable to the investment should be recognized in measuring the gain or loss on sale.) [FASB 52.14] [FIN 37.02] 13. Have intercompany profits that are attributable to sales or other transfers between entities that are consolidated, combined or accounted for by the equity method in the enterprise's financial statements been eliminated based on the exchange rates at the dates of the sales or transfers (or through use of reasonable approximations or averages) [FASB 52.25] [NOTE: If the entity hedges any of its foreign currency exposures, complete Accounting For Derivatives and Hedging Activities, and refer to paragraphs 18(d) and 3642 of FASB 133, as amended. Furthermore, the applicability of the various FASB 133 Implementation Issues (DIG issues) should be assessed.] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 01-5, Application of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That Will Be Disposed Of This Issue addresses whether a reporting enterprise should include the cumulative translation adjustment ("CTA") in the
Yes
No
357
Accounting: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) carrying amount of the investment in assessing impairment of an investment in a foreign entity that is held for disposal if the planned disposal will cause some or all of the CTA to be reclassified to net income. The scope of this Issue includes an investment in a foreign entity that is either consolidated by the reporting enterprise or accounted for by the reporting enterprise using the equity method. 96-15, Accounting for the Effects of Changes in Foreign Currency Exchange Rates on Foreign-Currency-Denominated Available-for-Sale ("AFS") Debt Securities This Issue addresses the accounting for foreign-currency-denominated AFS debt securities. 92-8, Accounting for the Income Tax Effects under FASB Statement No. 109 of a Change in Functional Currency When an Economy Ceases to Be Considered Highly Inflationary The issue is whether under FASB 109 an entity should account for the income tax effects of a change in functional currency when an economy ceases to be considered highly inflationary as a charge to income tax expense or a charge to the cumulative translation adjustments component of shareholders' equity. 92-4, Accounting for a Change in Functional Currency When an Economy Ceases to Be Considered Highly Inflationary The issue is how the entity should account for a change in its subsidiary's functional currency from the reporting currency to the local currency when the economy ceases to be considered highly inflationary. 88-18, Sales of Future Revenues An enterprise receives cash from an investor and agrees to pay to the investor for a defined period a specified percentage or amount of the revenue or of a measure of income (for example, gross margin, operating income, or pretax income) of a particular product line, business segment, trademark, patent, or contractual right. Issue 3 describes how the foreign currency effects of such a transaction, if any, should be recognized 87-12, Foreign Debt-for-Equity Swaps In a secondarymarket transaction, a U.S. company purchases at less than the face amount some dollar-denominated debt due from a foreign government or a company that operates in that foreign country. Simultaneously, the U.S. company exchanges the debt with the foreign country's government in a transaction denominated in the foreign currency. The issue is how the U.S. company should report the difference, if any, between the U.S. dollar values of those two transactions.
Yes
No
358
Accounting: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) D-71, Accounting Issues Relating to the Introduction of the European Economic and Monetary Union (EMU) This Topic discusses certain accounting issues relating to the introduction of the European Economic and Monetary Union [accounting for system upgrades, how to prepare comparative financial statements prior to introduction of the Euro, cumulative foreign currency translation adjustments, application of hedge accounting during the transition period to preexisting hedges of firm commitments or anticipated transactions, and designation of a contract denominated in Euros (or a National Currency of a Participating Country) as a hedge of a net investment or firm commitment denominated in a national currency of a participating country]. D-56, Accounting for a Change in Functional Currency and Deferred Taxes When an Economy Becomes Highly Inflationary This Topic discusses how an entity should account for a change in a subsidiary's functional currency from the local currency to the reporting currency when the economy in which that subsidiary operates becomes highly inflationary and how to account for that subsidiary's previously recognized deferred tax benefits attributable to indexing nonmonetary assets for tax purposes. D-55, Determining a Highly Inflationary Economy Under FASB Statement No. 52 This Topic discusses how to interpret the guidance in FASB 52, Foreign Currency Translation, for purposes of determining if an economy should be considered highly inflationary specifically, how the determination of the cumulative inflation rate and the exercise of judgment should affect the final assessment of whether an economy is highly inflationary. D-12, Foreign Currency Translation-Selection of Exchange Rate When Trading Is Temporarily Suspended This Topic discusses the appropriate exchange rate to be used for translating financial statements when foreign exchange trading is temporarily suspended at year-end.
Yes
No
Disclosure: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) FASB No. 161, Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No. 133, was issued in March 2008.
Yes
No
NA
Comments/References
359
Disclosure: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) The changes to this section include those amendments to FASB 52 as a result of FASB 161. These amendments are effective for quarterly interim periods beginning after November 15, 2008, and fiscal years that include those quarterly interim periods. Early application is encouraged. 1. Do the financial statements of the U.S. company show earnings from foreign operations in their own accounts (with appropriate provision for known losses) only to the extent that funds have been received in the United States or unrestricted funds are available for transmission thereto? [ARB 43, CH. 12.04] 2. Do the consolidated financial statements disclose, if significant, foreign earnings reported beyond the amounts received in the United States? (FASB 131 discusses the requirements for reporting revenues from foreign operations.) [ARB 43, CH. 12.05] 3. Do the consolidated financial statements exclude majority-owned foreign subsidiaries that operate under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary? [FASB 94.13] 4. Do the financial statements disclose: a. The aggregate transaction gain or loss, including transaction gains or losses on derivative instruments, included in determining net income for the period? [FASB 52.30 as amended by FASB 133] b. If significant, any rate change that occurs after the date of the financial statements, and its effect on unsettled balances pertaining to foreign currency transactions? [FASB 52.32] c. An analysis of the changes during the period in the accumulated amount of translation adjustment, reported in equity that at a minimum includes: [FASB 52.31 as amended by FASB 133] (1) The beginning and ending amount of cumulative translation adjustments? (2) The aggregate adjustment for the period resulting from translation adjustments and gains and losses from certain hedges and certain intercompany balances described in paragraph
Yes
No
NA
Comments/References
360
Disclosure: FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION (12/08) 20 of FASB 52? (3) The amount of income taxes for the period allocated to translation adjustments? (4) The amounts transferred from cumulative translation adjustments and included in determining net income for the period as a result of the sale or complete (or substantially complete) liquidation of an investment in a foreign entity? (5) The net amount of gains or losses included in the cumulative translation adjustment during the reporting period for derivative instruments, as well as nonderivative instruments that may give rise to foreign currency transaction gains or losses under FASB 52, that have been designated and have qualified as hedging instruments for hedges of the foreign currency exposure of a net investment in a foreign operation? [FASB 133.45.c]
Yes
No
NA
Comments/References
Accounting: INVESTMENTS: EQUITY METHOD (12/08) 1. Has the equity method of accounting been applied to account for investments in common stock of: a. Corporate joint ventures? [APB 18.16; FASB 94.15(e)] b. Other investees, over whose operating and financial policies the investor is able to exercise "significant influence" even though 50 percent or less of the voting stock is owned? (It is presumed that, in the absence of evidence to the contrary, the ability to exercise significant influence is present for investments (direct or indirect) of 20 percent or more of the issuer's outstanding voting stock and is absent for investments of less than 20 percent of the issuer's outstanding voting stock (also see EITF Topic D-46 for guidance on applicability to limited partnerships and EITF Issue No. 03-16 for guidance on limited liability corporations). [APB 18.17] The presumptions can be overcome by predominant evidence to the contrary. [FIN 35.4]
Yes
No
361
Accounting: INVESTMENTS: EQUITY METHOD (12/08) 2. Has the equity method of accounting been applied to account for investments in other than common stock, only if all of the following characteristics are present? [EITF 02-14.6] a. Subordination characteristics are substantially similar to the entity's common stock b. The risks and rewards of ownership are substantially similar to an investment in that entity's common stock c. The investee is not expected to transfer substantive value to the investor in a manner in which the common shareholders do not participate similarly. Also, has the initial determination been made on the date which the investor obtains the investment if the investor has the ability to exercise significant influence over the investee? Or, if the investor is not able to exercise significant influence when the investment was obtained but subsequently obtains the ability to exercise significant influence, has the initial determination been made on the date that significant influence is obtained? [EITF 02-14.8 and EITF 0214.10] 3. Has the determination made in question 2 above been reconsidered upon the occurrence of one or more of the following: [EITF 02-14.8-10] a. The contractual terms of the investment are changed resulting in a change to any of the characteristics described in question 2 above? b. There is a significant change in the capital structure of the investee, including the receipt of additional subordinated financing by the investee? c. The investor obtains an additional interest in an investment in which the investor had an existing interest? 4. If the equity method is used, are intercompany profits and losses eliminated (generally based on the investor's percentage of ownership of the investee) until realized? [APB 18.19(a)] 5. Is the difference between the cost of an investment and the amount of underlying equity in net assets of the investee at the date of investment accounted for as if the investee were a consolidated subsidiary? [APB 18.19(b); .19(m)]
Yes
No
362
Accounting: INVESTMENTS: EQUITY METHOD (12/08) 6. If the investor is unable to relate the difference in question 5 (above) to specific accounts of the investee, is the difference considered to be goodwill, which is not amortized but reviewed for impairment in accordance with FASB 142? [APB 18.19(n), as amended by FASB 142] 7. If an investee had capital transactions or items of other comprehensive income that affected the investor's share of stockholders' equity of the investee, has the investor accounted for them as if the investee were a consolidated subsidiary? [APB 18.19(e) and FASB 130] 8. Are gains or losses on sale of stock of an investee by an investor accounted for as the difference at the time of sale between selling price and carrying amount of the stock sold? [APB 18.19(f)] 9. If financial statements of an investee are not sufficiently timely for an investor to apply the equity method currently, has the investor recorded its share of the earnings or losses of an investee from the most recent available financial statements, with a consistent lag in reporting from period to period? [APB 18.19(g)] 10. Is a loss in value, other than a temporary decline, of an investment recognized? [APB 18.19(h)] 11. An investor should ordinarily discontinue applying the equity method if the investment (and net advances) is reduced to zero and should not provide for additional losses. However, if the investor's potential loss is not limited to the amount of its original investment because of a guarantee of the investee's obligations or other commitment to provide further financial support or if imminent return to profitable operations by the investee appears to be assured, it is appropriate to continue to apply the equity method. If application of the equity method has been discontinued and the investee subsequently reports net income, is application of the equity method resumed only after the investor's share of net income equals its share of net losses not recognized during the period in which the equity method was suspended? [APB 18.19(i)] 12. If an investee has outstanding cumulative preferred stock, has the investor computed its share of earnings (losses) after deducting the investee's dividends thereon, whether or not the dividends are declared? [APB 18.19(k)] 13. If an investor's level of ownership falls below that necessary to qualify for use of the equity method (i.e., if
Yes
No
363
Accounting: INVESTMENTS: EQUITY METHOD (12/08) they lose the ability to influence policy): [APB 18.19(l)] a. Did the investor discontinue accruing its share of the earnings or losses of the investee? b. Do previously accrued earnings or losses that relate to the stock retained by the investor remain as a part of the carrying amount of the investment? (The investment account should not be adjusted retroactively.) c. If dividends received by an investor no longer using the equity method exceed the investor's share of earnings since discontinuing the method, has the carrying amount of the investment been reduced by the excess? d. If the underlying equity security has a readily determinable fair value, has the investor begun accounting for the investment in accordance with FASB 115? [FASB 115.126] e. Did the investor offset its proportionate share of an investee's equity adjustments for OCI against the carrying value of the investment at the time significant influence is lost? (If the investor's proportionate share of an investee's equity adjustment for OCI is greater than the carrying value of the investment, the excess should be recognized in income.) [FSP APB 18-1] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-9, Reporting a Change in (or the Elimination of) a Previously Existing Difference between the Fiscal Year-End of a Parent Company and That of a Consolidated Entity or between the Reporting Period of an Investor and That of an Equity Method Investee - This Issue addresses how a parent should recognize the effect of a change to (or the elimination of) an existing difference between the parent's reporting period and the reporting period of a consolidated entity or between the reporting period of an investor and the reporting period of an equity method investee. 03-16, Accounting for Investments in Limited Liability Companies This Issue addresses whether an LLC should be viewed as similar to a corporation or similar to a partnership for purposes of determining whether noncontrolling investments in an LLC should be accounted for using the cost method or the equity method. 02-18, Accounting for Subsequent Investments in an Investee
Yes
No
364
Accounting: INVESTMENTS: EQUITY METHOD (12/08) after Suspension of Equity Method Loss Recognition - This Issue addresses whether, assuming an investor has appropriately suspended equity method loss recognition in accordance with paragraph 19(i) of APB 18 and Issue 98-13, an investor should recognize any previously suspended losses when accounting for a subsequent investment in an investee that does not result in the ownership interest increasing from one of significant influence to one of control and, if it is determined that the additional investment, in whole or in part, represents the funding of prior losses, whether all previously suspended losses should be recognized or whether only the previously suspended losses equal to the portion of the investment determined to be funding prior losses should be recognized. 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock This Issue addresses the following: (1) Whether an investor should apply the equity method of accounting to investments other than common stock, (2) If the equity method should be applied to investments other than common stock, how the equity method of accounting should be applied to those investments, and (3) Whether investments other than common stock that have a "readily determinable fair value" under paragraph 3 of FASB 115 should be accounted for in accordance with FASB 115 rather than pursuant to this Issue. 99-10, Percentage Used to Determine the Amount of Equity Method Losses This Issue addresses structures in which an investor owns common stock and "other investments" in an investee, is not required to advance additional funds to the investee, and previous losses have reduced the common stock investment account to zero, and provides guidance on how additional equity method losses should be measured and recognized by the investor. 98-13, Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee This Issue addresses when an investor is required to account for a common stock investment using the equity method, how the equity method loss pickup from the application of APB 18 (when the carrying amount of the common stock has been reduced to zero) interacts with the applicable literature relating to investments in the other securities of the investee (either FASB 114 or FASB 115). D-84, Accounting for Subsequent Investments in an Investee After Suspension of Equity Method Loss Recognition When an Investor Increases Its Ownership Interest from Significant
Yes
No
365
Accounting: INVESTMENTS: EQUITY METHOD (12/08) Influence to Control Through a Market Purchase of Voting Securities. D-68, Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of an Investee This Issue addresses whether an investor who owns common (or other voting) stock and also (1) owns debt securities (including mandatorily redeemable preferred stock), (2) owns preferred stock, or (3) has extended loans to the investee should continue to provide for operating losses of the investee when the investor's investment in common (or other voting) stock has been reduced to zero. D-46, Accounting for Limited Partnership Investments This Issue addresses when to apply the equity method of accounting to investments in limited partnerships.
Yes
No
Disclosure: INVESTMENTS: EQUITY METHOD (12/08) 1. Is the investment in common stock shown in the balance sheet of an investor as a single amount? [APB 18.19(c)] 2. Is the investor's share of earnings or losses before extraordinary items shown in the income statement as a single amount? [APB 18.19(c)] 3. Is the investor's share of the investee's extraordinary items and prior-period adjustments classified as such in the investor's financial statements unless it is immaterial in the income statement of the investor? [APB 18.19(d)] 4. Is the investor's share of the investee's change in accounting principle [APB 20.20] and disposal of a segment of a business [FASB 144.43] classified in the investor's financial statements in the same manner as if the investee were a consolidated subsidiary? 5. Are adjustments resulting from a change to the equity method treated as adjustments of prior periods, with financial statements presented for the periods affected restated appropriately? (If the investment was acquired over a period of time, the retroactive adjustments should be applied in a manner consistent with the accounting for a step-by-step acquisition of a subsidiary.) [APB 18.19(m)]
Yes
No
366
Disclosure: INVESTMENTS: EQUITY METHOD (12/08) 6. Are the following, which are generally applicable to the equity method accounting for investments in common stock, disclosed: (Significance of the investment to the investor should be considered in evaluating the extent of disclosure; disclosure may be made on a combined basis, if appropriate.) [APB 18.20] a. The name of each investee and the percentage of ownership of its common stock; the accounting policies of the investor with respect to investments in common stock, including names of significant investees and explanations if the equity method has not been applied to an investment of 20 percent or more or has been applied to an investment of less than 20 percent; and the difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference? [APB 18.20(a)] b. The market value of each investment (except investments in subsidiaries) if a quoted market price is available? [APB 18.20(b)] c. Summarized information (either in a note or separate statement) as to assets, liabilities, and results of operations of investees for which the investments are, in the aggregate, material? [APB 18.20(d)] d. Material effects on the investor's share of reported earnings or losses of possible conversion of outstanding convertible securities, exercise of outstanding options and warrants, and other contingent issuances of an investee? [APB 18.20(e)] 7. If the entity's adoption of FASB 142 begins the day after the period being audited, has the entity disclosed the effect of the write-off of unamortized deferred credits (negative goodwill) related to an investment accounted for by the equity method acquired before July 1, 2001? [FASB 141.62] [NOTE 1: For SEC registrants' additional disclosures in accordance with SAB 74 should be considered.] [NOTE 2: Refer to AICPA SOP 78-9, Accounting for Investments in Real Estate Ventures (as amended by FSP SOP 78-9-1, Interaction of AICPA Statement of Position 78-9 and EITF Issue No. 04-5), and EITF No. D-46, Accounting for Limited Partnership Investments, for the relevant accounting literature for limited partnership
Yes
No
367
Disclosure: INVESTMENTS: EQUITY METHOD (12/08) investments.] [NOTE 3: Refer to AICPA SOP 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies, for certain disclosure requirements.] 8. Have the separate financial statements been filed for all the "significant investees," as defined in S-X Rule 1-2(w)? [S-X, Rule 3-09] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-9, Reporting a Change in (or the Elimination of) a Previously Existing Difference between the Fiscal Year-End of a Parent Company and That of a Consolidated Entity or between the Reporting Period of an Investor and That of an Equity Method Investee This Issue addresses how a parent should recognize the effect of a change to (or the elimination of) an existing difference between the parent's reporting period and the reporting period of a consolidated entity or between the reporting period of an investor and the reporting period of an equity method investee. 00-1, Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures This Issue addresses whether there are circumstances in which proportionate gross presentation is appropriate under the equity method of accounting for an investment in an entity. Accounting: BUSINESS COMBINATIONS (12/08) B50 BUSINESS COMBINATIONS (TRANSACTIONS INITIATED AFTER JUNE 30, 2001) (12/08) A. Business Combinations 1. A business combination occurs when (1) an entity acquires net assets that constitute a business or acquires equity interests of one or more other entities and (2) obtains control over that entity or entities. Has the entity considered the following: a. Has the entity acquired net assets that constitute a business? [FASB 141.9, EITF 98-3] b. Has the entity acquired control? [FASB 141.9, ARB 51, FASB 94]
Yes
No
Yes
No
NA
Comments/References
368
Accounting: BUSINESS COMBINATIONS (12/08) 2. The provisions of FASB 141 apply to other types of business combinations. [FASB 141.9] Has the entity entered into a business combination in which [FASB 141.10]: a. One or more entities are merged or become subsidiaries? b. One entity transfers net assets or its owners transfer their equity interests to another? c. All entities transfer net assets or the owners of those entities transfer their equity interests to a newly formed entity (roll-up)? d. A business was exchanged for another business? 3. The acquisition of some or all of the noncontrolling interests in a subsidiary shall be accounted for using the purchase method. a. Has the entity acquired some or all of the noncontrolling interests in a subsidiary? [FASB 141.11] b. Has the purchase method of accounting been used for the acquisition of some or all of the noncontrolling equity interests in a subsidiary, whether acquired by parent, subsidiary itself, or another affiliate? [FASB 141.14] B. Identifying the Acquiring Entity 1. Are the following accounting principles met for business combinations? a. If a combination was effected solely through the distribution of cash or other assets or by incurring liabilities, and unless sufficient evidence rebuts this presumption, has the entity that distributed the cash or other assets or incurred the liabilities been identified as the acquiring entity? [FASB 141.16]
Yes
No
NA
Comments/References
369
Accounting: BUSINESS COMBINATIONS (12/08) b. If a combination was effected through an exchange of equity interests, generally the entity issuing the equity is identified as the acquiring entity. Has the entity considered the following additional factors: [FASB 141.17] (1) All else being equal, has the acquiring entity been identified as the combining entity whose owners as a group retained or received the larger portion of the voting rights (including unusual or special voting arrangements and options, warrants, or convertible securities) in the combined entity? [FASB 141.17(a)] (2) All else being equal, has the acquiring entity been identified as the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity? [FASB 141.17(b)] (3) All else being equal, has the acquiring entity been identified as the combining entity whose owners or governing body has the ability to elect or appoint a majority of the governing body of the combined entity? [FASB 141.17(c)] (4) All else being equal, has the acquiring entity been identified as the combining entity whose senior management (e.g., chairman of the board, CEO, COO, CFO, divisional heads reporting directly to them or the executive committee) dominates that of the combined entity? [FASB 141.17(d)] (5) All else being equal, has the acquiring entity been identified as the combining entity that paid a premium over the market value of the equity securities of the other combining entity or entities? [FASB 141.17(e)] c. If more than two entities were involved in the business combination, has consideration been given to which combining entity initiated the combination and whether the assets, revenues, and earnings of one of the combining entities significantly exceeds those of the others? [FASB 141.18] d. If a new entity has been formed to issue equity interests to effect a business combination, has an acquiring entity been determined based on the
Yes
No
NA
Comments/References
370
Accounting: BUSINESS COMBINATIONS (12/08) evidence available (see questions 1a-1b, above)? [FASB 141.19] C. Determining the Cost of the Acquired Entity 1. If the consideration given was cash, has the exchange transaction been measured by the amount of cash paid? [FASB 141.20] 2. If the consideration given was in the form of noncash assets, liabilities incurred, or equity interests issued, has the exchange transaction been measured based on the fair value of the consideration given or the fair value of the asset (or assets) acquired, whichever is more clearly evident and, thus, more reliably measured? [FASB 141.6] 3. If equity interests have been issued, have the distinctive characteristics of the equity interests (i.e., preferred stock) been considered when determining the cost of an acquired entity? [FASB 141.21] 4. If equity interests have been issued, has the fair value of securities traded in the market (i.e., two days before the day of, and two days after the acquisition has been agreed to and announced) generally been used to estimate the fair value of an acquired entity after recognizing possible effects of price fluctuation, quantities traded, issue costs, and the like, and has the basis for recognizing a control premium been properly documented, if applicable? [FASB 141.22; EITF 99-12] 5. Have the costs incurred to close duplicate facilities of an acquiring company and the gain or loss on the disposition of such facilities been included in determining net income (excluded from the cost of acquisition)? [FTB 85-5.02] 6. If vested stock options or awards are issued by an acquirer in exchange for outstanding awards held by employees of the acquiree, has the fair value of the new (acquirer) awards been included as part of the purchase price? [FASB 123(R).53] 7. If unvested stock options or awards are granted by an acquirer in exchange for stock options or awards held by employees of the acquiree, have the following accounting principles been followed? [FASB 123(R).53] a. Has the fair value of the new (acquirer) awards (reduced for unearned compensation, if any) been included as part of the purchase price? b. To the extent that service is required subsequent to the
Yes
No
NA
Comments/References
371
Accounting: BUSINESS COMBINATIONS (12/08) consummation date of the acquisition in order to vest in the replacement awards, has a portion of the unvested awards been allocated to unearned compensation and recognized as compensation cost over the remaining future vesting (service) period? (1) If the client uses APB 25 to account for stock options, has the amount allocated to unearned compensation been based on the portion of the intrinsic value (if any) at the consummation date related to the future vesting (service) period? (2) Has any intrinsic value of the replacement awards that is allocated to unearned compensation cost been deducted from the fair value of the awards for purposes of the allocation of the purchase price to the other assets acquired? 8. If the client uses FASB 123 or FASB 123(R) to account for stock options, has the amount allocated to unearned compensation been based on the portion of the fair value at the consummation date related to the future vesting (service) period? a. Has any fair value of the replacement awards that is allocated to unearned compensation cost been deducted from the fair value of the awards for purposes of the allocation of the purchase price to the other assets acquired? D. Costs of the Business Combination 1. Does the cost of an entity acquired in a business combination include the direct costs of the business combination? (Costs of registering and issuing equity securities are a reduction of the otherwise determinable fair value of the securities. However, indirect and general expenses related to business combinations (i.e., management's salaries) shall be expensed as incurred.) [FASB 141.24] E. Contingent Consideration 1. Have cash and other assets distributed, securities issued unconditionally, and amounts of contingent consideration that are determinable at the date of acquisition been included in determining the cost of an acquired entity and recorded at that date? [FASB 141.26] 2. Has the consideration that is issued or issuable at the expiration of a contingency period or which is held in
Yes
No
NA
Comments/References
372
Accounting: BUSINESS COMBINATIONS (12/08) escrow: [FASB 141.26] a. Not been recorded as a liability or shown as outstanding securities, unless the outcome of the contingency is determinable beyond a reasonable doubt? 3. Have contingencies based on maintaining or achieving specified earnings levels in future periods been recorded when such contingencies are resolved and the additional consideration is distributable, at the current fair value of the consideration issued or issuable as additional cost of the acquired entity? [FASB 141.28] 4. Have contingencies based on market prices of securities in future periods been recorded when the contingency is resolved and additional consideration is distributable, at the current fair value of the additional consideration issued or issuable? [FASB 141.29] 5. When the contingency based on market prices of securities in future periods is resolved, have amounts previously recorded for securities issued at the date of acquisition been simultaneously reduced to the lower current value of those securities? [FASB 141.30] 6. If the consideration contingently issuable depends on both future earnings and future security prices, have additional costs of the acquired entity been recorded for the additional consideration contingent on earnings, and has previously recorded consideration been reduced to current value of the consideration contingent on security prices? [FASB 141.31] 7. If the consideration contingently issuable depends on later settlement of a contingency, is an increase in the cost of acquired assets, if any, being amortized over the remaining useful life of the assets? [FASB 141.31] 8. Have amounts paid to an escrow agent representing interest and dividends on securities held in escrow not been recorded as interest expense or dividend distributions until the disposition of the securities in escrow is resolved? [FASB 141.32] 9. Has an amount equal to interest and dividends later distributed by the escrow agent to the former shareholders been added to the cost of the acquired assets at the date distributed? [FASB 141.32] 10. Has the amount equal to a tax reduction resulting from imputed interest on contingently issuable shares reduced
Yes
No
NA
Comments/References
373
Accounting: BUSINESS COMBINATIONS (12/08) the fair value recorded for contingent consideration based on earnings and increased the additional capital recorded for contingent consideration based on security prices? [FASB 141.33] 11. If the substance of some agreements for contingent consideration is to provide compensation for services or use of property or profit sharing, has the additional consideration given been recognized as an expense of the appropriate periods? [FASB 141.34] F. Allocating the Cost of an Acquired Entity 1. A portion of the total cost is assigned to each individual asset (or assets and liabilities) acquired on the basis of its fair value. An excess of (1) the cost of the group over (2) the sum of the amounts assigned to the tangible assets, financial assets, and separately recognized intangible assets acquired less (3) liabilities assumed is evidence of an unidentified intangible asset or assets (goodwill). Has the acquiring entity allocated the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition, as follows: [FASB 141.7, .35] a. Have all identifiable assets acquired and liabilities assumed, including intangible assets (that arise from contractual or other legal rights or are separable) regardless of whether they had been recorded in the financial statements of the acquired entity been assigned a portion of the cost of the acquired entity, normally equal to their fair values at date of acquisition? (See Section G below regarding general guidance for assigning amounts to specific assets acquired and liabilities assumed.) [FASB 141.35, .39] b. Has the tax basis of an asset or liability not been used as a factor in determining its estimated fair value? [FASB 141.36] c. Has a deferred tax liability or asset been recognized for differences between the assigned values and the tax bases of recognized assets acquired and liabilities assumed (except the portion of goodwill for which amortization is not deductible for tax purposes, unallocated "negative goodwill," leveraged leases, and acquired APB Opinion 23 differences) in a business combination? [FASB 109.30] G. Assets Acquired and Liabilities Assumed
Yes
No
NA
Comments/References
374
Accounting: BUSINESS COMBINATIONS (12/08) 1. Have amounts assigned to individual assets acquired and liabilities assumed, except goodwill, been determined in accordance with the following general guides? (Among other sources of relevant information, independent appraisals and actuarial or other valuations may be used as an aid in determining the estimated fair values of assets acquired and liabilities assumed.) a. Marketable securities, at fair values? [FASB 141.37] b. Receivables, at present values of amounts to be received determined at appropriate current interest rates, less allowances for uncollectibility and collection costs, if necessary? [FASB 141.37] c. Inventories: [FASB 141.37] (1) Finished goods and merchandise, at estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity? (2) Work in process, at estimated selling prices of finished goods less the sum of (a) costs to complete, (b) costs of disposal, and (c) a reasonable profit allowance for the completing and selling effort of the acquiring entity, based on profit for similar finished goods? d. Raw materials, at current replacement costs? e. Plant and equipment: [FASB 141.37] (1) To be used, at current replacement costs for similar capacity (i.e., replacement cost new, less estimated accumulated depreciation, unless a used-asset market price can be obtained) unless the expected future use of the assets indicates a lower value to the acquiring entity? (2) To be sold, at fair value less cost to sell? f. Intangible assets that arise from contractual or other legal rights or are separable, at estimated fair values (Appendix A and EITF 02-17 of FASB 141 should be considered as an entity identifies intangible assets)? [FASB 141.37, .39]
Yes
No
NA
Comments/References
g. Other assets (including land, natural resources, and nonmarketable securities), at appraised values? [FASB 141.37] h. Accounts and notes payable, long-term debt, and other
375
Accounting: BUSINESS COMBINATIONS (12/08) claims payable-at present values of amounts to be paid determined at appropriate current interest rates? [FASB 141.37] i. A liability (asset) for the projected benefit obligation in excess of (less than) plan assets of a singleemployer defined benefit pension plan? Also, if it is expected that the plan will be terminated or curtailed, have the effects of those actions been considered in measuring the projected benefit obligation? [FASB 141.37, FASB 87.74] A liability (asset) for the accumulated postretirement benefit obligation in excess of (less than) the fair value of plan assets of a single-employer defined benefit postretirement plan? Also, if it is expected that the plan will be terminated or curtailed, have the effects of those actions been considered in measuring the accumulated postretirement benefit obligation? [FASB 141.37, 106.86-.88]
Yes
No
NA
Comments/References
j.
k. Liabilities and accruals (e.g., accruals for warranties, vacation pay, deferred compensation), at present values of amounts to be paid, determined at appropriate current interest rates? [FASB 141.37] l. Other liabilities and commitments (including unfavorable leases, contracts, and commitments and plant closing expense incident to the acquisition), at present values of amounts to be paid determined at appropriate current interest rates? [FASB 141.37]
Certain use rights may have characteristics of assets other than intangible assets. For example, certain mineral rights are considered tangible assets based on the consensus in EITF Issue No. 04-2, "Whether Mineral Rights Are Tangible or Intangible Assets." Accordingly, use rights should be accounted for based on their substance. [FSPs FAS 141-1 and FAS 142-1] 2. Has the acquiring entity not recognized goodwill and deferred income taxes previously recorded by an acquired entity before its acquisition? [FASB 141.38] H. Preacquisition Contingencies 1. Have the preacquisition contingencies other than potential tax effects of (a) temporary differences and carryforwards of an acquired entity that exist at the acquisition date and (b) income tax uncertainties related to the acquisition been accounted for? [FASB 141.40-.41]
376
Accounting: BUSINESS COMBINATIONS (12/08) a. At fair value, if determinable during the "allocation period," or b. At reasonably estimated amounts, if information available prior to the end of the "allocation period" indicates the probable existence of such contingencies prior to consummation of the combination? (After the end of the "allocation period," an adjustment that results from a preacquisition contingency, other than a loss carryforward, shall be included in the determination of net income in the period in which the adjustment is determined.) I. Research and Development Assets 1. Have amounts assigned to tangible and intangible assets to be used in a particular research and development project that have no alternative future use been charged to expense at the acquisition date? [FASB 141.42; FIN 4.5] J. Excess of Cost Over the Fair Value of Acquired Net Assets (Goodwill) 1. Has the excess cost of the acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed been recognized as goodwill? [FASB 141.43] 2. Has an acquired intangible asset that does not arise from contractual or other legal rights or is not separable been included in goodwill? [FASB 141.39, .43] K. Excess of Fair Value of Acquired Net Assets Over Cost (Negative Goodwill) 1. If the sum of amounts assigned to assets acquired and liabilities assumed exceeds the cost of the acquired entity (excess over cost or excess or negative goodwill), has the excess been allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets except (a) financial assets other then investments accounted for by the equity method, (b) assets to be disposed of by sale, (c) deferred tax assets, (d) prepaid assets relating to pension or other postretirement benefit plans, and (e) any other current assets? [FASB 141.44] 2. If any excess remains after reducing to zero the amounts that otherwise would have been assigned to those assets (as described in question K1, above), has that remaining excess been recognized as an extraordinary gain (see paragraph 11 of APB 30) in the period in which the business combination was completed? (If contingent
Yes
No
NA
Comments/References
377
Accounting: BUSINESS COMBINATIONS (12/08) consideration may result in an additional element of cost of the acquired entity, refer to paragraph 46 of FASB 141.) [FASB 141.45] 3. If the business combination involves a contingent consideration agreement that might result in recognition of an additional element of cost when the contingency is resolved (contingency based on earnings), have the following steps been followed: [FASB 141.46] a. Has an amount equal to the lesser of the maximum amount of contingent consideration or the excess been recognized as a liability? b. When the contingency is resolved, has any excess of the fair value over the contingent consideration issued or issuable over the amount recognized as a liability been recognized as an additional cost of the acquired entity? c. When the contingency is resolved, has any excess of the liability over the fair value of the consideration issued or issuable been allocated as a pro rata reduction of the amounts assigned to assets acquired in accordance with K1 above? d. Has any amount that remains after reducing those assets to zero been recognized as an extraordinary gain in accordance with K2 above? L. Date of Acquisition 1. Has the acquisition date been recognized as the earlier of the date on which (a) assets are received and other assets are given, liabilities are assumed or incurred, or equity interests are issued or (b) the effective date (i.e., the date on which control of the acquired entity is transferred to the acquiring entity without restrictions except those required to protect the owners of the acquired entity) as specified by the written agreement between the parties? [FASB 141.48] M. Documentation of Date of Acquisition 1. As of the date of acquisition, has the entity documented the basis for and method of determining the purchase price of an acquired entity and other related factors (such as the underlying reasons for the acquisition and management's expectations related to dilution, synergies, and other financial measurements)? [FASB 141.50] Has the entity complied with the following Issues discussed
Yes
No
NA
Comments/References
378
Accounting: BUSINESS COMBINATIONS (12/08) by the Emerging Issues Task Force, when applicable? [NOTE: When evaluating compliance with the Issues below, the "Status" section of the applicable Issue should also be reviewed to determine if authoritative guidance issued subsequent to the Issue should also be considered.] 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination This Issue addresses the amortization period for leasehold improvements in operating leases that are acquired in a business combination. 04-5, Investor's Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights This Issue addresses when a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. 04-1, Accounting for Preexisting Relationships between the Parties to a Purchase Business Combination This Issue addresses (1) whether a business combination between two parties that have a preexisting relationship should be evaluated to determine if a settlement of a preexisting relationship exists, (2) how the effective settlement of an executory contract in a business combination should be measured, (3) whether the acquisition of a right that the acquirer had previously granted to the acquired entity to use the acquirer's recognized or unrecognized intangible assets should be included in the measurement of the settlement amount or included as part of the business combination, (4) whether the acquirer should recognize, apart from goodwill, an acquired entity's intangible asset(s) that, before the business combination, arose solely from the acquired entity's contractual right to use the acquirer's recognized or unrecognized intangible asset(s), and (5) whether it is appropriate for an acquirer to recognize a settlement gain in conjunction with the effective settlement of a lawsuit or an executory contract in a business combination. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination This Issue addresses (1) when an entity recognizes an intangible asset pursuant to paragraph 39 of FASB 141, whether the contractual-legal or the separability criteria restrict the use of certain assumptions that would be used in estimating the fair value of that intangible asset; (2) whether the guidance in FASB 141, paragraph A20, which states that a customer relationship meets the contractual-legal criterion if an entity establishes relationships with its customers through contracts,
Yes
No
NA
Comments/References
379
Accounting: BUSINESS COMBINATIONS (12/08) applies only if a contract is in existence at the date of acquisition; and (3) whether order or production backlogs arising from contracts such as purchase or sales orders (even if the purchase or sales orders are cancelable) as described in paragraph A19 of FASB 141 are considered contracts subject to the guidance in paragraph A20 of FASB 141. 02-5, Definition of "Common Control" in Relation to FASB Statement No. 141 This Issue discusses how to determine whether separate entities are under common control in the context of FASB 141 when common majority ownership exists by an individual, a family, or a group affiliated in some other manner. 01-3, Accounting in a Purchase Business Combination for Deferred Revenue of an Acquiree This Issue addresses (1) whether the deferred revenue of an acquired entity represents a liability that should be recognized by the acquiring entity when the business combination is recorded and, if so, how the amount assigned to that liability should be measured; (2) how the recognized liability should be presented in the acquiring entity's balance sheet; and (3) whether the amortization of an exclusivity arrangement that was acquired and recognized as an intangible asset in a business combination should be recognized as an expense or as a reduction of revenue. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination This Issue discusses the date that should be used to value marketable equity securities of the acquirer issued to effect a business combination when the number of the acquirer's shares or amount of other consideration is not subject to change pursuant to the existing terms of the acquisition agreement. This Issue also addresses the date that should be used as the measurement date when the number of the acquirer's shares or amount of other consideration to be issued could change pursuant to a formula in the initial acquisition agreement. 98-4, Accounting by a Joint Venture for Businesses Received at Its Formation This Issue discusses how a joint venture should record, in its separate financial statements, the businesses received if the relationship between the joint venture and the venturers has either (a) none of the five attributes of a corporate joint venture described in paragraph 3(d) of Opinion 18, but there is joint control, or (b) all five of the attributes of a corporate joint venture described in paragraph 3(d) of Opinion 18, and there is joint control. 98-3, Determining Whether a Nonmonetary Transaction
Yes
No
NA
Comments/References
380
Accounting: BUSINESS COMBINATIONS (12/08) Involves Receipt of Productive Assets or of a Business This Issue provides guidance regarding whether assets or a group of assets constitutes a business. 98-1, Valuation of Debt Assumed in a Purchase Business Combination This Issue addresses whether the debt assumed in a purchase business combination should be assigned an amount equal to its fair value or some other value determined from the present value of contractual cash flows at the date of acquisition. 97-15, Accounting for Contingency Arrangements Based on Security Prices in a Purchase Business Combination This Issue addresses: (1) how contingent consideration based on a future security price should be recorded when the contingency arrangement based on security prices guarantees a future security price that is below the price of such securities at the date of the combination; and (2) how contingent consideration based on a future security price should be recorded when the contingency arrangement based on security prices does not result in a guarantee of the minimum value of the total consideration. 97-8, Accounting for Contingent Consideration Issued in a Purchase Business Combination This Issue applies only to contingent consideration that is based on earnings or that is based on a guaranteed value of the securities issued to effect the combination. The issue is whether contingent consideration issued in a business combination that is embedded in a security or that is in the form of a separate financial instrument should be recorded by the issuer at fair value at the acquisition date or recognized only when the contingency is resolved. 97-2, Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements This Issue applies to contractual management relationships between entities that operate in the health care industry and other industries in which a contractual management arrangement is established under circumstances similar to those addressed in this Issue. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in Anticipation of a Business Combination This Issue addresses whether a liability for contractual termination benefits and curtailment losses under employee benefit plans that will be triggered by the consummation of a business combination should be recognized when (1) it is probable that
Yes
No
NA
Comments/References
381
Accounting: BUSINESS COMBINATIONS (12/08) the business combination will be consummated or (2) the business combination is consummated. 95-8, Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination This Issue addresses the accounting for consideration transferred to settle a contingency based on earnings or other performance measures. The issue is what criteria should be used to determine whether contingent consideration based on earnings or other performance measures should be accounted for as (1) an adjustment of the purchase price of an acquired enterprise or (2) compensation for services, use of property, or profit sharing. 95-3, Recognition of Liabilities In Connection with a Purchase Business Combination This Issue addresses what types of direct, integration, or exit costs should be accrued as liabilities in a purchase business combination and when to recognize those costs. 93-7, Uncertainties Related to Income Taxes in a Purchase Business Combination This Issue addresses uncertainties related to income taxes that may exist at the time of, or arise in connection with, a purchase business combination. The issue is whether FASB 38 is applicable to any income tax uncertainties, and if not, how income taxes should be accounted for in accordance with FASB 109. 91-5, Nonmonetary Exchange of Cost Method Investments This Issue addresses various questions regarding a fact pattern where Company A enters into a business combination with Company B in which shares of one company are exchanged for all outstanding shares of the other. After the combination, former Company A shareholders own a majority of the shares of the combined entity, and Company A will be considered the accounting acquirer. Shares of the combined company will continue to be publicly traded subsequent to the business combination. 90-13, Accounting for Simultaneous Common Control Mergers This Issue addresses a fact pattern where an entity (Parent) obtains control by ownership or otherwise of another entity (Target). Almost simultaneously, as part of an integrated planned transaction, Target issues additional shares to Parent in exchange for Parent's interest in a subsidiary (Subsidiary). Parent, Target, and Subsidiary are substantive operating entities. This Issue addresses whether the transfer of Subsidiary to Target should be accounted for by Parent as a purchase of Target under FASB 141 or as a combination of entities under common control at historical cost in a manner
Yes
No
NA
Comments/References
382
Accounting: BUSINESS COMBINATIONS (12/08) similar to a pooling of interests in accordance with Interpretation 39. If Interpretation 39 does not apply and the transfer is accounted for at fair value, this Issue also addresses whether gain should be recognized by Parent, how the values assigned to the assets and liabilities of Target and Subsidiary and the minority interest should be determined for purposes of Parent's consolidated financial statements, and how the transaction should be accounted for by Target. 90-12, Allocating Basis to Individual Assets and Liabilities for Transactions within the Scope of Issue No. 88-16 Issue No. 88-16, Basis in Leveraged Buyout Transactions, addresses how to determine the basis of NEWCO's investment in OLDCO in a transaction that takes the form of NEWCO's 100 percent purchase business combination of OLDCO. That investment must be allocated to individual assets and liabilities of OLDCO in order to prepare NEWCO's consolidated financial statements. The issue is how NEWCO's investment in OLDCO should be allocated to individual assets and liabilities of OLDCO in LBO transactions within the scope of Issue 88-16 in which a portion of NEWCO's investment in OLDCO is valued at predecessor basis. 90-5, Exchanges of Ownership Interests between Entities under Common Control This Issue addresses a fact pattern where a parent company transfers its ownership interest in a subsidiary ("Sub B") to another subsidiary ("Sub A") in exchange for additional shares of Sub A. The parent company's investment in Sub B differs from the book value of net assets in Sub B's financial statements because push-down accounting under SAB 54 was appropriately not applied. This Issue addresses whether the consolidated financial statements of Sub A should reflect the assets and liabilities of Sub B at the historical cost in the financial statements of Sub B or at the historical cost in the consolidated financial statements of Sub A's parent. This Issue also addresses if Sub A acquires the minority interests of Sub B, whether the amount used by Sub A to record the minority interest of Sub B depends on whether Sub A issues cash or stock. 89-19, Accounting for a Change in Goodwill Amortization for Business Combinations Initiated Prior to the Effective Date of FASB Statement No. 72 This Issue addresses whether an enterprise can now adopt the provisions of FASB 72 in accounting for goodwill that arose in a purchase business combination that occurred prior to the effective date of FASB 72 and, if so, whether the accounting change should be reported by a cumulative effect adjustment or by retroactively
Yes
No
NA
Comments/References
383
Accounting: BUSINESS COMBINATIONS (12/08) restating the financial statements of prior periods. 88-16, Basis in Leveraged Buyout Transactions A holding company ("NEWCO") with no substantive operations acquires an operating company ("OLDCO") in a leveraged buyout ("LBO") transaction. This Issue addresses what basis should be used by NEWCO to value its interest in OLDCO; that is, whether the acquisition of shares of OLDCO establishes a new basis of accounting or whether predecessor basis, OLDCO book value, or some combination should be used. 88-14, Settlement of Fees with Extra Units to General Partner in a Master Limited Partnership This Issue addresses how a general partner should account for tradable limited partnership units received as part of a roll-up. 87-21, Change of Accounting Basis in Master Limited Partnership("MLP") Transactions This Issue addresses when a new basis of accounting should be recorded for the assets and liabilities of an MLP and how an MLP should account for transaction costs in a roll-up. 86-14, Purchased Research and Development Projects in a Business Combination This Issue relates to when an acquired company has incomplete research and development (R&D) projects, should a portion of the purchase price be allocated to those R&D projects in process and, if so, should the amount be capitalized or immediately charged to expense? 85-45, Business Combinations: Settlement of Stock Options and Awards This Issue provides guidance relating to the accounting for a business combination under Opinion 25. FASB 123(R) supersedes Opinion 25, thereby nullifying this Issue. However, this Issue would still apply to those entities that continue to account for awards under Opinion 25 and its related interpretive guidance pursuant to paragraph 83 of FASB 123(R). 85-21, Changes of Ownership Resulting in a New Basis of Accounting This Issue discusses the following questions: (1) what level of ownership change in a company should result in a new basis of accounting for that company; (2) how would the new basis of accounting be computed, and (3) what amount would minority interests be reported? 84-35, Business Combinations: Sale of Duplicate Facilities and Accrual of Liabilities This Issue addresses whether, following a purchase business combination, the costs associated with closing a duplicate facility owned by the acquiring company may be considered an adjustment of the purchase price. This Issue also addresses what types of
Yes
No
NA
Comments/References
384
Accounting: BUSINESS COMBINATIONS (12/08) liabilities should be accrued in a purchase business combination [including, how direct costs of acquisition should be distinguished from indirect costs, whether certain specific types of costs should be accrued (for example, postemployment benefit obligations, multiemployer pension plan withdrawal liabilities) and what specific disclosures should be made.] When reviewing this Issue, reference should also be made to the "Status" section as several of the issues covered were subsequently addressed in other authoritative pronouncements. 84-13, Purchase of Stock Options and Stock Appreciation Rights in a Leveraged Buyout This Issue provides guidance relating to the accounting for the awards in a leveraged buyout under Opinion 25. FASB 123(R) supersedes Interpretation 44 and Opinion 25, thereby nullifying this Issue. However, this Issue would still apply to those entities that continue to account for awards under Opinion 25 and its related interpretive guidance pursuant to paragraph 83 of FASB 123(R). D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill This Topic states that the SEC staff believes the residual method should not be used to value intangible assets other than goodwill. Rather, a direct value method should be used to determine the fair value of all intangible assets required to be recognized under FASB 141. Impairment testing of intangible assets similarly should not rely on a residual method and should, instead, comply with the provisions of FASB 142. D-100, Clarification of Paragraph 61(b) of FASB Statement No. 141 and Paragraph 49(b) of FASB Statement No. 142 This Topic provides guidance about the application of subparagraph 61(b) (the Transition Provision) of FASB 141 and paragraph 49(b) of FASB 142. The Topic summarizes the FASB staff's understanding of the Board's intent with respect to the Transition Provision and provides examples to illustrate its application. D-97, Push-Down Accounting This Topic provides guidance on the facts and circumstances that require the application of push-down accounting. This Topic also discusses the concept of a "collaborative group" and the factors considered by the SEC staff that would be indicative of an investor not being part of a collaborative group. D-87, Determination of the Measurement Date for Consideration Given by the Acquirer in a Business Combination When That Consideration Is Securities Other
Yes
No
NA
Comments/References
385
Accounting: BUSINESS COMBINATIONS (12/08) Than Those Issued by the Acquirer Issue No. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination, provides guidance on the appropriate date to be used to value securities of the acquirer issued as consideration for a purchase business combination. This Topic addresses other securities, such as investment securities accounted for under FASB. 115, Accounting for Certain Investments in Debt and Equity Securities, or APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, that are given as consideration in a purchase business combination. Disclosure: BUSINESS COMBINATIONS (12/08) B50 BUSINESS COMBINATIONS (TRANSACTIONS INITIATED AFTER JUNE 30, 2001) (12/08) 1. Has the consideration that is issued or issuable at the expiration of a contingency period or which is held in escrow: [FASB 141.26] a. Been disclosed? b. Not been recorded as a liability or shown as outstanding securities unless the outcome of the contingency is determinable beyond a reasonable doubt? 2. Have the following reporting and disclosure requirements for a purchase been met: a. Do the notes to the financial statements of a combined entity disclose the following information in the period in which a material business combination is completed: [FASB 141.51] (1) Name and a brief description of the acquired entity and the percentage of voting equity interests acquired? (2) Primary reasons for the acquisition, including a description of the factors that contributed to a purchase price that results in recognition of goodwill? (3) Period for which results of operations of the acquired entity are included in the income statement of the combined entity? (4) Cost of the acquired entity and, if applicable, the
Yes
No
NA
Comments/References
Yes
No
NA
Comments/References
386
Disclosure: BUSINESS COMBINATIONS (12/08) number of shares of equity interests (e.g., common shares, preferred shares, or partnership interests) issued or issuable, the value assigned to those interests, and the basis for determining that value? (5) A condensed balance sheet disclosing the amount assigned to each major asset and liability caption of the acquired entity at the acquisition date? (6) Contingent payments, options, or commitments specified in the acquisition agreement and the proposed accounting treatment? (7) The amount of purchased research and development assets acquired and written off in the period and the line item in the income statement in which the amounts written off are aggregated? (8) For any purchase price allocation that has not been finalized, that fact and the reasons therefor. In subsequent periods, the nature and amount of any material adjustments made to the initial allocation of the purchase price have been disclosed? b. Do the notes to the financial statements disclose the following information in the period in which a material business combination is completed if the amounts assigned to goodwill or to other intangible assets acquired are significant in relation to the total cost of the acquired entity: [FASB 141.52] (1) For intangible assets subject to amortization: (a) Total amount assigned and amount assigned to any major intangible asset class? (b) Amount of any significant residual value, in total and by major intangible asset class? (c) Weighted-average amortization period, in total and by major intangible assets class? (2) For intangible assets not subject to amortization, the total amount assigned and amount assigned to any major intangible asset class? (3) For goodwill: (a) Total amount and amount expected to be
Yes
No
NA
Comments/References
387
Disclosure: BUSINESS COMBINATIONS (12/08) deductible for tax purposes? (b) Amount of goodwill by reportable segment (if the combined entity is required to disclose segment information in accordance with FASB 131)? c. Do the notes to the financial statements disclose the following information if a series of individually immaterial business combinations completed during the period are material in the aggregate: [FASB 141.53] (1) The number of entities acquired and a brief description of those entities? (2) The aggregate cost of the acquired entities, the number of equity interests (such as common shares, preferred shares, or partnership interests) issued or issuable, and the value assigned to those interests? (3) The aggregate amount of any contingent payments, options, or commitments and the accounting treatment that will be followed should any such contingency occur (if potentially significant in relation to the aggregate cost of the acquired entities)? (4) The information required in question 2b (above) if the aggregate amount assigned to goodwill or to other intangible assets is significant in relation to the aggregate cost of the acquired entities? (5) The information required in question 2d (below) if the combined entity is a public business enterprise? [FASB 141.54] d. If the combined entity is a public business enterprise, do the notes to the financial statements include the following supplemental information on a pro forma basis (labeled "unaudited," if applicable) for the period in which a material business combination occurs (or for the period in which a series of individually immaterial business combinations occur that are material in the aggregate): (1) Results of operations for the current period as though the business combination(s) had been completed at the beginning of the period, unless the acquisition was at or near the beginning of the period? [FASB 141.54]
Yes
No
NA
Comments/References
388
Disclosure: BUSINESS COMBINATIONS (12/08) (2) Results of operations for comparable prior period as though the business combination(s) had been completed at the beginning of that period if comparative financial statements are presented? [FASB 141.54] (3) At a minimum, supplemental pro forma information displays revenue, income before extraordinary items and the cumulative effect of accounting changes, net income, and earnings per share? [NOTE: To present pro forma information, income taxes, interest expense, preferred stock dividends, and depreciation and amortization of assets should be adjusted to the accounting base recognized for each in recording the combination. Pro forma presentation of results of operations of periods prior to the combination transaction should be limited to the immediately preceding period. Disclosure also shall be made of the nature and amount of any material, nonrecurring items included in the reported pro forma results of operations.] [FASB 141.55] e. In the period in which an extraordinary gain is recognized related to a business combination (see question 1n(6)), do the notes to the financial statements disclose the following: [FASB 141.56] (1) Captive descriptions and the amounts for individual extraordinary events (presented preferably on the face of the income statement)? (2) The income taxes applicable to the extraordinary item (preferably on the face of the income statement)? (3) The nature of and principal items entering into the determination of the extraordinary gain? f. If a material business combination is completed after the balance sheet date but before the financial statements are issued (unless not practicable), do the notes to the financial statements disclose the information required in questions 2a and 2b (above)? [FASB 141.57]
Yes
No
NA
Comments/References
g. If a material business combination is completed during the current year up to the date of the most recent interim statement of financial position
389
Disclosure: BUSINESS COMBINATIONS (12/08) presented, do the summarized interim financial information of a public business enterprise disclose the following: [FASB 141.58] (1) The information described in question 2a(1)2a(4)? (2) Supplemental pro forma information discloses the results of operations for the current interim period and the current year up to the date of the most recent interim statement of financial position presented (and for corresponding periods in the preceding year) as though the business combination had been completed as of the beginning of the period being reporting on? (At a minimum, the pro forma financial information displays revenue, income before extraordinary items and the cumulative effect of accounting changes (including those on an interim basis), net income, and earnings per share.) (3) The nature and amount of any material, nonrecurring items included in the reported pro forma results of operations? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 95-3, Recognition of Liabilities In Connection with a Purchase Business Combination This Issue addresses what types of direct, integration, or exit costs should be accrued as liabilities in a purchase business combination and when to recognize those costs. This Issue also includes disclosures that are required in addition to the disclosures required by FASB 141. 85-2, Classification of Costs Incurred in a Takeover Defense This Issue addresses whether takeover defense costs should be classified as an extraordinary item. This Issue also addresses an enterprise's purchase of treasury shares in a takeover attempt.
Yes
No
NA
Comments/References
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) D22 ACCOUNTING BY DEBTORS (12/08)
Yes
No
390
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) A. Scope 1. Have the provisions of EITF 02-04, Determining Whether a Debtor's Modification or Exchange of Debt Instruments Is within the Scope of FASB Statement No. 15, been considered to determine whether a modification or exchange of a debt instrument should be accounted for as a troubled debt restructuring? [EITF 02-4] Modifications or exchanges not accounted for as a troubled debt restructurings are subject to EITF Issues 96-19 and 01-7. B. Transfer of Assets in Full Settlement 1. If the debtor transferred its receivables from third parties, real estate, or other assets to a creditor to settle fully a payable, has a gain on restructuring been recognized? [FASB 15.13] 2. Was any such gain measured by the excess of (a) the carrying amount of the payable settled over (b) the fair value of the assets transferred to the creditor? [FASB 15.13] 3. Has the difference between the fair value and the carrying amount of assets transferred to a creditor to settle a payable been included as a gain or loss on transfer of assets in measuring net income for the period of transfer and was APB Opinion No. 30, Reporting the Results of Operations, considered in how the gain or loss was reported? [FASB 15.14] a. Did the carrying amount of the assets transferred include any allowance for uncollectible amounts and other "valuation" amounts that impact the carrying value of the assets? [FASB 15, F/N 7] To the extent that the carrying amount of the assets transferred includes a valuation allowance, a portion of the difference between the assets fair value and their carrying amount may be reflected as an adjustment to the valuation allowance rather than a gain or loss for the period. 4. If the debtor transferred real estate subject to nonrecourse debt to a creditor in full satisfaction of the obligation, did the debtor record (1) a gain or loss on the property representing the difference between the carrying amount of the property and its fair value and (2) a gain on the extinguishment of debt representing the excess of the loan balance over the property's fair value? [SEC and FASB Staff View stated in EITF Issue 91-2 note that no
Yes
No
391
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) consensus was reached on the EITF Issue]. C. Grant of Equity Interest in Full Settlement 1. Has the debtor who issues or otherwise grants an equity interest to a creditor to settle fully a payable accounted for that equity interest at its fair value? [FASB 15.15] 2. Has the difference between the fair value of an equity interest granted to a creditor to settle fully a payable and the carrying amount of the payable settled been recognized as a gain on restructuring of payables? [FASB 15.15] D. Modification of Terms 1. If the troubled debt restructuring involves only modification of terms of a payable, have the effects of the restructuring been accounted for prospectively from the time of restructuring? [FASB 15.16] 2. If the carrying amount of the payable does not exceed the total future cash payments specified by the new terms (including related accrued interest amounts contingently payable see question D.5): a. Has the carrying amount of the payable at the time of restructuring not been changed? [FASB 15.16]
Yes
No
[NOTE: All or a portion of the carrying amount of the payable at the time of the restructuring may need to be reclassified in the balance sheet because of changes in the terms. A troubled debt restructuring of a short-term obligation after the date of a debtor's balance sheet but before that balance sheet is issued may affect the classification of that obligation in accordance with FASB 6.] [FASB 15.16, footnote 10] b. Has interest expense been computed in a way that a constant effective interest rate is applied to the carrying amount of the payable at the beginning of each period between restructuring and maturity (see paragraph 15 of APB 21)? Is the new effective interest rate the discount rate that equates the present value of the future cash payments specified by the new terms (excluding amounts contingently payable) with the carrying amount of the payable?
c.
3. If the total future cash payments (including amounts

392
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) contingently payable see question D.6) specified by the new terms of a payable, including both payments designated as interest and those designated as face amount, are less than the carrying amount of the payable: [FASB 15.17] a. Has the debtor reduced the carrying amount to an amount equal to the total future cash payments specified by the new terms and recognized a gain on restructuring of payables equal to the amount of the reduction? b. Have all cash payments thereafter under the terms of the payable been accounted for as reductions of the carrying amount of the payable, and has no interest expense been recognized on the payable for any period between the restructuring and maturity of the payable (except for contingent payments see question F.3)? 4. Has a gain on a restructured payable involving indeterminate future cash payments not been recognized as long as the maximum total future cash payments may exceed the carrying amount of the payable? [FASB 15.18]
Yes
No
393
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) 5. To determine whether the debtor should recognize a gain according to questions D.1 and D.4 above, have amounts designated either as interest or as face amount by the new terms, payable contingent on a specified event or circumstance (including the use of estimates, as appropriate), been included in the "total future cash payments specified by the new terms" to the extent necessary to prevent recognizing a gain at the time of restructuring that may be offset by future interest expense? In this determination, did the debtor assume that contingent future payments will have to be paid (by applying paragraph 17 of FASB No. 5, Accounting for Contingencies, in which probability of occurrence of a gain contingency is not a factor)? [FASB 15.18] E. Combination of Types 1. Has a troubled debt restructuring involving partial settlement of a payable and modification of terms of the remaining payable been accounted for as prescribed in questions D.1 through D.5 above except that, first, the carrying amount of the payable has been reduced by the total fair value of assets transferred or an equity interest granted in that partial settlement? [FASB 15.19] 2. Has the difference between the fair value and the carrying amount of assets transferred to the creditor been recognized as a gain or loss on transfer of assets? [FASB 15.19] 3. Has a gain on restructuring of payables been recognized only if the remaining carrying amount of the payable exceeds the total future cash payments (including amounts contingently payable) specified by the terms of the debt remaining unsettled after the restructuring? [FASB 15.19] F. Related Matters 1. Has a troubled debt restructuring that is in substance a repossession or foreclosure by the creditor or other transfer of assets to the creditor been accounted for as a transfer of assets and/or a grant of an equity interest in full settlement of the payable or as a combination of types involving partial settlement of the payable and modification of the terms of the remaining payable? [FASB 15.20] 2. Have the provisions of FASB 15 not been applied to an entity who, in connection with bankruptcy proceedings, entered into a troubled debt restructuring that resulted in a
Yes
No
394
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) general restatement of the entity's liabilities (i.e., when the restructuring under purview of the bankruptcy court encompasses most of the amount of the entity's liabilities)? [FTB 81-6.3] 3. If a troubled debt restructuring involves amounts contingently payable: [FASB 15.22] a. Have those contingent amounts been recognized as a payable, and as interest expense in each period in which (a) it is probable that a liability has been incurred and (b) the amount of that liability can be reasonably estimated? [FASB 15.22] b. Before recognizing a payable and interest expense for amounts contingently payable, has the accrual or payment of those contingent amounts been deducted from the carrying amount of the restructured payable to the extent that contingent payments included in "total future cash payments specified by the new terms" prevented recognition of a gain at the time of restructuring (question D.5)? [FASB 15.22] 4. If amounts of future cash payments must be estimated to apply the provisions of FASB 15, paragraphs .16-.18 (questions D.1 through D.6), because future interest payments are expected to fluctuate: [FASB 15.23] a. Have estimates of maximum total future payments been based on the interest rate in effect at the time of the restructuring? b. Have fluctuations in the effective interest rate after the restructuring been accounted for as changes in estimates in the periods the changes occur? c. Have fluctuations in the effective interest rate after the restructuring not resulted in recognizing a gain on restructuring that may be offset by future cash payments? For example, if interest rates rise subsequent to the restructuring, has the additional cash cost been recorded as a component of interest expense? Conversely, if interest rates fall subsequent to the restructuring, did future cash payments reduce the carrying amount of the debt until such time that any gain recognized cannot be offset by such future cash payments? 5. Have legal fees and other direct costs that a debtor incurs in granting an equity interest to a creditor in a troubled debt restructuring reduced the amount otherwise recorded
Yes
No
395
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) for that equity interest? [FASB 15.24] 6. Have all direct costs (other than those addressed in question F.5) that a debtor incurs to effect a troubled debt restructuring been deducted in measuring gain on restructuring of payables or included in expense for the period if no gain on restructuring is recognized? [FASB 15.24] D22 ACCOUNTING BY CREDITORS [NOTE: This section does not apply to a receivable that the creditor is accounting for at market value in accordance with specialized industry practice.] [FASB 15.27] A. Receipt of Assets in Full Satisfaction 1. If a creditor has received from a debtor in full satisfaction of a receivable either (a) receivables from third parties, real estate, or other assets or (b) shares of stock or other evidence of an equity interest in the debtor, or both, have those assets (including an equity interest) been accounted for at their fair value at the time of the restructuring? [FASB 15.28] 2. If a creditor receives long-lived assets from a debtor that will be sold in full satisfaction of a receivable, does the creditor account for those assets at their fair value less cost to sell, as the term is used in FASB 144 (see Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of)? [FASB 15.28; FASB 144.34(a)] 3. Has the excess of the recorded investment in the receivable over the fair value of the assets received (less costs to sell, if required) been recognized as a loss? [FASB 15.28] 4. After a troubled debt restructuring, have the assets received in satisfaction of a receivable been accounted for the same as if the assets had been acquired for cash? [FASB 15.29]
Yes
No
396
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) B. Modification of Terms [NOTE: For creditors involved in a troubled debt restructuring involving a modification of terms, "Impairment of a Loan" should be completed.] 1. Has any loan restructured in a troubled debt restructuring that includes only a modification of terms, including restructurings before adoption of FASB 114, been accounted for under the provisions of FASB 115 if the loan meets the definition of a security in paragraph 137 of FASB 115? [FTB 94-1.3] 2. Have any fees received by a creditor in connection with a modification of terms of a troubled debt restructuring been applied as a reduction of the recorded investment in the loan, and have all related costs, including direct loan origination costs, been charged to expense as incurred? [FASB 91.14] C. Combination of Types 1. Has a troubled debt restructuring involving partial satisfaction of a receivable and modification of terms of the remaining receivable been accounted for as prescribed in FASB 114 except that, first, the assets received have been accounted for as a receipt of assets in full satisfaction (as addressed in questions A.1 through A.4) and the recorded investment in the receivable has been reduced by the fair value less cost to sell of the assets received? [FASB 15.33] D. Related Matters 1. Has a troubled debt restructuring that is in substance a repossession or foreclosure by the creditor, or in which the creditor otherwise obtains one or more of the debtor's assets in place of all or part of the receivable, been accounted for as a receipt of assets in full satisfaction (questions A.1 through A.4) or as a combination of types (question C.1) and, if appropriate, has a gain or loss been recognized on resale of those assets? [FASB 15.34; 39] 2. Have legal fees and other direct costs incurred by a creditor to effect a troubled debt restructuring been included in expense when incurred? [FASB 15.38] E. Substitution or Addition of Debtors 1. Has a troubled debt restructuring that involves substituting debt of another business enterprise, individual, or government unit for that of the troubled debtor or adding
Yes
No
397
Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) another debtor been accounted for according to its substance? (For example, if the substitute or additional debtor controls, is controlled by, or is under common control with the original debtor, then the transaction should be accounted for under FASB 114 as a modification of terms. If the substitute or additional debtor and the original debtor are unrelated, then the restructuring should be accounted for as a receipt of assets in full satisfaction (in accordance with questions A.1 through A.4) or as a combination of types (in accordance with question C.1). [FASB 15.42] F. Classification of Creditor's Loss on Restructuring 1. Has the creditor accounted for the loss from the troubled debt restructuring in the same manner as a creditor's other losses on receivables (i.e., as deductions in measuring net income or as reductions of an allowance for uncollectible amounts)? [FASB 15.103] 2. If losses from troubled debt restructuring are included in measuring net income, was APB 30 applied? [FASB 15.103] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 94-8, Accounting for Conversion of a Loan into a Debt Security in a Debt Restructuring This Issue addresses (1) what the initial cost basis of a debt security of the original debtor received in the restructuring of a loan should be and (2) how the creditor should account for any difference between the creditor's basis in the loan and the fair value of the security at the date of the restructuring. 87-19, Substituted Debtors in a Troubled Debt Restructuring This Issue relates to whether the sale of collateral and the related requirement for the purchaser to make payments directly to the creditor warrant the creditor's recognition of a loss related to the amount by which the net investment in the loan exceeds the fair value of the payments to be received from the purchaser. 87-18, Use of Zero Coupon Bonds in a Troubled Debt Restructuring This Issue relates to whether the sale of collateral, the purchase of zero coupon bonds, and the receipt by the creditor as collateral require the creditor to recognize a loss equal to the amount by which the net investment in the loan exceeds the fair value of the zero coupon bonds.
Yes
No
398
Disclosure: TROUBLED DEBT RESTRUCTURINGS (12/08) A. Disclosure by Debtors 1. Has the following information about troubled debt restructurings that have occurred during a period for which financial statements are presented been disclosed either in the body of the financial statements or in the accompanying notes: [FASB 15.25] a. For each restructuring: a description of the principal changes in terms, the major features of settlement, or both? b. Aggregate gain on restructuring of payables? c. Aggregate net gain or loss on transfers of assets recognized during the period? d. Per-share amount of the aggregate gain on restructuring of payables? 2. For periods after a troubled debt restructuring, has the debtor disclosed in the financial statements the extent to which amounts contingently payable are included in the carrying amount of restructured payables pursuant to the provisions of FASB 15, paragraph .18? [FASB 15.26] 3. If required by paragraphs .9-.13 of FASB 5, do the financial statements disclose total amounts that are contingently payable on restructured payables and the conditions under which those amounts would become payable or would be forgiven? B. Disclosure by Creditors 1. Has the amount of commitments, if any, to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings been disclosed either in the body of the financial statements or in the accompanying notes as of the date of each balance sheet presented? [FASB 15.40; 45]
Yes
No
Accounting: OIL AND GAS PRODUCING ACTIVITIES (12/08) A. Interest Capitalization Full-Cost Method 1. Has interest not been capitalized for assets whose costs are being currently depreciated, depleted, or amortized as such assets are in use in the earning activities of the enterprise? [FIN 33.2]
Yes
No
399
Accounting: OIL AND GAS PRODUCING ACTIVITIES (12/08) 2. Has interest capitalization been considered for unusually significant investments in unproved properties and major development projects that are not being currently depreciated, depleted, or amortized and on which exploration or development activities are in progress? [FIN 33.2] 3. Has interest capitalization been considered for significant properties and projects on which exploration or developmental activities are in progress in a cost center with no production? [FIN 33.2] B. Accounting for Income Taxes 1. For purposes of reporting and disclosing the results of operations for oil and gas producing activities, have income taxes been computed using the statutory tax rate for the period, applied to revenues less production (lifting) costs, exploration expenses, depreciation, depletion, amortization, and valuation provisions? [NOTE: Calculation of income tax expenses shall reflect tax deductions and tax credits, and allowances relating to the oil and gas producing activities that are reflected in the enterprise's consolidated income tax expense for the period.] [FASB 69.26, as amended by FASB 109] 2. Has comprehensive interperiod income tax allocation, as described in FASB 109, been followed for intangible drilling and development costs and other costs incurred that enter into the determination of taxable income and pretax accounting income in different periods? [FASB 19.61, as amended by FASB 109] 3. Has the possibility that statutory depletion in future periods will reduce or eliminate taxable income in future years been considered in determining whether it is more likely than not that the tax benefits of deferred tax assets will not be realized? [FASB 19.62, as amended by FASB 109] 4. Has the tax benefit of the excess of statutory depletion over cost depletion for tax purposes not been recognized until the period in which the excess is deducted for income tax purposes? [FASB 19.62, FASB 109.288(o)]
Yes
No
400
Accounting: OIL AND GAS PRODUCING ACTIVITIES (12/08) C. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of 1. Have the provisions of FASB 144, Accounting for the Impairment or Disposal of Long-Lived Assets, been applied to the costs of an enterprise's wells and related equipment and facilities and the costs of the related proved properties? In accordance with FASB 144, a component of an entity that comprises operations and cash flows that can be clearly distinguished, operationally and for financial statement purposes from the rest of the entity, that has either been disposed of or is classified as held for sale shall be reported as a discontinued operation if the following are met: (a) the operations and cash flows of the component have been eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the component after the disposal. [NOTE: For unproved properties, the impairment provisions of FASB 19, paragraphs 12, 27-29, 31(b), 33, 40, 47(g), and 47(h) are applicable.] [FASB 19.62A, as amended by FASB 144] D. Impairment Under the Full-Cost Method 1. Have the provisions of Rule 4-10(c)(4) of Regulation S-X been applied to measure impairment of costs capitalized by publicly traded companies pursuant to the full-cost method? E. Successful Efforts or Full Cost Method 1. If the enterprise uses the successful efforts method of accounting under FASB 19, has the enterprise appropriately considered the guidance in FASB 19 with respect to (1) accounting at the time costs are incurred, (2) disposition of capitalized costs, (3) mineral property conveyances and related transactions, and (4) impairment test for proved properties and capitalized exploration and development costs? [FASB 19, paragraphs 1547 and 62A] 2. If the enterprise uses the full cost method of accounting, has the enterprise complied with the requirements in SEC Regulation S-X, Rule 4-10, as supplemented by SAB Topic 12 and FRR Section 406? [SEC Regulation S-X, Rule 4-10, as supplemented by SAB Topic 12 and FRR Section 406]
Yes
No
401
Accounting: OIL AND GAS PRODUCING ACTIVITIES (12/08) F. Accounting for Suspended Well Costs 1. Has the enterprise appropriately considered the guidance provided in FSP FAS 19-1, Accounting for Suspended Well Costs with respect to accounting for exploratory well costs where the related reserves have not been classified as proved after one year following the completion of drilling (and they are not otherwise eligible for continued capitalization? [NOTE: The FSP, by amending paragraphs 31-34 of FASB 19, allows for the continued capitalization of exploratory well costs where the reserves are unproven when the well (1) has found a sufficient quantity of reserves to justify its completion as a producing well and (2) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. Criteria for assessing progress on the reserves are provided in paragraph 9 of the FSP (paragraph 32 of FASB 19, as amended by the FSP).] [FSP FASB 19-1] G. Accounting for Exploratory Wells in Progress at The End of a Period 1. Has the enterprise charged to expense the costs (net of any salvage value) related to an exploratory well or exploratory-type stratigraphic test well that was in progress at the end of the period where the well is determined not to have found proved reserves before the financial statements are issued? [FIN 36] H. ACCOUNTING FOR GAS-BALANCING ARRANGEMENTS 1. Has the enterprise analyzed the terms of the gas-balancing arrangement to determine whether it meets the definition of a derivative under FASB 133? [EITF 90-22] 2. For nonderivative arrangements, has the enterprise consistently applied its accounting method (i.e., the entitlements method or the sales method)? [EITF 90-22] 3. Has a receivable or liability recorded using the entitlements method been valued at the lower of (a) the price in effect at the time of production, (b) the current market value, or (c) if a contract is in hand, the contract price? [EITF 90-22] 4. Has a receivable recorded using the entitlements method been presented net of selling expenses? [EITF 90-22] 5. If the sales method is used by the overtaker and reserves
Yes
No
402
Accounting: OIL AND GAS PRODUCING ACTIVITIES (12/08) are insufficient to offset the imbalance, has the overtaker recorded a liability for the amount of the shortfall in reserves valued at current market price unless a different price is specified in the contract, in which case the contract price may be used? [EITF 90-22] [NOTE: See the "Specialized Accounting and Industry Matters" section of the Compliance with Accounting Pronouncements checklist for a listing of specialized industry guidance and EITF Issues related to Oil & Gas accounting that should be considered.]
Yes
No
Disclosure: OIL AND GAS PRODUCING ACTIVITIES (12/08) A. Disclosure Requirements for All Enterprises [NOTE: Enterprises engaged in oil and gas producing activities are permitted to account for these activities using either (1) the "successful efforts" method of accounting as prescribed in FASB 19, or (2) the "full cost" method of accounting as prescribed in Rule 4-10 of Regulation S-X.] 1. Has the method of accounting for costs incurred in oil and gas producing activities and the manner of disposing of capitalized costs related to those activities been disclosed? [FASB 69.6] 2. Has the enterprise disclosed, for each annual period for which an income statement is presented, the amount of capitalized exploratory well costs that is pending the determination of proved reserves, separately disclosing changes in capitalized exploratory well costs resulting from (1) additions to capitalized exploratory well costs that are pending the determination of proved reserves, (2) capitalized exploratory well costs that were reclassified to wells, equipment, and facilities based on the determination of proved reserves, and (3) capitalized exploratory well costs that were charged to expense and excluded amounts that were capitalized and subsequently expensed in the same annual period? [FSP FASB 19-1.10a] 3. Has the enterprise disclosed the amount of exploratory well costs that have been capitalized for a period of greater than one year after the completion of drilling at the most recent balance-sheet date and the number of projects for which those costs relate, and also provided an aging of those amounts by year, or by using a range of years, and
Yes
No
403
Disclosure: OIL AND GAS PRODUCING ACTIVITIES (12/08) the number of projects to which those costs relate? [FSP FASB 19-1.10b] 4. For exploratory well costs that continue to be capitalized for periods greater than one year after the completion of drilling at the most recent balance-sheet date, has the enterprise described the projects and the activities that it has undertaken to date in order to evaluate the reserves and the projects, and remaining activities required to classify the associated reserves as proved? [FSP FASB 19-1.10c] 5. Disclosures for periods preceding the adoption of the FSP Has the enterprise provided the disclosures required in questions 2 and 3, above, for annual periods preceding the adoption of the FSP (in each prior period for which an income statement is presented based on the previous accounting method see FSP FASB 19-1.12 for an example)? [FSP FASB 19-1.11 and .12] [NOTE: FSP FASB 19-1, Accounting for Suspended Well Costs, is effective for the first reporting period beginning after April 4, 2005.] Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) A. Disclosure Requirements for Publicly Traded Enterprises [NOTE: The following disclosures shall be presented as supplementary information accompanying, but outside, the financial statements for enterprises having significant oil and gas producing activities. Companies reporting to the SEC are required to make disclosures in addition to those indicated herein. Public entities should also consider the additional disclosure considerations in the SECs letters sent to oil and gas producing entities on February 24, 2004, and February 11, 2005 (http://www.sec.gov/divisions/corpfin/guidance.htm). Disclosures of reserve quantities should be stated in barrels (for oil reserves, which include condensate and natural gas liquids, natural gas liquids should be separately disclosed if material) and in cubic feet (for gas reserves), or appropriate multiples thereof.] 1. If an enterprise reports having significant oil and gas producing activities, has it satisfied one or more of the following tests for each year for which a complete set of
Yes
No
Yes
No
404
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) annual financial statements [as defined in FASB 95] is presented: [FASB 69.8] a. Revenues from oil and gas producing activities, as defined in questions 20 through 24, below, (including both sales to unaffiliated customers and sales or transfers to the enterprise's other operations), are 10 percent or more of the combined revenues (sales to unaffiliated customers and sales or transfers to the enterprise's other operations) of all of the enterprise's industry segments [for purposes of this section, an industry segment is a component of an enterprise engaged in providing a product or service or a group of related products or services primarily to external customers (that is, customers outside the enterprise) for a profit]? [as amended by FASB 131.133(a)] b. Results of operations for oil and gas producing activities, excluding the effect of income taxes, are 10 percent or more of the greater of: (1) The combined operating profit of all industry segments that did not incur an operating loss? (2) The combined operating loss of all industry segments that did incur an operating loss? [FASB 69.8] c. The identifiable assets of oil- and gas-producing activities (tangible and intangible enterprise assets that are used by oil- and gas-producing activities, including an allocated portion of assets used jointly with other operations) are 10 percent or more of the assets of the enterprise, excluding assets used exclusively for general corporate purposes? [as amended by FASB 131.133(b)] 2. If an enterprise has experienced a major discovery or other favorable or adverse event that causes a significant change from the information presented in the most recent annual financial report concerning oil and gas reserve quantities, has it been disclosed in the interim financial report that covers the interim period in which it occurred? [FASB 69.9] 3. Has disclosure been made of the net quantities of an enterprise's interests in proved reserves and proved developed reserves of (a) crude oil (including condensate and natural gas liquids) and (b) natural gas, including, in some instances, coal bed methane (see SAB 85, Topic
Yes
No
405
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) 12G) as of the beginning and the end of each year for which a complete set of financial statements is presented? [NOTE: Natural gas liquids should be disclosed separately, if material. "Net" quantities of reserves include those relating to the enterprise's operating and nonoperating interests in properties. They also include reserve quantities relating to royalty interests owned if the necessary information is available to the enterprise; if unavailable, that fact and the enterprise's share of oil and gas produced for those royalty interests shall be disclosed for each year for which a complete set of financial statements is presented. "Net" quantities shall not include reserves relating to interests of others in properties owned by the enterprise.] [FASB 69.10] 4. Has disclosure been made of the changes in the net quantities of an enterprise's proved reserves of oil and of gas during each year for which a complete set of financial statements is presented, separately disclosing changes resulting from the following, with appropriate explanation of significant changes: [FASB 69.11] a. Revisions of previous estimates? (Revisions represent changes in previous estimates of proved reserves, either upward or downward, resulting from new information (except for an increase in proved acreage) normally obtained from development drilling and production history or resulting from a change in economic factors.) b. Improved recovery? (Changes in reserve estimates resulting from application of improved recovery techniques shall be shown separately if significant. If not significant, such changes shall be included in revisions of previous estimates.) c. Purchases of minerals in place? d. Extensions and discoveries? (Additions to proved reserves that result from (1) extension of the proved acreage of previously discovered (old) reservoirs through additional drilling in periods subsequent to discovery and (2) discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields.) e. Production? f. Sales of minerals in place?
Yes
No
406
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) 5. If applicable, has the fact that the enterprise's proved reserves are located entirely within its home country been disclosed? [FASB 69.12] 6. If some or all of the enterprise's reserves are located in foreign countries, have the disclosures described in questions 3 and 4 been reported separately for (a) the enterprise's home country (if significant reserves are located there) and (b) each foreign geographic area in which significant reserves are located? (Foreign geographic areas are individual countries or groups of countries as appropriate for meaningful disclosure in the circumstances.) [FASB 69.12] 7. Are quantities of oil or gas subject to purchase under longterm supply, purchase, or similar agreements and contracts (including those with governments or authorities) excluded from the net quantities disclosed in questions 3 through 6? [FASB 69.13] 8. Are quantities of oil or gas received subject to agreements with governments or authorities as of the end of the year, and the net quantity of oil or gas received under these agreements, disclosed separately if the enterprise participates in the operation of the properties in which the oil or gas is located or otherwise serves as the "producer" of those reserves? [FASB 69.13] 9. In determining the reserve quantities to be reported in conformity with questions 3 through 8: [FASB 69.14] a. If the enterprise issues consolidated financial statements, have 100 percent of the net reserve quantities attributable to the parent company and 100 percent of the net reserve quantities attributable to its consolidated subsidiaries (whether or not wholly owned) been included? b. If a significant portion of those reserve quantities at the end of the year (described in 8a) is attributable to a consolidated subsidiary(ies) in which there is a significant noncontrolling interest, has that fact and the approximate portion been disclosed? c. If the enterprise's financial statements include investments that are proportionately consolidated, does the enterprise's reserve quantities include its proportionate share of the investees' net oil and gas reserves?
Yes
No
407
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) d. If the enterprise's financial statements include investments that are accounted for by the equity method, have the investees' net oil and gas reserves been excluded from the disclosures of the enterprise's reserve quantities? [The enterprise's (investor's) share of the investees' net oil and gas reserve quantities shall be separately reported as of the end of each year for which a complete set of financial statements is presented.] 10. In reporting reserve quantities and changes in them, are oil reserves and natural gas liquid reserves stated in barrels, and gas reserves stated in cubic feet? [FASB 69.15] 11. Are any important economic factors or significant uncertainties that affect particular components of an enterprise's proved reserves disclosed? (Examples include unusually high expected development or lifting costs, the necessity to build a major pipeline or other major facilities before production of the reserves can begin, and contractual obligations to produce and sell a significant portion of reserves at prices that are substantially below those at which the oil or gas could otherwise be sold in the absence of the contractual obligation.) [FASB 69.16] 12. If a government restricts the disclosure of estimated reserves for properties under its authority, or of amounts under long-term supply, purchase, or similar agreements or contracts, or if the government requires the disclosure of reserves other than proved, has the enterprise indicated that the disclosed reserve estimates or amounts do not include figures for the named country or that reserve estimates include reserves other than proved? [FASB 69.17] 13. Has the aggregate amount of capitalized costs and of related accumulated depreciation, depletion, amortization, and valuation allowances of an enterprise's oil and gas producing activities, as of the end of each year for which a complete set of financial statements are presented, been disclosed? [FASB 69.18] 14. Have significant capitalized costs of unproved properties been disclosed separately? (Capitalized costs of support equipment and facilities may be disclosed separately or included, as appropriate, with capitalized costs of proved and unproved properties.) [FASB 69.19] 15. Have the amounts of each of the following types of costs,
Yes
No
408
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) for each year for which an income statement is presented, been disclosed, regardless of whether the costs were capitalized or charged to expense when incurred: [FASB 69.21] a. Property acquisition costs? b. Exploration costs? c. Development costs? 16. If some or all of the costs are incurred in foreign countries, are the amounts disclosed separately for each of the geographic areas for which reserve quantities are disclosed? [FASB 69.22] 17. If significant costs have been incurred to acquire mineral interests that have proved reserves, are such costs disclosed separately from costs of acquiring unproved properties? [FASB 69.22] 18. If the enterprise's financial statements include investments associated with oil and gas producing activities that are accounted for by the equity method, have the following been separately disclosed: [FASB 69.20, .23] a. The enterprise's share of the investees' net capitalized costs relating to oil and gas producing activities as of the end of the year? b. The enterprise's share of the investees' property acquisition, exploration, and development costs incurred in oil and gas producing activities for the year, in the aggregate and for each geographic area for which reserve quantities are disclosed? 19. Has the following information on results of operations for oil and gas producing activities been disclosed in the aggregate and for each geographic area for which reserve quantities were disclosed: [FASB 69.24] [NOTE: If oil and gas producing activities represent substantially all of the business activities of the enterprise and such activities are located substantially in a single geographic area, the following information need not be disclosed if that information is found elsewhere in the financial statements. If oil and gas producing activities constitute an operating segment, as discussed in paragraphs 10-24 of FASB 131, information about the results of operations required by paragraphs 24-29 of FASB 131 may be included with segment information
Yes
No
409
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) disclosed elsewhere in the financial report.] [FASB 69, footnote 7 (as amended by FASB 131.133(c))] a. Revenues? b. Production (lifting) costs? c. Exploration expenses (generally only applies to enterprises utilizing the successful efforts accounting method)? d. Depreciation, depletion, amortization, and valuation provisions? e. Income tax expenses? f. Results of operations for oil and gas producing activities (excluding corporate overhead and interest costs)?
Yes
No
20. Have sales to unaffiliated enterprises and sales or transfers to the enterprise's other operations (i.e., refineries or chemical plants) been included in revenues and disclosed separately? [FASB 69.25] 21. Have sales to unaffiliated enterprises attributable to net working interests, royalty interests, oil payment interests, and net profits interests of the reporting enterprise been included in revenue? [FASB 69.25] 22. Have sales or transfers to the enterprise's other operations been based on market prices, equivalent to those that could be obtained in an arms-length transaction, determined at the point of delivery from the producing unit? [FASB 69.25] 23. Have production or severance taxes been included as part of production costs and not been deducted in determining gross revenues? [FASB 69.25] 24. Have royalty payments and net profits disbursements been excluded from gross revenues? [FASB 69.25] 25. Have an enterprise's results of operations for oil and gas producing activities been defined as revenues less production (lifting) costs, exploration expenses, depreciation, depletion, and amortization, valuation provisions, and income tax expenses? [FASB 69.27] 26. Have general corporate overhead and interest costs not been deducted in computing the results of operations for an enterprise's oil and gas producing activities, except the disposition of interest costs that have been capitalized as
410
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) part of the cost of acquiring qualifying assets used in oil and gas producing activities, which are the same as that of other components of those assets' costs? [FASB 69.27, footnote 9] 27. Some expenses incurred at an enterprise's central administrative office may not be general corporate expenses, but rather may be operating expenses of oil and gas producing activities and therefore should be reported as such. The nature of an expense, rather than the location of its incurrence, shall determine whether it is an operating expense. Have only those expenses identified by their nature as operating expenses been allocated as operating expenses in computing the results of operations for oil and gas producing activities? [FASB 69.27] 28. In determining the amounts disclosed under questions 19 through 27, were the enterprise's interests in proved oil and gas reserves and in oil and gas subject to purchase under long-term supply, purchase, or similar agreements and contracts in which the enterprise participates in the operation of the properties on which the oil and gas is located or otherwise serves as the producer of those reserves, included? [FASB 69.28] 29. If the enterprise's financial statements include investments that are accounted for by the equity method, has the investees' results of operations for oil and gas producing activities not been included in the enterprise's results of operations for oil and gas producing activities? [NOTE: The enterprise's share of the investees' results of operations for oil and gas producing activities shall be separately disclosed for the year, in the aggregate and by each geographic area for which reserve quantities are disclosed.] [FASB 69.29] 30. Has a standardized measure of discounted future net cash flows relating to an enterprise's interests in (a) proved oil and gas reserves and (b) oil and gas subject to purchase under long-term supply, purchase, or similar agreements and contracts in which the enterprise participates in the operation of the properties on which the oil and gas are located or otherwise serves as the producer of those reserves, been disclosed as of the end of the year? [The standardized measure of discounted future net cash flows relating to those two types of interests in reserves may be combined for reporting purposes.] [FASB 69.30] 31. Has the following information been disclosed in the
Yes
No
411
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) aggregate and for each geographic area for which reserve quantities are disclosed: [FASB 69.30] a. Future cash inflows? (Computed by applying yearend prices of oil and gas relating to the enterprise's proved reserves to the year-end quantities of those reserves. Future price changes shall be considered only to the extent provided by contractual arrangements in existence at year-end.) b. Future development and production costs? (Computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on yearend costs and assuming continuation of existing economic conditions. If estimated development expenditures are significant, they shall be presented separately from estimated production costs.) c. Future income tax expenses? (Computed by applying the appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, to the future pretax net cash flows relating to the enterprise's proved oil and gas reserves, less the tax basis of the properties involved. The future income tax expenses shall give effect to tax deductions and tax credits and allowances relating to the enterprise's proved oil and gas reserves.) d. Future net cash flows? (Computed as the result of subtracting future development and production costs and future income tax expenses from future cash inflows.) e. Discount? (Amount computed by using a discount rate of 10 percent a year to reflect the timing of the future net cash flows relating to proved oil and gas reserves.) f. Standardized measure of discounted future net cash flows? (Amount is the future net cash flows less the computed discount.)
Yes
No
32. If a significant portion of the economic interest in the consolidated standardized measure of discounted future net cash flows reported is attributable to a consolidated subsidiary(ies) in which there is a significant noncontrolling interest, has that fact and the approximate portion been disclosed? [FASB 69.31]
412
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) 33. If the enterprise's financial statements include investments that are accounted for by the equity method, has the investees' standardized measure of discounted future net cash flows relating to proved oil and gas reserves not been included in the disclosure of the enterprise's standardized measure? [The enterprise's share of the investees' standardized measure of discounted future net cash flows shall be separately disclosed for the year, in the aggregate and by each geographic area for which quantities are disclosed.] [FASB 69.32] 34. Has the aggregate change in the standardized measure of discounted future net cash flows been disclosed for the year? [FASB 69.33] 35. If individually significant, have the following sources of change in the standardized measure of discounted future net cash flows been presented separately: [FASB 69.33] a. Net change in sales and transfer prices and in production (lifting) costs related to future production? b. Changes in estimated future development costs? c. Sales and transfers of oil and gas produced during the period? d. Net change due to extensions, discoveries, and improved recovery? e. Net change due to purchases and sales of minerals in place? f. Net change due to revisions in quantity estimates? g. Previously estimated development costs incurred during the period? h. Accretion of discount? i. j. Other unspecified? Net change in income taxes?
Yes
No
[NOTE: In computing the amounts under each of the above categories, the effects of changes in prices and costs shall be computed before the effects of changes in quantities. As a result, changes in quantities shall be stated at year-end prices and costs. The change in computed income taxes shall reflect the effect of income taxes incurred during the period as well as the change in future income tax expenses. Therefore, all changes except
413
Disclosure: OIL AND GAS: PUBLICLY TRADED ENTERPRISE (12/08) income taxes shall be reported pretax.] 36. Has additional information necessary to prevent the disclosure of the standardized measure of discounted future net cash flows and changes therein from being misleading been provided? [FASB 69.34] 37. Has the method of accounting for gas-balancing arrangements, as well as the amount of any imbalance in terms of units and value (if significant), been disclosed? [EITF 90-22] [NOTE: In EITF 90-22, the SEC Staff Observer also suggested that public entities disclose in Managements Discussion and Analysis the effect of gas imbalances on operations and on liquidity and capital resources.] [NOTE: See the "Specialized Accounting and Industry Matters" section for a list of specialized industry guidance and EITF Issues related to Oil & Gas accounting that should be considered.]
Yes
No
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) A. Construction-Type Contracts 1. If the company performs under long-term constructiontype contracts: a. Is the company recognizing revenue under one of the generally accepted methods (i.e., the percentage-ofcompletion method or the completed-contract method)? [ARB 45.15] b. If estimates of costs to complete and extent of progress are reasonably dependable, is the percentageof-completion method being used? [ARB 45.15] [SOP 81-1.23] c. If lack of dependable estimates or inherent hazards cause forecasts to be doubtful, is the completedcontract method being used? [ARB 45.15] 2. If the percentage-of-completion method is followed: a. Is income recognized based on the percentage of estimated total income that is indicated by either (1) the relationship of costs incurred to date to estimated total costs after giving effect to estimates of costs to complete based on the most recent information or (2)
Yes
No
414
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) other appropriate measure of progress toward completion, having due regard to work performed? [SOP 81-1.23-.29; .44-.51] b. Is the computation of income earned for a period based upon one of the acceptable approaches discussed in SOP 81-1.79-81, and has such approach been consistently applied? [SOP 81-1.79-81] c. For contracts, on which some level of profit is assured, but the company is only able to estimate total contract revenue and total contract cost in ranges of amounts. [SOP 81-1.25] (1) If, based on the information arising in estimating the ranges of amounts and all other pertinent data, the company can determine the amounts in the ranges that are most likely to occur, are those amounts used in accounting for the contract under the percentage-of-completion method? (2) If the most likely amounts cannot be determined, does the company use the lowest probable level of profit in the range in accounting for the contract until the results can be estimated more precisely? d. If it is impractical to estimating the final outcome of certain contracts other than to assure that no loss will be incurred, is the company using a zero estimate of profit (equal amounts of revenue and cost should be recognized until results can be estimated more precisely) ? [SOP 81-1.25] e. Are revisions in revenue, costs and profit estimates, or in measurements of the extent of progress toward completion accounted for as changes in estimates using the cumulative catch-up method? [SOP 811.83] 3. If the completed contract method is followed: a. Is income recognized only when the contract is fully completed or substantially completed? [ARB 45.9] b. Are contracts with an excess of accumulated costs over related billings shown as a current asset and contracts with the excess of accumulated billings over related costs shown among the liabilities, in most cases as a current liability, and are such amounts determined on an individual contract basis with those contracts with current asset treatment segregated and
Yes
No
415
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) not netted with those contracts with current liability treatment? [ARB 45.12] 4. If percentage of completion method is followed: Are contracts with an excess of accumulated costs (and recognized income) over related billings shown as a current asset and contracts with the excess of accumulated billings over related costs (and recognized income) shown among the liabilities, in most cases as a current liability and are such amounts determined on an individual contract basis with those contracts with current asset treatment segregated and not netted with those contracts with current liability treatment? [ARB 45.05] 5. Are the company's policies for combining a group of contracts or segmenting a contract based on an evaluation of the circumstances, contract terms, and management intent, and are such policies applied consistently for all contracts? [SOP 81-1.35-.42] 6. If losses are expected on a contract or a group of related contracts: a. Is the expected loss on the entire contract or group of contracts provided for in the financial statements? [ARB 45.06, .11] [SOP 81-1.85] b. Are all direct and indirect costs identifiable with and allocable to a contract considered in arriving at the amount of the expected loss on a contract? [SOP 811.87] 7. Contract Value: a. Are economic price adjustments, price redetermination, incentive, penalty and other pricing provisions of the contract, which are considered probable and can be reliably estimated, considered in total contract value? [SOP 81-1.56] b. Are customer furnished materials included in total contract value and costs if the contractor is responsible for the nature, type, characteristics, or specifications of the materials? [SOP 81-1.60] c. If change orders exist on a contract: (1) Are they included in contract value if both the scope and price are approved? [SOP 81-1.61] (2) If change orders are approved but unpriced, are the change order costs deferred or included in contract value only if it is probable the costs will
Yes
No
416
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) be recovered, and is gross profit on these change orders only recorded in circumstances in which realization is assured beyond a reasonable doubt? [SOP 81-1.62] (3) If change orders are in dispute or unapproved in regard to both scope and price, are they evaluated in a manner similar to claims? [SOP 81-1.63] 8. Contract Options and Additions a. Are options or additions to existing contracts treated as a separate contract in any of the following circumstances: [SOP 81-1.64] (1) The product or service to be provided differs significantly from the product or service provided under the original contract? (2) The price of the new product or service is negotiated without regard to the original contract and involves different economic judgments? (3) The products or services to be provided under the exercised option or amendment are similar to those under the original contract, but the contract price and anticipated contract cost relationship are significantly different? b. If an exercised option or addition to an existing contract does not meet any of the above criteria, has it been combined with the original contract if it meets the criteria in SOP 81-1.37-.38? [SOP 81-1.64] c. If the exercised option or addition does not meet the criteria listed in either (a) or (b) above, has it been treated as a change order on the original contract? [SOP 81-1.64]
Yes
No
417
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) 9. Claims: a. If the company's policy is to record claims, are claims recognized as additional contract revenues only to the extent of costs incurred related to the claims and only if the amounts can be reliably estimated and it is probable that the claims will be realized based on the satisfaction of all of the conditions in SOP 81-1.65a65d? 10. Contract Costs: a. Are contract costs identified, estimated, and accumulated on a contract by contract basis? [SOP 81-1.68] b. Do contract costs include all direct and indirect costs identifiable with and allocable to a contract? [SOP 81-1.69-.72] (1) Are the methods of allocating indirect costs based on a systematic and rational basis and allocated to all contracts on a consistent basis? c. Precontract Costs: (1) Have costs that are incurred for a specific anticipated contract that will result in no future benefits unless the contract is obtained not been included in contract costs or inventory before the receipt of the contract? [NOTE: Such costs may be otherwise deferred, subject to evaluation of their probable recoverability, but only if the costs can be directly associated with a specific anticipated contract and if their probable recoverability from that contract is probable. Precontract costs should be expensed as they are incurred if they are within the scope of SOP 985, "Reporting on the Costs of Start-up Activities."] [SOP 81-1.75a] (2) Have costs incurred for assets, such as costs for the purchase of materials, production equipment, or supplies, that are expected to be used in connection with anticipated contracts been deferred outside the contract cost or inventory classification if their recovery from future contract revenue or from other dispositions of the assets is probable? [SOP 81-1.75b]
Yes
No
418
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) (3) Have costs incurred to acquire or produce goods in excess of the amounts required for an existing contract in anticipation of future orders for the same items been treated as inventory if their recovery is probable? [SOP 81-1.75c] (4) Have learning or start-up costs incurred in connection with existing contracts and in anticipation of follow-on or future contracts for the same goods or services been charged to existing contracts? [SOP 81-1.75d] (5) Have costs appropriately deferred in anticipation of a contract being awarded been included in contract costs on the receipt of the anticipated contract? [SOP 81-1.75e] (6) Have costs related to anticipated contracts that are charged to expenses as incurred because their recovery is not considered probable not been reinstated by a credit to income on the subsequent receipt of the contract? [SOP 811.75f] d. Are backcharges on contracts recorded as either an increase in or reduction of contract costs or as a claim if the billed party disputes the propriety or amount of the charge? [SOP 81-1.76-.77] 11. In estimating costs to complete and total contract costs, has the company: a. Used systematic and consistent procedures that are correlated with the cost accounting system to provide a basis for periodically comparing actual and estimated costs? [SOP 81-1.78a] b. Identified the quantities and prices of all significant elements of cost? [SOP 81-7.78b] c. Included the same elements of cost in estimated cost to complete that are included in actual accumulated costs; and, do those elements reflect expected price increases? [SOP 81-1.78c] d. Taken into account the effects of future wage and price escalations, especially when the contract performance will be carried out over a significant period of time? [NOTE: Escalation provisions should not be blanket overall provisions, but should cover labor, materials, and indirect costs based on
Yes
No
419
Accounting: C04 CONSTRUCTION-TYPE CONTRACTS (12/08) percentages or amounts that take into consideration experience and other pertinent data.] [SOP 81-1.78d] e. Periodically reviewed estimates of cost to complete and revised them as appropriate to reflect new information? [SOP 81-1.78e] B. Cost-Plus-Fixed Fee (CPFF) Contracts 1. If the company has cost-plus-fixed-fee contracts: [ARB 43, Ch 11] a. Does the accounting method used to recognize revenue, and more specifically fees, appear reasonable in the circumstances? [ARB 43, Ch. 11A.10-.20] C05 RENEGOTIATION (12/08) 1. If the company has government contracts or subcontracts subject to renegotiation: [ARB 43, Ch 11B] a. Is provision made in the financial statements for probable renegotiation refunds if the amount of the refunds can be reasonably estimated? [ARB 43, Ch 11B.04]
Yes
No
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) C04 CONSTRUCTION-TYPE CONTRACTS A. Construction-Type Contracts 1. If the company performs under construction-type contracts: a. Is the method of determining earned revenue and the cost of earned revenue, including the policies relating to combining and segmenting contracts, disclosed in the financial statements? [ARB 45.15] [SOP 811.21] b. If the company is using the percentage-of-completion method as its basic accounting policy but used the completed-contract method for certain contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates doubtful, is such a departure from the basic policy disclosed in the notes to the financial statements? [AAG-CC 2.06] 2. If the percentage-of-completion method is followed:
Yes
No
420
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) a. Is the method of measuring the extent of progress toward completion disclosed in the financial statements? [SOP 81-1.45] b. Have the effects of significant revisions in contract estimates been disclosed in the financial statements? [SOP 81-1.84, AAG-CC 2.19] 3. If the completed-contract method is followed: a. Is the reason for the selection of this method disclosed in the financial statements? [AAG-CC 6.21c] b. Does the company consistently follow specific criteria for determining when a contract is substantially completed and are such policies disclosed in the financial statements? [SOP 81-1.52] 4. If losses are expected on a contract or a group of related contracts: a. If the provision for losses on a contract is significant, is such amount shown as either a component of contract cost or shown separately in the income statement and included as a component of the costs included in the computation of gross profit in the income statement? [SOP 81-1.88] b. If significant, are the provisions for losses on contracts shown as separate liabilities on the balance sheet (unless related costs are accumulated on the balance sheet, in which case loss provisions may be deducted from the related accumulated costs)? [SOP 81-1.89] c. If a classified balance sheet is presented, are the provisions for losses shown as current liabilities? [SOP 81-1.89] 5. Claims: a. If the amounts recorded are material, are the amounts disclosed in the notes to the financial statements? b. Are claims that do not meet the conditions for recording disclosed as a contingent asset in the notes to the financial statements? [SOP 81-1.67] [FASB 5.17] c. If the company's policy is only to record claims when the amounts have been received or awarded, is such policy and the amounts involved disclosed in the financial statements? [SOP 81-1.66]
Yes
No
421
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) 6. Additional Disclosures: a. If the company's operating cycle for most of its contracts is one year or less but periodically obtains some contracts that are significantly longer than normal and the company uses a classified balance sheet, are those contracts separately classified and disclosed? [AAG-CC 6.02] b. If the company has elected to use the durations of their contracts as its operating cycle for purposes of classifying assets and liabilities related to contracts, has that election and the range of contract durations been properly disclosed in the financial statements? [AAG-CC 6.21] Also, has liquidity characteristics and information of specific assets and liabilities been disclosed (for example, accounts and retentions receivable and payable)? [AAG-CC 6.3] c. If the company has contract costs representing unapproved change orders, claims, or similar items subject to uncertainty concerning their determination or ultimate realization, does the aggregate amount of such items disclosed, as well as a description of the nature and status of the principal items comprising such aggregate amounts and the basis on which such items are recorded? [AA-CC 6.21e] d. If the company netted progress payments to contract costs has such amounts been disclosed? [AAG-CC 6.21e] e. If the company deferred costs either in anticipation of future sales (precontract costs that are not within the scope of SOP 98-5, Reporting on the Costs of StartUp Activities) or as a result of an unapproved change order, has the policy of deferral and the amounts involved been disclosed? [AAG-CC 6.21f] f. If receivables include amounts representing balances billed but not paid by customers under retainage provisions in contracts, has the company disclosed the amounts included, the portion (if any) expected to be collected after one year, and, if practicable, the years in which the amounts are expected to be collected? [AAG-CC 6.28]
Yes
No
422
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) g. If receivables include billed or unbilled amounts under contracts representing unapproved change orders, claims, or similar items subject to uncertainty concerning their determination or ultimate realization, did the company disclose the amount, a description of the nature and status of the principal items comprising the amount, and the portion, if any, expected to be collected after one year? [AAG-CC 6.24] h. If receivables include other amounts representing the recognized sales value of performance under contracts and if the amounts had not been billed and were not billable to customers at the date of the balance sheet, are these amounts, a general description of the prerequisites for billings, and the portion, if any, expected to be collected after one year disclosed? [AAG-CC 6.25] i. If backlog information has been disclosed in the financial statements, is the basis for such backlog information adequately described (e.g., in describing the backlog on contracts in progress as of the balancesheet date, is the backlog amount determined by future billings, future revenue to be recognized, or future costs to complete)? [AAG-CC 6.23] (1) If backlog information is included for contracts entered into subsequent to the balance-sheet date, is such disclosure segregated from the backlog disclosure on contracts in progress at the balance-sheet date? (2) If backlog information is presented, is backlog based on signed contracts segregated from backlog based on letters-of-intent? j. If receivables include amounts maturing after one year, have the following been disclosed: (1) The amount maturing after one year and, if practicable, the amounts maturing in each year? (2) Interest rates on major receivable items, or on classes of receivables, maturing after one year or an indication of the average interest rate or the range of rates on all receivables? [AAG-CC 6.27]
Yes
No
423
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) k. In addition to the specific disclosure requirements above, have the disclosure requirements of SOP 0106, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others, been considered? [NOTE: SOP 01-06 is effective for annual and interim financial statements issued for fiscal years beginning after December 15, 2001.] [AAG-CC 6.24-6.28, footnote 1] B. Cost-Plus-Fixed Fee (CPFF) Contracts 1. If the company has cost-plus-fixed-fee contracts: [ARB 43, Ch 11A] a. Are the accounts relating to CPFF contracts adequately described and properly presented in the financial statements? [ARB 43, Ch 11A.21-.22] b. If the company has advances that are definitely regarded as payments on account of work in progress, have such advances been shown as a deduction from the related asset, and the amounts disclosed? [AAGCC 6.19] C05 RENEGOTIATION (12/08) 1. If the company has government contracts or subcontracts subject to renegotiation: [ARB 43, Ch 11B] a. Is appropriate indication of their existence given in the financial statements? [ARB 43, Ch 11B.02] b. If a reasonable estimate cannot be made, such as where the effect of a new or amended renegotiation act cannot be foretold within reasonable limits or where a company is facing renegotiation for the first time and no reliable precedent is available, has this inability been disclosed in the company's financial statements? [ARB 43, Ch 11B.04] c. If a provision is made, are uncertainties, their significance, and the basis used in determining the amount of the provision disclosed? [ARB 43, Ch 11B.05] d. Is the provision for renegotiated refunds included in the balance sheet among the current liabilities? [ARB 43, Ch 11B.06] e. Is the provision for renegotiation refunds shown as a deduction from sales in the income statement? [ARB
Yes
No
424
Disclosure: CONSTRUCTION-TYPE CONTRACTS (12/08) 43, Ch 11B.07] f. If the company received a renegotiation refund that is significantly different from the provision made in previously issued financial statements, has such difference been disclosed as a separate item in the current income statement? [ARB 43, Ch 11B.09]
Yes
No
Accounting: DEVELOPMENT STAGE ENTERPRISES (12/08) 1. Is the enterprise considered to be in the development stage? [NOTE: An enterprise is considered to be in the development stage if it is devoting substantially all of its efforts to establishing a new business and either of the following conditions exists: a. Planned principal operations have not commenced b. Planned principal operations have commenced, but there has been no significant revenue therefrom.] [FASB 7.08]
Yes
No
2. Have costs associated with one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, or commencing some new operation been expensed in accordance with SOP 98-5, Reporting on the Costs of Start-Up Activities? [SOP 98-5, paragraph .05]
Disclosure: DEVELOPMENT STAGE ENTERPRISES (12/08) 1. Have the financial statements been identified as those of a development stage enterprise, including a description of the nature of the development stage activities? [FASB 7.12] 2. Do the financial statements issued by the enterprise present financial position, cash flows, and results of operations in conformity with generally accepted accounting principles that apply to established operating enterprises? [FASB 7.10] 3. Do the financial statements include the following: [FASB 7.11]
Yes
No
425
Disclosure: DEVELOPMENT STAGE ENTERPRISES (12/08) a. A balance sheet, including any cumulative net losses reported with a descriptive caption such as "deficit accumulated during the development stage" in the stockholders' equity section? b. An income statement showing amounts of revenue and expenses for each period covered by the income statement, including cumulative amounts from the enterprise's inception? c. A statement of cash flows for each period for which an income statement is presented, including cumulative amounts from the enterprise's inception? d. A statement of stockholders' equity, showing from the enterprise's inception: (1) For each issuance, the date and number of shares of stock, warrants, rights, or other equity securities issued for cash and for other consideration, including the dollar amounts (per share or other equity unit and in total) assigned to the consideration received? (2) For each issuance involving noncash consideration, the nature of the noncash consideration and the basis for assigning amounts? 4. In the first fiscal year that an enterprise is no longer considered to be in the development stage, do the financial statements disclose that in prior years the enterprise had been in the development stage? [FASB 7.13]
Yes
No
Accounting: PREFERRED STOCK (12/08) I. ENTITY HAS PREFERRED STOCK OUTSTANDING 1. Under FASB No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, certain instruments that previously were reported as part of shareholder's equity (including temporary equity) will be reported as liabilities. Consequently, the presentation requirements outlined in Rule 5-02.28 of Regulation S-X do not apply to those instruments after the effective date of FASB 150. If the company has preferred stock that provides for redemption, either mandatorily or contingently, has the company considered the impact of
Yes
No
426
Accounting: PREFERRED STOCK (12/08) FASB 150? [NOTE: Complete section F41.] 2. If the company has redeemable preferred stock outstanding whose redemption is not solely within the control of the issuer or that is redeemable currently, or if it is probable that the preferred stock will become redeemable, and the company is an SEC registrant or has elected to follow accounting policies for public companies: a. If the preferred stock is redeemable currently, is the preferred stock adjusted to its redemption amount at each balance-sheet date? b. If redeemable preferred stock is not redeemable currently but it is probable that it will become redeemable, is its carrying amount accreted to its redemption amount by making periodic charges (calculated over the period to the earliest redemption date of the preferred stock) to retained earnings (or in the absence of retained earnings, to additional paid in capital) using the interest method? (The accretion should be deducted from net income in determining earnings applicable to common stock.) [SAB Topic 3C; see also EITF Topic D-98 which provides for an alternative method of measuring preferred stock in periods subsequent to issuance.] c. If applicable, has the carrying amount of the redeemable preferred stock been periodically increased by amounts representing dividends not currently declared or paid but that will be payable under the mandatory redemption features, or for which ultimate payment is not solely within the control of the registrant (e.g., dividends that will be payable out of future earnings)? [SAB Topic 3C] 3. If the company has mandatorily redeemable stock outstanding (when the redemption is certain to occur and is not conditional): a. Unless the redemption is required to occur only upon the liquidation or termination of the reporting entity, is the mandatorily redeemable stock classified as a liability rather than within equity? [FASB 150.9] 4. If convertible preferred securities have been issued with a nondetachable conversion feature and/or other detachable instruments: a. Has the issuer first allocated the proceeds received to
Yes
No
427
Accounting: PREFERRED STOCK (12/08) the convertible instrument and any other detachable instruments (e.g., warrants) on a relative fair value basis? [APB 14, EITF 00-27, Issue 1] b. Has the issuer evaluated whether the conversion feature should be bifurcated in accordance with FASB 133? c. If the conversion feature is not required to be bifurcated in accordance with FASB 133, has the issuer determined whether the conversion feature is in-the-money at the date of issue (a "beneficial conversion feature")? If the conversion feature is a beneficial conversion feature: (1) Has the effective conversion price, based on the proceeds received for or allocated to the convertible instrument, been used to compute the intrinsic value, if any, of the embedded conversion feature? [EITF 00-27, Issue 1] (2) Is the portion that is allocated to the beneficial conversion feature accounted for as paid-in capital? [EITF 00-27, Issue 1] (3) Is any discount resulting from an allocation of the proceeds to the beneficial conversion feature reflected as a return to the preferred shareholders over the minimum period from the date of issuance to the date at which the preferred shareholders can realize that return (that is, through the date of earliest conversion) using the interest method for convertible instruments that do not have a stated redemption date, such as perpetual preferred stock? [EITF 00-27, Issue 6; EITF 98-5] (4) For convertible instruments that have a stated redemption date (such as mandatorily redeemable preferred stock), is the discount resulting from recording a beneficial conversion option accreted from the date of issuance to the stated redemption date, regardless of when the earliest conversion date occurs? [EITF 00-27, Issue 6] (5) If the conversion feature is a step conversion, is the computation of the intrinsic value made using terms that are most beneficial to the investor and is the amortization adjusted to
Yes
No
428
Accounting: PREFERRED STOCK (12/08) ensure the discount at any time is not less than the amount the holder could obtain if conversion occurred at that date? [EITF 98-5, Discussion, paragraph 10] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 86-45, Imputation of Dividends on Preferred Stock Redeemable at Issuer's Option with Initial Below-Market Dividend Rate That EITF deals with the following issue: An enterprise issues preferred stock that is redeemable only at the issuer's option and that has preference in dividends and liquidation. The terms of the issue specify a below-marketrate dividend for an initial period after issuance and a marketrate dividend after the initial period. The issue is whether dividends should be imputed at the market rate during the initial period with the difference between dividends at the market rate and those at the stated rate recognized as an addition to the preferred stock.
Yes
No
Disclosure: PREFERRED STOCK (12/08) I. ENTITY HAS PREFERRED STOCK OUTSTANDING 1. If preferred stock (or other senior stock) has a preference in involuntary liquidation considerably in excess of the par or stated value of the shares, is such liquidation preference (the relationship between the preference in liquidation and the par or stated value of the shares) disclosed in the equity section of the statement of financial position in the aggregate, either parenthetically or "in short," rather than on a per-share basis or through disclosure in the notes? [FASB 129.06] 2. Are the aggregate or per-share amounts at which preferred stock may be called or is subject to redemption through sinking-fund operations or otherwise, and the aggregate and per-share amounts of arrearages in cumulative preferred dividends disclosed either on the face of the statement of financial position or in the notes thereto? [FASB 129.07] 3. Has the effect that has been given to preferred dividends in arriving at income available to common stockholders in computing basic EPS (as prescribed in FASB 128) been disclosed for each period for which an income statement is presented? [FASB 128.40.b]
Yes
No
429
Disclosure: PREFERRED STOCK (12/08) 4. If the company has redeemable preferred stocks outstanding: a. If the company is an SEC registrant and the preferred stock is subject to mandatory redemption or the redemption is outside of the control of the issuer: [Regulation S-X, Rule 5-02.28-.30] [NOTE: Under FASB 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, certain instruments that previously were reported as part of shareholder's equity (including temporary equity) will be reported as liabilities. Consequently, the presentation requirements outlined in Rule 5-02.28 of Regulation S-X do not apply to those instruments after the effective date of FASB 150.] (1) Does the balance sheet present separately the amounts applicable to: (a) Redeemable preferred stocks (b) Other preferred stock outstanding, and (c) Common stocks? (2) Is the redeemable preferred stock: (a) Not included under a general heading such as "stockholders' equity," and (b) Not included in a combined total for equity securities, unless redemption is solely at the option of the issuer? b. Are the number of shares authorized and the number of shares issued or outstanding, for each issue, stated on the face of the balance sheet or in the notes? c. Are the title of each issue, the carrying amount, and redemption amount stated on the balance sheet? [NOTE: If there is more than one issue, these amounts may be aggregated on the face of the balance sheet and details concerning each issue may be presented in a note.] d. Is the dollar amount shown for any shares subscribed but unissued, and is the deduction of subscription receivables shown? 5. If (a) the company is following the guidance for public companies, (b) the preferred stock is not redeemable currently (e.g., because a contingency has not been met),
Yes
No
430
Disclosure: PREFERRED STOCK (12/08) (c) it is not probable that the security will become redeemable, and (d) the company has not elected to accrete the difference between the carrying amount and the redemption amount, has the company met the disclosure requirements of EITF D-98, including disclosure of why it is not probable that the security will become redeemable? 6. Is the following information relating to redeemable preferred stock disclosed in a separate note to the financial statements: [Regulation S-X, Rule 5-02.28] a. A general description of each issue and its conversion features, redemption features, dividend features, liquidation preferences, vesting rights, and attached warrants? b. The rights, if any, of holders in the event of default? c. The combined aggregate amount of redemption requirements for all issues each year for the five years subsequent to the latest balance-sheet date? d. The changes in each issue for each period for which an income statement is required? e. A description of the accounting treatment for any difference between the carrying amount and the redemption amount of any such issue? f. If changes in the redemption value are accreted over the period from the date of issuance to the earliest redemption date, is the redemption value of the security as if it were redeemable disclosed? [D-98.17]
Yes
No
g. If the company is an SEC registrant and the preferred stock is not redeemable or redeemable solely at the option of the issuer: [Regulation S-X, Rule 5-02.28.30] (1) Are the title and the dollar amount of each issue stated on the face of the balance sheet, or, if more than one issue is outstanding, in a note? (2) Is the dollar amount shown of any shares subscribed but unissued, and is the deduction of subscription receivables shown? (3) Are, for each issue, the number of shares authorized and the number of shares issued or outstanding stated? (4) Are the changes in each class of preferred shares
431
Disclosure: PREFERRED STOCK (12/08) reported under this caption for each period for which an income statement is required to be filed? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 86-32, Early Extinguishment of a Subsidiary's Mandatorily Redeemable Preferred Stock This Issue addresses how an enterprise should account for the purchase (early extinguishment) of a wholly owned subsidiary's mandatorily redeemable preferred stock.
Yes
No
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) FASB Statement 123 (Revised 2004), Share-Based Payment, was issued in December 2004 and has the following effective dates: Public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Pursuant to SEC Rule Release No. 33-8568, the date for compliance with FASB 123(R) has been amended. Public entities that do not file as small business issuers will be required to apply the provisions of FASB 123(R) beginning with the first interim or annual reporting period of the registrant's first fiscal year beginning on or after June 15, 2005. Public entities that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Pursuant to SEC Rule Release No. 33-8568, the date for compliance with FASB 123(R) has been amended. Public entities that file as small business issuers will be required to apply the provisions of FASB 123(R) beginning with the first interim or annual reporting period of the registrant's first fiscal year beginning on or after December 15, 2005. Nonpublic entities as of the beginning of the first annual reporting period that begins after December 15, 2005. Early adoption of this Statement for interim or annual reporting periods for which financial statements or interim
Yes
No
432
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) reports have not been issued is encouraged. [For entities that have adopted FASB 123(R), complete Section I below. For entities that have not adopted FASB 123(R), complete Section II below.] I. ENTITIES THAT HAVE ADOPTED FASB 123(R) A. Scope 1. Have the provisions of FASB 123(R) been applied to all share-based payment awards issued, modified, repurchased, or cancelled after the required effective date (or adoption date, for companies that elect to early adopt) in which an entity: [FASB 123(R).04, .70] a. Acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for equity instruments held by an employee share ownership plan), or b. Incurs liabilities to an employee or other supplier that (i) are based, at least in part, on the price of the entity's shares or other equity instruments, or (ii) require or may require settlement by issuing the entity's equity shares or other equity instruments? 2. Have share-based payment awards issued to an employee of the reporting entity by a related party or other holder of an economic interest in the entity been accounted for as compensation for services provided to the entity under FASB 123(R) unless the transfer is clearly for a purpose other than compensation for services to the reporting entity? The substance of such a transaction is that the economic interest holder makes a capital contribution to the reporting entity, and that the entity makes a sharebased payment to its employee in exchange for services rendered. [FASB 123(R).11] B. Award Classification 3. Has the entity applied the classification criteria in paragraphs 8-14 of FASB 150 in determining whether to classify as a liability a freestanding financial instrument given to an employee in a share-based payment transaction (unless Questions 4-12 below require otherwise)? [FASB 123(R).29] 4. In determining the classification of an instrument, has the company taken into account the deferrals contained in FSP FAS 150-3? [FASB 123(R).30]
Yes
No
433
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 5. Has a share awarded to an employee as compensation that is puttable or callable at fair value (a fair value puttable or callable share) been classified as a liability if either: [FASB 123(R).31] a. The repurchase feature permits the employee to avoid bearing the risks and rewards normally associated with equity share ownership for a reasonable period of time (six months or more) from the date the requisite service is rendered and the share is issued; or b. It is probable that the employer would prevent the employee from bearing those risks and rewards for a reasonable period of time (six months or more) from the date the share is issued? 6. If a fair value puttable or callable share awarded to an employee as compensation does not meet either of the criteria listed in Question 5 above, has the award been classified as equity? [FASB 123(R).31] 7. In questions 5 and 6, above, has the SEC registrant considered the guidance in ASR No. 268, Presentation in Financial Statements of Redeemable Preferred Stocks, in assessing the classification of those shares subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. If the shares are assessed to be classified in temporary equity under ASR No. 268 and EITF Topic D-98, "Classification and Measurement of Redeemable Securities," has the SEC registrant carried the awards as follows? a. At issuance, the carrying value is based on the redemption value of the vested portion of the award. b. Until settlement, at the end of each reporting period, the award is remeasured to its redemption value. The carrying value of the award at the end of each reporting period will be calculated based on the redemption amount multiplied by the percentage of the award that is vested. (Remeasurement is not required for awards issued with contingent repurchase features if it is not considered probable that the contingency would be satisfied.) c. The amount of compensation cost recognized is based on the grant-date fair value of the award. Changes in the redemption amount subsequent to the issuance of the award are recorded through equity and not as
Yes
No
434
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) compensation cost recognized in earnings. [FASB 123(R).31, footnote 18] 8. If the share contains a repurchase feature that extends the exercise period of the award beyond its stated vesting terms, has this repurchase feature been accounted for as a forfeiture provision that is considered in determining the requisite service period? (Generally relates to provisions that allow the employer to call awards or underlying shares at the lower of cost (exercise price) or fair value if the employee does not remain employed for a period of time that is beyond the stated vesting terms (e.g., until retirement or for a specified time period.) [FASB 123R.B152] 9. Have options or similar instruments on shares been classified as liabilities if: [FASB 123(R).31, .32, as amended by FSP 123(R)-4] a. The underlying shares are classified as liabilities, or b. The company can be required under any circumstance to settle the option or similar instrument by transferring cash or other assets. (However, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee's control would not meet this condition until it becomes probable that event will occur), or c. It is probable that the company would be required to settle the option or similar instrument by transferring cash or other assets? 10. If an award is indexed to another factor in addition to the company's share price, and that factor is not a market, performance or service condition, has the award been classified as a liability and the additional factor been reflected in estimating the fair value (or calculated value) of the award? [NOTE: A nonpublic entity must make a policy decision of whether to measure all of its liabilities under share-based payment arrangements at fair value or intrinsic value. Nonpublic entities that cannot reasonably estimate fair value may elect to use the calculated value.] [FASB 123(R).33] 11. For awards of share-based payments in which the choice to settle the award in cash or shares is made by the company, have the following been considered in determining the appropriate classification of such awards: [FASB 123(R).34]
Yes
No
435
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) a. The company's past practice in settling awards with similar terms; b. The company's ability to deliver the shares (however, a requirement to register shares by itself should not lead to a conclusion that the company does not have the ability to deliver shares); and c. Any requirements to pay cash upon the occurrence of contingent events? 12. If provisions in a share-based payment award permit the employee to effect a broker-assisted cashless exercise of part or all of an award of share options, has the award been classified in equity only if the following criteria have been met: [FASB 123(R).35; footnote 21] a. The cashless exercise requires a valid exercise of the share options, and b. The employee is the legal owner of the shares subject to the option (even though the employee has not paid the exercise price before the sale of the shares subject to the option)? c. If the broker is also a related party, have the shares been in the open market within a normal settlement period, which is generally three days? 13. If there are provisions for either direct or indirect repurchase of shares issued upon exercise of options, with any payment due employees withheld to meet the employer's minimum statutory withholding requirements resulting from the exercise, and an amount in excess of the minimum statutory requirements is withheld (or may be withheld at the employee's discretion), has the entire award been classified and accounted for as a liability? [FASB 123(R).35] [NOTE: On August 31, 2005, the FASB staff issued FSP FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement 123(R), dealing with freestanding financial instruments originally subject to FASB 123(R) that become subject to the recognition and measurement requirements of other applicable generally accepted accounting principles (GAAP) when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity. FSP FAS 123(R)-1 deferred the
Yes
No
436
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) requirements of FASB 123(R) that make a freestanding financial instrument subject to the recognition and measurement requirements of other GAAP when the rights conveyed by the instrument are no longer dependent on the holder being an employee.] 14. Was the freestanding financial instrument issued to an employee in exchange for past or future employee services that is subject to FASB 123(R) accounted for in accordance with the recognition and measurement provisions of FASB 123(R) throughout its life unless the terms are modified when the holder is no longer an employee? [FSP FAS 123(R)-1.5] 15. If the freestanding financial instrument in Question 13 above, was modified did the entity follow the modification provisions in accordance with paragraph 51 of FASB 123(R) if the financial instrument was designed exclusively for and held only by current or former employees (or their beneficiaries)? [FASB 123(R).A232] 16. For freestanding financial instruments modified when the holder is no longer an employee, has the freestanding financial instrument been accounted for under FASB 150 or other applicable GAAP? [FASB 123(R).A232] [NOTE: On October 10, 2006, the FASB staff issued FSP 123(R)-5, Amendment of FASB Staff Position FAS 123(R)-1, addressing whether a modification of an instrument in connection with an equity restructuring should be considered a modification for purposes of applying FSP FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R). FSP 123(R)-5 modifies FSP 123(R)-1 to state that a modification to a share award that is no longer dependent on the holder being an employee of the entity made in connection with an equity restructuring is not considered a modification under FSP 123(R)-1 if that change is made solely to reflect an equity restructuring provided that (1) there is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, that is, the holder is made whole) or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring and (2) all holders of the same class of equity instruments (for example, stock options) are treated in the same manner. Other modifications of that instrument that take place when the holder is no longer an employee shall be subject to the
Yes
No
437
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) modification guidance in paragraph A232 of FASB 123(R). Following modification, recognition and measurement of the instrument should be determined through reference to other applicable GAAP.] 17. Were any modifications made to share-based awards that were no longer dependent on the holder being an employee and modified solely to reflect an equity restructuring accounted for in accordance with FSP 123(R)-5? [FSP 123(R)-5.5] C. Measurement 18. For public entities, have liability awards under a sharebased payment arrangement been measured based on the award's fair value and remeasured at each reporting date until the date of settlement? [FASB 123(R).37] 19. For nonpublic entities with liability awards, have compensation costs been measured each period until settlement based on either the change in the fair value (or calculated value) or intrinsic value of the award from the previous reporting period? [FASB 123(R).38] 20. Have equity instruments awarded to employees been measured at the estimated fair value at the grant date of the equity award? [FASB 123(R).16] [NOTE: Observable market prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value, and if available, should be used as the basis for the measurement of equity and liability instruments awarded in share-based payment transactions with employees.] [FASB 123(R).A7] 21. If observable market prices of identical or similar equity or liability instruments of the entity are not available, has the fair value of such awards been estimated using an appropriate valuation technique? [FASB 123(R).A8] 22. Has the valuation technique referred to in Question 20 above been: [FASB 123(R).A8] a. Applied in a manner consistent with the fair value measurement objective and other requirements of FASB 123(R); b. Based on established principles of financial economic theory and generally applied in that field; c. Reflective of all substantive characteristics of the instrument, except for those explicitly excluded by
Yes
No
438
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) FASB 123(R), such as vesting conditions and reload features? 23. Has the valuation technique in Question 20 above taken into account, at a minimum, the following assumptions: [FASB 123(R).A18] a. The exercise price of the option; b. The expected term of the option, taking into account both the contractual term and the effects of employees' expected exercise and post-vesting employment termination behavior (this includes any restrictions or conditions that continue after the company has issued instruments to employees, the effects of market conditions, etc.); [FASB 123(R).17, .19] c. The current price of the underlying share; d. The expected volatility of the underlying share price for the expected term of the option; e. The expected dividends for the expected term of the option; and f. The risk-free interest rate(s) for the expected term of the option?
Yes
No
24. Have the assumptions described in question 22 above been based on or determined from external data or derived from the company's own historical experience (i.e., the assumptions should not represent any bias of the company)? [FASB 123(R).A10] [NOTE: See paragraphs A18-A42 of FASB 123(R) and SAB 107 for additional guidance on selecting assumptions for use in an optionpricing model.] 25. Have restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right not been included in estimating the fair value (or calculated value) of the related instruments at grant date? [NOTE: Those restrictions are taken into account by recognizing compensation cost only for awards for which employees render the requisite service.] [FASB 123(R).18, 48]
439
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 26. Have nonvested equity shares or nonvested equity share units awarded to an employee been measured at fair value as if they were vested and issued on grant date? [FASB 123(R).21] [NOTE: On October 18, 2005, the FASB staff issued FSP FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), which provided a practical accommodation in determining the grant date of an award (assuming all other criteria in the grant date definition have been met), a mutual understanding of the key terms and condition of an award to an individual employee shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements if both the following conditions are met: a. The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer; b. The key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval.] 27. Have restricted shares (i.e., a share that will be restricted after the employee has a vested right to it) awarded to employees been measured at fair value (which is the same amount for which a similarly restricted share would be issued to third parties)? [FASB 123(R).21] 28. Has the fair value (or calculated value) of each award of equity instruments, including an award of options with a reload feature, been measured separately based on their terms, share price and other pertinent factors at the grant date? [FASB 123(R).26] 29. Has the effect of contingent features not been reflected in estimating the grant-date fair value (or calculated value) of an equity instrument; rather, have they been accounted for only if and when the contingent event occurs? [For example, a clawback feature, which may cause an employee to return to the entity either equity instruments earned or realized gains from the sale of equity instruments earned for consideration that is less than the fair value (or calculated value) on the date of transfer.] [FASB 123(R).27] D. Recognition
Yes
No
440
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 30. Have employee share purchase plans that meet all of the following criteria been accounted for as noncompensatory plans: [FASB 123(R).12] a. The terms of the plan are no more favorable than those available to all holders of the same class of shares, or any purchase discount from the market price does not exceed the per-share amount of share issuance costs that would have been incurred to raise a significant amount of capital by a public offering [NOTE: A purchase discount of 5 percent or less from the market price shall be considered to comply with this condition without further justification]; b. Substantially all of the employees that meet limited employment qualifications may participate on an equitable basis; and c. The plan incorporates no option features, other than (i) employees are permitted a short period of time after the purchase price has been fixed to enroll in the plan (not to exceed 31 days), or (ii) the purchase price is based solely on the market price of the shares at the date of the purchase and employees are permitted to cancel participation before the purchase date and obtain a refund of amounts previously paid. [NOTE: FASB Technical Bulletin 97-1 provides guidance on accounting for employee stock purchase plans with a look-back option under FASB 123(R).] 31. Have compensation costs not been recognized for instruments that employees forfeit because a service condition or a performance condition is not satisfied? [FASB 123(R).19] 32. For public entities with liability awards, have compensation costs been recorded each period until settlement based on the change in the fair value of the award from the previous reporting period? [FASB 123(R(.37] 33. For nonpublic entities with liability awards, have compensation costs been recognized each period until settlement based on either the change in the fair value (or calculated value) or intrinsic value of the award from the previous reporting period? [NOTE: A nonpublic entity must make a policy decision of whether to measure all of its liabilities under share-based payment arrangements at
Yes
No
441
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) fair value or intrinsic value. Nonpublic entities that cannot reasonably estimate fair value will use the calculated value.] [FASB 123(R).38] 34. Has the compensation cost for an award of share-based employee compensation classified as equity been recognized over the requisite service period with a corresponding credit to equity (generally, paid-in capital)? [FASB 123(R).39] 35. Has the requisite service period referred to in Question 34 above been estimated at the grant date as the period during which an employee is required to provide service in exchange for an award, based on an analysis of the terms of the share-based payment award? [NOTE: See paragraphs A59-A74 of FASB 123(R) for additional guidance in determining explicit, implicit and derived service periods.] [FASB 123(R).39] 36. If an award vests upon the satisfaction of a service condition or one or more performance conditions, has the requisite service period been estimated based on the probabilities of achieving each outcome? [FASB 123(R)..46, .A63-A64] 37. If an award contains a market condition and a performance or service condition and the initial estimate of the requisite service period is based on the market condition's derived service period, has the requisite service period not been revised unless the following conditions have been met: [FASB 123(R).A65] a. The market condition is satisfied before the end of the derived service period, and b. Satisfying the market condition is no longer the basis for determining the requisite service period? 38. Has the company determined that the service inception date precedes the grant date if all the following conditions have been met: [FASB 123R.A79] a. An award is authorized; b. Service begins before a mutual understanding of the key terms and conditions of a share-based payment award is reached; and c. Either of the following conditions applies: (1) The award's terms do not include a substantive future requisite service condition that exists at
Yes
No
442
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) the grant date or (2) The award contains a market or performance condition that if not satisfied during the service period preceding the grant date and following the inception of the arrangement results in forfeiture of the award. 39. If the beginning of the requisite service period (the service inception date) precedes the grant date, has the company accrued compensation costs for periods before the grant date based on the fair value (or calculated value) of the award at the reporting date? [FASB 123(R).41] 40. For situations described in question 38 above, in the period in which the grant date occurs, has the company adjusted the cumulative compensation costs to reflect the cumulative effect of measuring compensation cost based on fair value (or calculated value) at the grant date rather than the fair value (or calculated value) previously used at the service inception date? [FASB 123(R).41] 41. For an award with only service conditions that has a graded vesting schedule, has the amount of compensation cost recognized at any date been at least equal to the portion of the grant-date fair value (or calculated value) of the award that is vested at that date? [NOTE: The company must make a policy decision about whether to recognize compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period (a) for each separately vesting portion of the award as if the award was, in substance, multiple awards, or (b) for the entire award.] [FASB 123(R).42] 42. Have the initial accruals of compensation cost been based on the number of instruments for which the requisite service period is expected to be rendered? [FASB 123(R).43] 43. Have the estimates in question 42 above been revised if subsequent information indicates that the actual number of instruments is likely to be different from previous estimates? [FASB 123(R).43] 44. Has the cumulative effect of a change in estimate made pursuant to questions 42 and 43 above been recognized as compensation cost in the period of change? [FASB 123(R).43]
Yes
No
443
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 45. Has compensation cost related to awards with a performance condition been accrued only if it is probable that the performance condition will be achieved? For awards with multiple performance conditions, has the interrelationship of all performance conditions been assessed to determine the probability of satisfying the performance conditions? [FASB 123(R).44] 46. In the event that an employee renders the requisite service for a share option or share unit, and the award expires unexercised or unconverted, has the company not reversed previously recognized compensation cost? [FASB 123(R).45] 47. If an award requires satisfaction of one or more market, performance, or service conditions, or any combination thereof, has compensation cost been recognized only if the requisite service has been rendered? [FASB 123(R).47] 48. For awards with market, performance, and service conditions (or any combination thereof), has the final measure of compensation cost been based on the amount estimated at the grant date (i.e., grant-date fair value, or calculated value) for the condition or outcome that is actually satisfied? [NOTE: Market, performance, or service conditions that affect an award's exercise price, contractual term, quantity, conversion ratio, or other factors shall be considered in measuring the grant-date fair value (or calculated value).] [FASB 123(R).49] 49. For awards classified as liabilities, has the company complied with the following recognition provisions? [FASB 123(R).50] a. Have the changes in fair value (or calculated value) or intrinsic value (for a nonpublic entity that elects that method) of a liability award that occurred during the requisite service period been recognized as compensation cost over that period? b. Has the percentage of fair value (or calculated value) or intrinsic value that is accrued as compensation cost at the end of each period been equal to the percentage of requisite service that has been rendered at that date? c. Have the changes in fair value (or calculated value) or intrinsic value for a nonpublic entity that elects that method of a liability award that occurred after the end
Yes
No
444
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) of the requisite service period been recognized as compensation cost in the period in which the changes occur? d. Has any difference between the amount for which a liability award is settled and its fair value (or calculated value) or intrinsic value at the date of settlement been recognized as an adjustment of compensation cost in the period of settlement? E. Modifications 50. In general, modifications of the terms or conditions of equity awards are treated as an exchange of the original award for a new award. Have the effects of modifications been measured as follows: [FASB 123(R).51] a. Has incremental compensation cost been measured as the excess of the fair value (or calculated value) of the modified award over the fair value (or calculated value) of the original award immediately before its terms were modified? b. Has the effect of the modification on the number of instruments expected to vest also been reflected in determining incremental compensation cost? [This estimate should also be subsequently adjusted, if necessary, in accordance with questions 41-45 above (paragraphs .A160-.A170).] c. Has the total compensation cost measured at the date of modification been equal to the sum of both: (1) The portion of the grant-date fair value (or calculated value) of the original award for which the requisite service has already been rendered (or is expected to be rendered) at that date, and (2) The incremental cost resulting from the modification? [This estimate should also be subsequently adjusted, if necessary, in accordance with questions 41-45 above (paragraphs A160-A170) d. Has the change in compensation cost of an equity award measured at intrinsic value in accordance with question 27 above been measured by comparing the intrinsic value of the modified award, if any, with the intrinsic value of the original award, if any, immediately prior to modification?
Yes
No
445
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 51. Have offers by the entity that would result in modification of an award to which an award holder may subscribe for a limited period of time (short-term inducements) been accounted for as a modification of the terms of only the awards of employees who accept the inducement? [FASB 123(R).52] 52. Have all other inducements that do not meet the definition of short-term inducements in Question 50 above been accounted for as modifications of the terms of all awards subject to the inducements? [FASB 123(R).52] 53. Have exchanges of share options or other equity instruments or changes to their terms in conjunction with an equity restructuring or business combination been accounted for as modifications subject to the requirements of question 49 above? [FASB 123(R).53] 54. Has the addition of an antidilution provision not been accounted for as a modification, unless the antidilution provision was added in contemplation of an equity restructuring? [FASB 123(R).54; A156] 55. For repurchases or cancellations of equity instrument awards, has the company: [FASB 123(R).55] a. Charged to equity the amount of cash or other assets transferred (or liabilities incurred) to repurchase the equity award, to the extent that the amount paid does not exceed the fair value (or calculated value) of the equity instruments repurchased at the repurchase date; b. Recognized any excess of the purchase price over the fair value (or calculated value) of the instruments repurchased as additional compensation cost on the repurchase date; and c. Recognized at the repurchase date the amount of compensation cost measured at the grant date that has not yet been recognized for repurchases of awards for which the requisite service has not yet been rendered, if such award was probable of vesting? 56. Have cancellations of awards accompanied by a concurrent grant of a replacement award or other valuable consideration been accounted for in the same manner as other modifications pursuant to question 50 above? [FASB 123(R).56] 57. Has the company recognized any previously unrecognized
Yes
No
446
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) compensation cost at the cancellation date for cancellations of awards that are not accompanied by a concurrent grant of a replacement awards? [FASB 123(R).57] F. Transactions With Nonemployees 58. Have share-based payment transactions with nonemployees been measured using the fair value that is more reliably measurable (i.e., fair value of the goods or services received or the fair value of the equity instruments issued)? [FASB 123(R).07] 59. For share-based payment transactions with nonemployees, has the measurement date been determined to be the earlier of the following: [FASB 123(R).08, EITF 96-18] a. The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a "performance commitment") or b. The date at which the counterparty's performance is complete? [NOTE: A performance commitment is a commitment under which performance by the counterparty is probable because of a sufficiently large disincentive for nonperformance. Forfeiture of the equity instruments as the sole remedy, or the ability to sue for nonperformance, in and of itself, does not represent a sufficiently large disincentive to ensure that performance is probable.] 60. For share-based payment transactions with nonemployees, when it is appropriate for the issuer to recognize any cost of the transaction prior to the measurement date, have such costs been measured at their then-current fair value at each interim reporting date, with changes in fair value between reporting dates attributed in accordance with the companys attribution policy under paragraph 42 of FASB 123(R)? [EITF 96-18] G. Income Tax Effects 61. Has the cumulative amount of compensation cost recognized (for financial reporting purposes) for sharebased payment instruments (both liability and equity awards) that ordinarily would result in a future tax deduction under existing tax law been considered to be deductible temporary differences? [NOTE: Recognition of compensation cost for instruments that ordinarily do not result in tax deductions under existing tax law shall
Yes
No
447
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) not be considered to result in a deductible temporary difference in applying FASB 109.] [FASB 123(R).59, .60] 62. Has the difference between the deductible temporary difference from question 60 above and the tax deduction that would result based on the current fair value (or calculated value) of the entity's shares not been considered in measuring the gross deferred tax asset or determining the need for a valuation allowance? [FASB 123(R).61] 63. Have the excess tax benefits that stem from a change in the fair value (or calculated value) of the company's shares between the measurement date for accounting purposes and a later measurement date for tax purposes been recognized as additional paid-in capital? [NOTE: Excess tax benefits are the result of realized tax benefits that exceed previously recognized deferred tax assets. The excess tax benefit should be based on the portion of the award that is exercised.] [FASB 123(R).62] 64. Have the excess tax benefits that stem from a reason other than a change in the fair value (or calculated value) of the company's shares between the measurement date for accounting purposes and a later measurement date for tax purposes been recognized in the income statement? [FASB 123(R).62] If the entity has adopted EITF Issue 06-11, question 64 above would be substituted with the following question: 64. Have the excess tax benefits that stem from a reason other than (1) a change in the fair value (or calculated value) of the company's shares between the measurement date for accounting purposes and a later measurement date for tax purposes or (2) related dividends or dividend equivalents charged to equity, been recognized in the income statement? [FASB 123(R).62, EITF 06-11] 65. Has the write-off of a deferred tax asset resulting from excess recognized cumulative compensation cost (for financial reporting purposes) over the amount deductible on the company's tax return first been offset with any remaining additional paid-in capital from excess tax benefits from previous awards? [FASB 123(R).63] 66. Has the remaining balance, if any, from the write-off of a deferred tax asset described in question 63 above been recognized in the income statement? [FASB 123(R).63]
Yes
No
448
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 67. For companies that continued to use APB Opinion 25's intrinsic value method as permitted by FASB 123, has the amount available for offset as discussed in question 65 above been calculated as the net amount of excess tax benefits that would have qualified as such had the company adopted FASB 123 for recognition purposes pursuant to FASB 123's original effective date and transition method, or in accordance with FSP FASB 123(R)-3? [FASB 123(R).63] 68. In calculating the amount in question 67 above, has no distinction been made between the excess tax benefits attributable to different types of equity awards (i.e., restricted shares or share options)? [FASB 123(R.)63] 69. In calculating the amount in question 67 above, has the company excluded from that amount both excess tax benefits from share-based payment arrangements that are outside the scope of FASB 123(R) and excess tax benefits that have not been realized pursuant to FASB 109? [FASB 123(R).63] 70. In calculating available excess tax benefits if deferred tax assets need to be written off in periods subsequent to adoption, has the company included only the net excess tax benefits that would have qualified as such had the company adopted FASB 123 for recognition purposes for all awards granted, modified, or settled in cash for fiscal years beginning after December 15, 1994 (unless the short-cut method under FSP 123R-3 has been elected)? [FASB 123(R).81] 71. In determining the amount in question 70 above, has the company excluded excess tax benefits that have not been realized pursuant to FASB 109? [NOTE: Companies that previously recognized deferred tax assets for excess tax benefits that have not been realized must discontinue such practice prospectively.] [FASB 123(R).81] [NOTE: On November 10, 2005, the FASB staff issued FSP FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, which provides a practical transition election related to the accounting for the tax effects of share-based payment awards to employees. Companies should follow either the transition guidance described in paragraph 81 (questions 70-71 above) or the alternative method described in FSP FAS 123(R)-3. Companies must make a
Yes
No
449
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) one-time election to adopt the transition method described in FSP FAS 123(R)-3.] 72. In determining the amount of the beginning balance of the APIC Pool related to employee compensation under the alternative method described in FSP 123R-3 has the company calculated it as follows: a. The sum of all net increases of additional paid-in capital recognized in an entity's annual financial statements related to tax benefits from stock-based employee compensation during fiscal periods subsequent to the adoption of FASB 123, but prior to the adoption of FASB 123(R); less b. The cumulative incremental pretax employee compensation costs that would have been recognized if FASB 123 had been used to account for stock-based employee compensation costs, multiplied by the entity's blended statutory tax rate upon adoption of FASB 123(R), inclusive of federal, state, local and foreign taxes. [Cumulative incremental compensation costs are the total stock-based employee compensation costs included in pro forma net income as if the fairvalue-based method had been applied to all awards pursuant to the provisions of FASB 123, less the stock-based compensation costs included in the entity's determination of net income as reported.] [FSP 123(R)-3.5] 73. Under the alternative method described in FSP 123R-3, has the company accounted for tax effects that impact the APIC pool as follows? [FASB 123(R)-3.6, .7] a. Tax benefits related to an employee award that is fully vested prior to the adoption of FASB 123(R) that have been both (a) realized in accordance with footnote 82 of FASB 123(R) and (b) recognized in equity subsequent to the adoption of FASB 123(R) shall increase the APIC pool.
Yes
No
450
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) b. The impact on the APIC pool of an employee award that is partially vested upon or granted after the adoption of FASB 123(R) should be determined in accordance with the guidance in FASB 123(R). That is, the compensation deduction for tax purposes for a partially vested award should be compared with the sum of compensation cost recognized or disclosed for that award under FASB 123 and FASB 123(R). The tax effect of any resulting excess deduction for tax purposes should increase the APIC pool; the tax effect of any resulting deficient deduction for tax purposes should be deducted from the APIC pool. H. Transition 74. For public companies and nonpublic companies that used the fair-value-based method for either recognition or disclosure under FASB 123, has the modified prospective application transition method been applied as of the required effective date? [NOTE: Companies can elect to apply the modified retrospective application transition method to periods before the required effective date.] [FASB 123(R).71] 75. For nonpublic companies that used the minimum value method in FASB 123 for either recognition or pro forma disclosure: [FASB 123(R).72, .83] a. Have the provisions of FASB 123(R) been applied to new awards and to awards modified, repurchased, or cancelled after the required effective date (the prospective transition method)? b. Has the company continued to account for any portion of equity awards outstanding at the date of adoption of FASB 123(R) using the accounting principles originally applied to those awards? 76. For companies that are following the modified prospective application method of transition: [FASB 123(R).74] a. Has compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date been recognized as the requisite service is rendered on or after the required effective date?
Yes
No
451
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) b. Has the compensation cost for awards in question 76(a) above been based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosure purposes under FASB 123? c. Have changes to the grant-date fair value of equity awards granted before the required effective date been precluded, unless inclusion of such changes are for a correction of an error? d. Has any unearned or deferred compensation (contraequity accounts) related to awards that were outstanding as of the required effective date been eliminated against the appropriate equity accounts? 77. For companies following the modified retrospective application method of transition: [FASB 123(R).76, .77] a. If the company chooses to apply this method to all prior years for which FASB 123 was effective, has the company adjusted the financial statements for prior periods to give effect to the fair-value-based method of accounting for awards granted, modified, or settled in cash in fiscal years beginning after December 15, 1994, on a basis consistent with the pro forma disclosures required for those periods? [NOTE: Changes to the amounts as originally measured on a pro forma basis are precluded unless such changes are for a correction of an error.] b. If the company applies this method to all prior years for which FASB 123 was effective and not all prior years are presented in the comparative financial statements, have the beginning balances of paid-in capital, deferred taxes and retained earnings for the earliest year presented been adjusted to reflect the results of the modified retrospective application method to those prior years not presented? c. If the company chooses to apply this method only to the prior interim periods in the year of initial adoption, have no adjustments been made to the beginning balances of paid-in capital, deferred taxes or retained earnings? 78. For an instrument that had been classified as equity but is classified as a liability under FASB 123(R), has the company recognized a liability at its fair value (or calculated value) or portion thereof, if the requisite service
Yes
No
452
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) has not been rendered? [FASB 123(R).79] 79. If the fair value (or calculated value) (or portion thereof) of the liability in question 78 above is greater or less than previously recognized compensation cost for the instrument, has the liability been recognized: [FASB 123(R).79] a. First, by reducing equity (generally, paid-in capital) to the extent of such previously recognized cost, and b. Second, by recognizing the difference between the fair value (or calculated value) and the previously recognized compensation cost in the income statement, net of any related tax effects? 80. Has the amount calculated in question 79(b) above been recognized in the income statement as a cumulative effect of a change in accounting principle? [FASB 123(R).79] 81. For an outstanding instrument that previously was classified as a liability and measured at intrinsic value, has the company recognized the effect of initially measuring the liability at its fair value (or calculated value), net of any related tax effects, in the income statement as a change in accounting principle? [FASB 123(R).79] 82. Upon adoption, if the company had a policy of recognizing the effect of forfeitures only as they occurred, has the company estimated the number of outstanding instruments for which the requisite service is not expected to be rendered? [FASB 123(R).80] 83. Have the balance-sheet amounts related to any compensation cost for those instruments previously recognized in income as a result of recognizing forfeitures as they occur been eliminated and recognized in income as a cumulative effect of a change in accounting principle as of the required effective date? [FASB 123(R).80] 84. Has no transition adjustment been made, except as required in Question 83 above, for any deferred tax assets associated with outstanding equity instruments that continue to be accounted for as equity instruments under FASB 123(R)? [FASB 123(R).81] 85. Have outstanding equity instruments that were measured at intrinsic value under FASB 123 at the required effective date because it was not possible to reasonably estimate their grant-date fair value (or calculated value) continued to be measured at intrinsic value until they are settled?
Yes
No
453
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) [FASB 123(R).82] 86. Has the company followed the transition provisions outlined within FSP FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R), FSP FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), and FSP 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards? [FSP FAS 123(R)-1, FSP FAS 123(R)-2, FSP FAS 123(R)-3] II. ENTITIES THAT HAVE NOT ADOPTED FASB 123(R) [NOTE: Significant activity has occurred in recent years relating to EITF interpretations of the authoritative accounting literature relating to stock-based compensation. Entities should ensure that they are in compliance with the EITF issues related to stock-based compensation.] [For entities that elect to apply the measurement principles of APB Opinion 25, questions 1833 should be completed for purposes of footnote disclosure required by FASB 123. For entities that elect to apply the measurement principles of FASB 123, questions 1 through 12 should not be completed. Entities that have adopted FASB 123, Accounting for StockBased Compensation Transition and Disclosure an amendment of FASB Statement No. 123, should apply the transition guidance in FASB 148.] 1. If there are plans, contracts, or agreements to issue the company's stock to its officers or other employees and such plans qualify as noncompensatory, is compensation cost not recognized in accounting for any stock issued? [The following four characteristics are required for a plan to be considered noncompensatory: (1) those eligible to participate must include substantially all employees working full-time (with permitted exclusion of executives or those owning a specified percentage of stock), (2) shares are offered to eligible employees equally or as a uniform percentage of compensation (the number of purchasable shares per employee may be limited), (3) the time period for exercising options or rights is limited to a reasonable period, and (4) any discount from the stock's market price does not exceed what would be considered as a reasonable discount in a stock offering to shareholders or others. (A plan with a look-back option may qualify as a noncompensatory plan. [FIN 44.29]) [APB 25.07]
Yes
No
454
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) a. In assessing criteria (4) in question 1 above, is the discount from the stock's market price less than or equal to 15 percent? [FIN 44.24-26] 2. If there are plans, contracts, or agreements to issue the company's stock to its officers or other employees and such plans are classified as compensatory because they do not possess the four characteristics listed in question 1 above: [APB 25.08] a. Is compensation cost for services measured by the unadjusted quoted market price (or best estimate, if not quoted on an established market in which the same class of stock trades freely) at the measurement date (the first date on which both the number of shares and the option or purchase price is known for an individual employee) less any amount the employee is required to pay? [APB 25.10] b. If the measurement date of the award of stock for current service was the end of the fiscal period instead of the date that the award to the employee was determined: [APB 25.11(c)] (1) Is the plan an established formal one whose terms provide for the awards? (2) Does the plan designate the factors that determine the total dollar amount of awards to employees for the period (e.g., a percent of income)? (3) Do the awards pertain to current services of employees for the period? c. If the stock option or purchase right is renewed or period extended (e.g., the life extended or vesting accelerated), is a new measurement date established? [APB 25.11(d)] d. If the measurement date is the date of transfer of stock or assets to a trustee, agent, or other third party who was to distribute stock to employees, do the terms of the transfer provide that the stock (1) will not revert to the company, (2) will not be later granted or awarded to the same employee under terms differing from the original ones, and (3) will not be later granted or awarded to another employee? [APB 25.11(e)]
Yes
No
455
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) e. If the stock is convertible or exchangeable: [APB 25.11(f)] (1) Is the measurement date for a grant or award the first date on which the conversion or exchange ratio and the option or purchase price are known? (2) Is compensation cost measured by the higher of the quoted market value of that stock or the securities into which the stock can be converted or exchanged? f. If cash was paid to an employee to settle an earlier grant or award, is compensation cost measured by such cash and has any earlier cost been adjusted? (The amount paid to reacquire stock from an employee shortly after its issuance under a plan is "cash paid to an employee" in measuring compensation cost; however, cash proceeds that are remitted as the minimum required withholding taxes should not be considered as "cash paid to an employee," in measuring compensation cost.) [APB 25.11(g)]
Yes
No
g. If the exercise price of a stock option was reduced, was the award accounted for as variable from the date of modification until the date the award is exercised, forfeited, or expires unexercised? [FIN 44.39] h. If the number of shares to be issued under an award was increased, was the award accounted for as variable from the date of modification until the date the award is exercised, forfeited or expires unexercised? [FIN 44.56] (1) If the number of shares to be issued under an award was increased via the addition of a reload feature, was the award accounted for as variable from the date of modification until the date the award is exercised, forfeited, or expires unexercised? [FIN 44.58] i. If an award was modified and a new measurement of compensation cost or variable accounting was required, was total compensation cost measured as the sum of the following: (1) The intrinsic value of the award (if any) at the original measurement date
456
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) (2) The intrinsic value of the modified (or variable) award that exceeds the lesser of the intrinsic value of the original award (a) at the original measurement date or (b) immediately prior to the modification. [FIN 44.61] j. If shares were repurchased upon exercise of a fixed option award in excess of the number necessary to satisfy the employer's required tax withholding, was a new measurement of compensation cost calculated for the entire award? [FIN 44.80]
Yes
No
k. For stock options granted with terms that permit share repurchases upon exercise in excess of the number necessary to satisfy the employer's required tax withholding (at the discretion of the employee), has variable accounting been applied? [FIN 44.77-.78] l. If the plan under which stock options were granted was subject to shareholder approval, were awards not deemed granted until that approval was obtained? [FIN 44.87]
3. If there are plans, contracts, or agreements involving stock appreciation rights (SARs) or other variable plan awards not involving junior stock: [FIN 28.02] a. Is compensation cost for services measured as the amount by which the market value of the shares of the enterprise's stock covered by the grant exceeds the option price or value specified, subject to any appreciation limitations under the plan? b. Have changes in the market value of the shares between the grant date and the measurement date been accounted for as a change in the measure of compensation cost for the SAR or award? 4. If there are stock option purchase or award plans (subsequent to March 14, 1984) involving junior stock that are designed to provide ultimately for the issuance of common stock: [FIN 38] a. Has compensation cost been accrued according to the provisions of paragraphs 2-4 of FIN 28 and paragraph 11(g) of APB 25 when it becomes probable (see FASB 5) that any performance goals will be achieved or that required future events will occur that will result in the exchange of junior stock for common stock at some future date? [FIN 38.04]
457
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) b. Is compensation cost measured as the amount by which the market price of the common stock at the measurement date exceeds the amount paid or to be paid for the junior stock? [FIN 38.06] 5. If a plan is a combination of two or more parts in which the employee may elect one part, has compensation cost been measured under the terms most likely to be elected based on the facts available during the period? [When SARs or other variable plan awards are included in the plan, it should be presumed that the employee will elect to exercise the SAR or other variable plan award. However, this presumption may be overcome if past experience or the terms of the combination plan that limit the market appreciation available to the employee in the stock appreciation rights or other variable plan awards provide evidence that the employee will elect to exercise the related stock option.] [APB 25.11(h)] [FIN 28.05] 6. In accounting for stock issued under a compensatory plan, is compensation cost recognized as part or all of the consideration received? [APB 25.12] 7. As to compensation cost relating to grants or awards made under compensatory plans: [APB 25.12-.13] a. If the service period precedes the grant or award date, was compensation accrued as a charge to expense in the period in which the grant or award was made? [FIN 28.03] b. If the service period follows the grant or award date, is compensation being accrued as a charge to expense over the service period? (If this service period is not specified, it shall be presumed to be the vesting period of the SAR or variable plan award or, for stock option purchase, or award plans, it may be inferred from the terms of the grant or award or from the past pattern of grants or awards.) c. Has compensation accrued during the service period been adjusted in subsequent periods up to the measurement date for changes in the market value of the shares covered by the grant, but not below zero? [FIN 28.04] 8. If stock was issued for services to be rendered in future periods, has an appropriate part of any consideration recorded been: [APB 25.14]
Yes
No
458
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) a. Accounted for as unearned compensation that will be expensed during those future periods? b. Shown as a separate reduction of stockholders' equity? 9. If any adjustment is necessary to correct previous estimates of accrued compensation cost, does such adjustment affect compensation expense for the period of adjustment only? [APB 25.15] 10. In recording income tax expense related to stock issued to employees through a plan: [APB 25.17] a. Has income tax expense been reduced by no more than the tax reduction related to the compensation expense? b. Are deferred taxes recorded for any temporary differences? (1) Have the deferred tax assets been determined by the compensation expense recognized for financial reporting rather than by reference to the expected future tax deduction (which would be estimated using the current intrinsic value of the award)? [FIN 44.89] c. Is any tax reduction attributable to amounts deductible during the period that are not related to (a) or (b) above excluded from net income by recording such reduction as additional paid-in capital? d. Is any tax increase attributable to nondeductible amounts of compensation expense recorded as a deduction from additional paid-in capital only to the extent that such capital was previously increased for tax reductions under the same or similar compensatory plans? 11. Is any cash or other reimbursement to an employee for his/her action that results in a reduction of the company's income taxes recorded as an expense? [APB 25.18] a. Have cash bonuses, whether fixed or variable, contingent upon vesting of a stock option or award, been treated as compensation cost separate from the stock option or award? [FIN 44.92] b. Have stock options issued with cash bonuses (that are not fixed and are contingent upon exercise of the award) been treated as a combined variable award?
Yes
No
459
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) [FIN 44.91] c. Have stock options issued with cash bonuses (that are fixed and are contingent upon exercise of the award) been treated as a combined fixed award with the cash bonus reducing the stated exercise price of the award? [FIN 44.91] 12. If a principle shareholder of an entity (i.e., one who either owns 10 percent or more of the corporation's common stock or has the ability, directly or indirectly, to control or influence significantly the corporation) has established or financed a stock-based compensation arrangement for the benefit of the employees of the reporting entity, has compensation cost been recognized, in accordance with the provisions of APB 25 or FASB 123, whichever method the entity is applying unless: [AIN-APB 25, No. 1] [FASB 123.15] a. The relationship between the stockholder and the corporation's employee is one which would normally result in generosity (i.e., an immediate family relationship) b. The stockholder has an obligation to the employee that is completely unrelated to the latter's employment (e.g., the stockholder transfers shares to the employee because of personal business relationships in the past, unrelated to the present employment situation), or c. The corporation clearly does not benefit from the transaction (e.g., the stockholder transfers shares to a minor employee with whom he has had a close relationship over a number of years). 13. Has the company accounted for the cost of goods and services received from nonemployees at the fair value of the consideration received or the fair value of the equity instruments granted, whichever is more reliably measurable? [FASB 123.8] a. In assessing whether an individual is an employee for purposes of applying APB 25, has consideration been given to the definition of an employee provided in FIN 44? [FIN 44.04-.05] b. If a stock option grantee has changed status (i.e., from an employee to a nonemployee) has consideration been given to the compensation expense (if any) arising from this change in status? [FIN 44.15-.23]
Yes
No
460
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) The following questions apply to (a) measuring stockbased employee compensation cost by an entity that adopts the fair-value based method in FASB 123 for accounting purposes and (b) determining the pro forma disclosure required of an entity that measures stock-based employee compensation cost in accordance with the intrinsic value based method in APB 25: 14. Has the company applied the same accounting method (either FASB 123 or APB 25) to all of its stock-based employee compensation awards (and if the fair-value based method has been adopted, has the election not been reversed)? [FASB 123.14] 15. Have equity instruments issued to employees and the cost of services received as consideration been measured and recognized based on the fair value of the equity instruments issued (determined by an option pricing model), net of any amount that the employees pay for the instrument when it is granted? [FASB 123.16] 16. Has the fair value of an option estimated at the grant date not been subsequently adjusted for changes in the price of the underlying stock or its volatility, the life of the option, dividends on the stock, or the risk-free interest rate? [FASB 123.19] 17. If it is not possible to reasonably estimate fair value of an option or other equity instrument at the grant date, is the final measure of compensation cost the fair value based on the stock price at the first date at which it is possible to reasonably estimate the fair value? [FASB 123.22] 18. Has an employee stock purchase plan that has been classified as noncompensatory under FASB 123 satisfied all of the following criteria: [FASB 123.23] a. The plan incorporates no option features other than the following, which may be incorporated: (1) Employees are permitted a short period of time not exceeding 31 days after the purchase price has been fixed to enroll in the plan. (2) The purchase price is based solely on the stock's market price at date of purchase, and employees are permitted to cancel participation before the purchase date and obtain a refund of amounts previously paid (e.g., those paid by payroll withholdings).
Yes
No
461
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) b. The discount from the market price does not exceed the greater of (1) a per-share discount that would be reasonable in a recurring offer of stock to stockholders or others or (2) the per-share amount of stock issuance costs avoided by not having to raise a significant amount of capital by a public offering. A discount of 5 percent or less from the market price shall be considered to comply with this criterion without further justification. c. Substantially all full-time employees who meet limited employment qualifications may participate on an equitable basis. 19. If the company's stock purchase plan has a look-back feature (provision that allows the employee to purchase the stock based on the lesser of the stock's market price at the date of grant or its market price at the date of purchase), has the company considered the plan compensatory and accounted for as such? [FASB 123.24] [NOTE: FTB 97-1 provides guidance on accounting for employee stock purchase plans with a look-back option under FASB 123.] 20. Has the company ultimately recognized compensation expense based on the number of equity instruments that eventually vest? [FASB 123.26] 21. Has the company not reversed any previously recognized compensation cost due to a vested employee stock option expiring unexercised? [FASB 123.26] 22. Have dividends or dividend equivalents paid to employees on the portion of an award that vests been charged to retained earnings and have dividends or equivalents on the portion of an award that do not vest been recognized as additional compensation cost? [FASB 123.32] 23. Has the company measured separately the fair value of each award, including an award of reload options, based on its terms and the current stock price and related factors at the date it is granted? [FASB 123.34] 24. Has the company treated a modification of an existing award as an exchange of the original award for a new award and recorded compensation cost for the incremental value of the award? [FASB 123.35] 25. Has the company recorded the incremental amount, if any,
Yes
No
462
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) to be recognized upon a cash settlement of a vested award? [FASB 123.37] 26. Has the company recognized the amount of compensation cost measured at the grant date but not yet recognized at the settlement date for nonvested awards settled in cash? [FASB 123.37] 27. In recording income tax expense related to stock issued to employees under the fair value based method: a. Has the company recognized a deferred tax asset as a reduction of income tax expense (assuming no valuation allowance is needed) for compensation cost recognized under the fair value based method? b. When a stock option is exercised, have only the tax consequences of the deductible amount in excess of the tax asset previously recognized been credited to additional paid-in-capital? [FASB 123.44] c. If the deferred tax asset is greater than the tax consequences of the deductible tax amount, has the amount in excess been debited to additional paid-incapital to the extent of the previous credits recognized in additional paid-in-capital? [FASB 123.44] d. Has the company not used credits to paid-in-capital from awards accounted for under APB 25 to offset the write-off of a deferred tax asset related to compensation cost measured using the fair value based method because those credits generally result from awards for which no compensation cost has been recognized? [FASB 123.229] 28. Regardless of whether or not the company has adopted the fair value provisions of FASB 123, has the company considered the requirements of FASB No. 148, Accounting for Stock-Based Compensation Transition and Disclosure? 29. If the company adopted the provisions of FASB 148 after the fiscal year beginning after December 15, 2003, did the company account for the change using the modified prospective method or retroactive restatement method? [FASB 148.2b] 30. In applying the transition method in question 29 above, when the company adopted FASB 148, for awards unvested or, in the case of certain variable awards, unexercised as of the beginning of the period, did the
Yes
No
463
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) company record the following adjustments as of the beginning of the first period for which the stock-based compensation cost is accounted for under the fair value method? [FASB 148.2c] a. Did the company reverse any carrying amounts of unearned/deferred compensation, stock-based compensation liabilities, and related deferred tax balances recognized under APB 25? b. Did the company record the stock-based liabilities and related deferred tax balances determined under FASB 123? c. Did the company record the differences between 30(a) and 30(b) as an adjustment to additional paid in capital as of the beginning of the period? III. ALL ENTITIES Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? [NOTE: For entities that have adopted FASB 123(R), refer to paragraph F2 of that Statement for a listing of EITF Issues that are no longer applicable upon adoption of FASB 123(R).] 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards This Issue addresses how a company should recognize the income tax benefit received on dividends that are (1) paid to employees holding equityclassified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options and (2) charged to retained earnings under FASB Statement 123(R). The Task Force reached consensuses that an entity should recognize a realized tax benefit associated with dividends on affected securities charged to retained earnings as an increase in APIC. The amount recognized in APIC should be included in the APIC pool. When an entity's estimate of forfeitures increases or actual forfeitures exceed its estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the income statement; however, the amount reclassified is limited to the APIC pool balance on the reclassification date. 02-8, Accounting for Options Granted to Employees in Unrestricted, Publicly Traded Shares of an Unrelated Entity This Issue relates to the granting of stock options by an entity to their employees in which the underlying shares are stock for an unrelated entity. These types of transactions are not within the scope of FASB 123 and APB 25. The entity
Yes
No
464
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) granting such options should look to FASB 133 for how to account for the award. The Issue did address that changes in the fair value of the award should be characterized as compensation expense. 01-01, Accounting for a Convertible Instrument Granted or Issued to a Nonemployee for Goods or Services or a Combination of Goods or Services and Cash This Issue relates to the accounting for convertible instrument granted or issued to a nonemployee for goods or services or a combination of good or services and cash. The Issue addresses the different accounting standards that are applicable to the recognition and measurement for an issuer of the convertible instrument. 00-23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44 This consensus addressed 51 issues and their subparts related to the accounting for stock compensation primarily under APB 25 and Interpretation 44. 00-18, Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees This Issue relates to the recognition for certain transactions involving equity instruments granted to other than employees and how to account for those equity instruments. Three issues are addressed which relate to fully vested, nonforfeitable equity instruments and the period and manner in which the grantor should recognize the measured cost of the transaction; if the exercisability of the award can be accelerated, how should it be accounted for; and how the grantee should account for the contingent right to receive the grantor equity instruments upon performing as specified in the agreement. 00-16, Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation This Issue addresses how an entity should account for employer payroll taxes on stock-based compensation under APB Opinion 25 and FASB 123. That stock-based compensation may be in the form of options to buy the employer entity's stock, restricted stock awards, stock appreciation rights, or other arrangements covered by that literature. This Issue does not address the accounting consequences under APB Opinion 25 of an employer recovering from employees some or all of the employer's obligation for those payroll taxes. 00-12, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Yes
No
465
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) Investee This Issue addresses the accounting for stockbased compensation based on the investor's stock granted to employees of an investee accounted for under the equity method when no proportionate funding by the other investors occurs and the investor does not receive any increase in the investor's relative ownership percentage of the investee. The Issue assumes that the investor's grant of stock-based compensation to employee of the equity method investee was not agreed to in connection with the investor's acquisition of an interest in the investee. The Issue should be applied to awards granted after July 20, 2000. 00-8, Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction with Providing Goods or Services This Issue relates to the accounting by a grantee for an equity instrument to be received in conjunction with providing goods or services and what date the grantee should use to measure the fair value of those instruments for revenue recognition purposes. The Issue also addresses transactions that are subject to adjustments (i.e., adjusted for the achievement of performance commitments, market conditions, etc.) in the fair value as a result of achieving the contingency after the measurement date. This Issue should be applied to all grants and to modifications of existing grants that occur after March 16, 2000. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested This Issue addresses the accounting for deferred compensation arrangements where amounts earned by an employee are invested in the stock of the employer and placed in a "rabbi trust." This Issue addresses four potential scenarios for deferred compensation arrangements. This Issue applies to all new awards (including new awards made pursuant to existing arrangements) after March 19, 1998. 97-12, Accounting for Increased Share Authorizations in an IRS Section 423 Employee Purchase Plan under APB Opinion 25 This Issue addresses the accounting for increased share authorizations in an IRS Section 423 Employee Purchase Plan under APB Opinion 25 in which the original number of shares authorized may subsequently prove to be insufficient to meet employee demand during the plan period. The Issue is related to whether the new shares authorized under an existing Section 423 employee stock purchase plan are accounted for as noncompensatory awards when granted under APB Opinion 25 if the market value of the stock has increased but the exercise price does not change.
Yes
No
466
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 97-5, Accounting for Delayed Receipt of Option Shares upon Exercise under APB Opinion No. 25 This Issue relates to whether certain characteristics of stock option gain deferral transactions would cause a new measurement date or variable plan accounting for financial reporting purposes under APB Opinion 25. The provisions of this announcement should be applied to all options granted after July 23, 1997 and to existing options that are modified after that date. 95-16, Accounting for Stock Compensation Arrangements with Employer Loan Features under APB Opinion No. 25 This Issue relates to whether the exercise of an option for consideration of a nonrecourse note (secured by the stock issued) is, in substance, the issuance of a new option with a new measurement date. And whether the terms of the nonrecourse note cause the option's exercise price to remain uncertain at the grant (note issuance) date. This Issue does not address the accounting for stock compensation arrangements when the employee exercises an option by issuing a recourse note to the employer. 90-7, Accounting for Reload Stock Options This Issue relates to whether a plan with a reload stock option feature should be accounted for as a fixed or a variable plan. This guidance should be applied prospectively to new awards granted after January 24, 2002. Interpretation 44 partially nullifies the consensus by restricting the consensus to only reload features in the original terms of an award. 89-11, Sponsor's Balance Sheet Classification of Convertible Preferred Stock with a Put Option Held By an Employee Stock Ownership Plan This Issue is related to a leveraged employee stock ownership plan, if securities subject to a put option are classified outside of permanent equity, whether any of the debit in the equity section of the sponsor's balance sheet (sometimes described as loan to ESOP or deferred compensation) should be similarly classified. 89-10, Sponsor's Recognition of Employee Stock Ownership Plan Debt This Issue relates to under what circumstances the employee stock ownership plan debt should be recorded as a liability on the sponsor's balance sheet. 89-8, Expense Recognition for Employee Stock Ownership Plans This Issue relates to how the sponsor should recognize expense associated with contributions to the employee stock ownership plan. 88-6, Book Value Stock Plans in an Initial Public Offering
Yes
No
467
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) This Issue relates to the recognition and measurement of compensation expense for private company book value stock purchase and stock option plans in connection with an initial public offering. 87-23, Book Value Stock Purchase Plans This Issue relates to the accounting for book value stock purchase plans. Three issues are considered such as: (1) whether any increase in the selling price during the employment period should be treated as compensation; (2) if the answer to (1) is "No," whether the answer changes if: (a.) the company periodically sells additional shares to key employees at the formula price, and the employee can resell some or all of his shares to the company at fixed or determinable dates, not just at retirement or upon leaving the company; (b.) instead of (or in addition to) selling shares to key employees, the company grants options to them at the formula price and the employee can resell the options (or the shares received upon exercise) to the company at fixed or determinable dates, not just at retirement or upon leaving the company; and (3) assuming that an employee stock ownership plan (ESOP) covers all employees and the ESOP provides that the employee may sell his shares to the company for cash at the formula price, whether the excess of the sales price over the price at which the ESOP acquired the shares should be accounted for as compensation. 85-45, Business Combinations: Settlement of Stock Options and Awards The Issues are (1) whether the timing of the settlement or the fact that the settlement was made as a part of an acquisition affects the accounting for the costs incurred by the target company to settle the options and awards; and (2) how to account for any reimbursements received by the target company from the acquiring company for settlement of the options. 84-34, Permanent Discount Restricted Stock Purchase Plans This Issue relates to stock that is sold by a company to employees at a price below market value. If an employee (or any future owner) subsequently wishes to sell the stock, the company has a right of first refusal at the then market price, less the original discount. The Issue considers whether and, if so, how APB Opinion 25 applies to such plans and how charges to earnings, if any, are determined. The Issue also addresses what is the appropriate measurement date and measurement method to determine charges to earnings, if any. 84-18, Stock Option Pyramiding This Issue relates to certain plans that allow an employee to exercise a stock option by exchanging shares held rather than cash for the option
Yes
No
468
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) price. Further, some plans allow for a "phantom" stock-tostock exercise, in which the employee presents mature shares to an enterprise. Instead of accepting those shares and issuing a new certificate for the number of shares exercised, the enterprise allows the employee to retain the shares presents and issues a certificate for the net shares. This Issue relates to whether a holding period for the stock exchanged should be required to avoid the conclusion that the option award is, in substance, a variable award (a share-settled stock appreciation right), thereby requiring compensation charges. If a holding period is required, what the duration of the holding period should be. Also, whether a plan that permits a "phantom" stock-for-stock exercise arrangement is a fixed plan, for which compensation is measured at the date of grant, or a variable plan, for which compensation cost is measured in this case at the date of exercise. 84-13, Purchase of Stock Options and Stock Appreciation Rights in a Leveraged Buyout The issue is whether the amount paid should be accounted for as compensation expense or as part of the cost of the acquisition transaction if the options and rights are acquired by the target company. D-93, Accounting for the Rescission of the Exercise of Stock Options This D Topic relates to the accounting for the rescission of the exercise of stock options such that the company has, in essence, agreed to reacquire shares issued upon exercise that the employee desires to put back at a price that either was, or could have been, at other than fair value on the date the shares were put to the company. D-91, Application of APB Opinion No. 25 and FASB Interpretation No. 44 to an Indirect Repricing of a Stock Option This D Topic addresses the accounting for an entity granting an entirely new award without requiring variable accounting for a previously granted out-of-the-money award. The Topic discusses the FASB staff belief that the sequence of actions provides evidence that an effective repricing has occurred. D-83, Accounting for Payroll Taxes Associated with Stock Option Exercises Other In this D Topic, the FASB staff believes that payroll taxes, even though directly related to the appreciation on stock options, are operating expenses and should be reflected as such in the statement of operations. This D Topic should be read in conjunction with EITF Issue 00-16, Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation. This Topic should be applied prospectively to payroll taxes incurred on
Yes
No
469
Accounting: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) stock options exercised after September 23, 1999. D-18, Accounting for Compensation Expense If Stock Appreciation Rights Are Cancelled This D Topic relates to changes to the SEC regulations covering the holding period for purchases of stock by insiders. The D Topic deals with whether or not compensation expense could be reversed if the stock appreciation right is cancelled as a result of the proposed rule change. Paragraph 5 of Interpretation 28 states that if circumstances change such that the employee will exercise the stock option rather than the stock appreciation right, accrued compensation recorded for the stock appreciation right shall not be adjusted. Thus, the FASB staff believes that compensation expense should not be reversed.
Yes
No
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) [FASB 123 (revised 2004), Share-Based Payment, was issued in December 2004 and has the following effective dates: Public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Pursuant to SEC Rule Release No. 33-8568, the date for compliance with FASB 123(R) has been amended. Public entities that do not file as small business issuers will be required to apply the provisions of FASB 123(R) beginning with the first interim or annual reporting period of the registrant's first fiscal year beginning on or after June 15, 2005. Public entities that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Pursuant to SEC Rule Release No. 33-8568, the date for compliance with FASB 123(R) has been amended. Public entities that file as small business issuers will be required to apply the provisions of FASB 123(R) beginning with the first interim or annual reporting period of the registrant's first fiscal year beginning on or after December 15, 2005. Nonpublic entities as of the beginning of the first annual reporting period that begins after December
Yes
No
470
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) 15, 2005. Early adoption of this Statement for interim or annual reporting periods for which financial statements or interim reports have not been issued is encouraged.] [For entities that have adopted FASB 123(R), complete Section I below. For entities that have not adopted FASB 123(R), complete Section II below.] I. ENTITIES THAT HAVE ADOPTED STATEMENT 123(R) A. Disclosures 1. Has the company made the following minimum disclosures: [FASB 123(R).A240] a. A description of the share-based payment arrangement(s), including the general terms of the awards, such as the requisite service period(s) and any other substantive conditions (including those related to vesting), the maximum contractual term of equity (or liability) share options or similar instruments, and the number of shares authorized for awards of equity share options or other equity instruments; b. The method used for measuring compensation cost from share-based payment arrangements with employees; c. For the most recent year in which an income statement is provided: (1) The number and weighted-average exercise prices (or conversion ratios) for each of the following groups of share options (or share units): (a) Outstanding at the beginning of the year (b) Outstanding at the end of the year (c) Exercisable or convertible at the end of the year (d) Granted during the year (e) Exercised or converted during the year (f) Forfeited during the year (g) Expired during the year (2) The number and weighted-average grant-date fair value (or calculated value for a nonpublic
Yes
No
471
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) entity that uses that method or intrinsic value for awards in which fair value cannot be reasonably estimated) of equity instruments not specified in Question 1(c)(1) above (e.g., shares of nonvested stock), for each of the following groups of equity instruments: (a) Nonvested at the beginning of the year (b) Nonvested at the end of the year (c) Granted during the year (d) Vested during the year (e) Forfeited during the year d. For each year for which an income statement is provided: (1) The weighted-average grant-date fair value (or calculated value for a nonpublic entity that uses that method or intrinsic value for awards in which fair value cannot be reasonably estimated) of equity options or other equity instruments granted during the year; (2) The total intrinsic value of options exercised (or share units converted), share-based liabilities paid, and the total fair value of shares vested during the year; e. For fully vested share options (or share units) and share options expected to vest at the date of the latest statement of financial position: (1) The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic value (except for nonpublic entities), and weightedaverage remaining contractual term of options (or share units) outstanding; (2) The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic value (except for nonpublic companies), and weightedaverage remaining contractual term of options (or share units) currently exercisable (or convertible); f. For each year in which an income statement is presented: [NOTE: An entity that uses the intrinsic value method for awards in which the fair value
Yes
No
472
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) cannot be reasonably estimated is not required to disclose the following information for awards accounted for under that method.] (1) A description of the method used during the year to estimate the fair value (or calculated value for a nonpublic company) of awards under sharebased payment arrangements. [NOTE: In accordance with SAB 107, if a company changes its valuation model or technique for estimating the fair value, disclosure in the footnotes is required.] (2) A description of the significant assumptions used during the year to estimate fair value (or calculated value for a nonpublic company) of share-based compensation awards, including, if applicable: (a) Expected term of share options and similar instruments, including a discussion of the method used to incorporate the contractual term of the instruments and employees' expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instrument. The company is expected to disclose if they elected to use the "simplified" method for all of its" plain vanilla" options. [NOTE: As discussed in SAB 107, the SEC staff does not expect companies to use the "simplified" method for share options granted after December 31, 2007] (b) Expected volatility of the entity's shares and the method used to determine it, or for companies that use a method that employs different volatilities during the contractual term of the award, the range of expected volatilities used and the weighted-average expected volatility; (c) For nonpublic companies that use the calculated value method, the reasons why it is not practicable to estimate the expected volatility of the company's share price, the appropriate industry sector index the company has selected, the reasons for
Yes
No
473
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) selecting that particular index, and how the company has calculated historical volatility using that index; (d) Expected dividends, or for companies that use a method that employs different dividend rates during the contractual terms of the award, the range of expected dividends used and the weighted-average expected dividends; (e) Risk-free rate(s), or for companies that use a method that employs different risk-free rates, the range of risk-free rates used; (f) Discount for post-vesting restrictions and the method for estimating it; g. Have the disclosures required in Question 1 (a)-(f) above been provided separately for each share-based payment arrangement in situations where the company grants equity or liability awards under multiple sharebased payment arrangements with employees to the extent that the differences in the characteristics of the awards make separate disclosure important to an understanding of the company's use of share-based compensation. h. For each year in which an income statement is presented: (1) Total compensation cost for share-based payment arrangements recognized in income as well as the total recognized tax benefit related thereto. Included in the total compensation cost, the company should quantify and disclose the amount of compensation cost related to awards granted prior to adoption of FASB 123(R) where compensation cost for retirement eligible employees continues to be recognized over the "nominal" vesting period. [NOTE: Compensation cost for share-based payment arrangements should be presented in the same line or lines as cash compensation paid to the same employee. As discussed in SAB 107, the SEC staff believes disclosure of the compensation amount might be appropriate in a parenthetical note to the appropriate income statement line items.]
Yes
No
474
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) (2) Total compensation cost capitalized as part of the cost of an asset, and (3) A description of significant modifications, including the terms of the modifications, the number of employees affected, and the total incremental compensation cost resulting from the modifications, i. As of the latest balance-sheet date presented, the total compensation cost related to nonvested awards not yet recognized and the weighted-average period over which it is expected to be recognized; If not separately disclosed elsewhere, the amount of cash received from exercise of share options and similar instruments granted under share-based payment arrangements and the tax benefit realized from stock options exercised during the annual period;
Yes
No
j.
k. If not separately disclosed elsewhere, the amount of cash used to settle equity instruments granted under share-based payment arrangements; l. A description of the company's policy, if any, for issuing shares upon share option exercise (or share unit conversion), including the source of those shares (i.e., new shares or treasury shares);
m. An estimate of the amount or range of shares to be repurchased in the following annual period as a result of the policy described in Question 1(l) above. 2. In the period in which FASB 123(R) is first adopted, has the company disclosed the effect of the change from applying the original provisions of FASB 123 on income from continuing operations, income before income taxes, net income, cash flow from operations, cash flow from financing activities, and basic and diluted earnings per share? [FASB 123(R).84] 3. For public companies, if awards under share-based payment arrangements with employees are accounted for under the intrinsic value method of Opinion 25 for any period for which an income statement is presented, has the company continued to provide a tabular presentation of the following information for all of those periods: [FASB 123(R).84] a. Net income and basic and diluted earnings per share
475
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) as reported b. The share-based employee compensation cost, net of related tax effects, included in net income as reported c. The share-based employee compensation cost, net of related tax effects, that would have been included in net income if the fair-value-based method had been applied to all awards. [NOTE: "All awards" refers to awards granted, modified, or settled in cash in fiscal years beginning after December 14, 1994.] d. Pro forma net income as if the fair-value-based method had been applied to all awards e. Pro forma basic and diluted earnings per share as if the fair-value-based method had been applied to all awards. 4. For nonpublic companies that used the minimum value method for pro forma disclosure purposes under FASB 123, has the company no longer provided those pro forma disclosures for outstanding awards accounted for under the intrinsic value method of Opinion 25? [FASB 123(R).85] 5. Has the company made similar disclosures to those described in Question 1 above when the company acquires goods or services other than employee services in sharebased payment transactions to the extent that those disclosures are important to an understanding of the effects of those transactions on the financial statements? [FASB 123(R).65] [NOTE: The company may disclose supplemental information that it believes would be useful to investors and creditors such as a range of values calculated on the basis of different assumptions, provided that the supplemental information is reasonable and does not lessen the prominence and creditability of the information required in FASB 123(R).] [FASB 123(R).A242] 6. Has the company disclosed its transition method for adopting FASB 123(R)? [FASB 123(R).84] 7. For companies that have applied the modified retrospective application method of transition to all prior years for which FASB 123 was effective, have the effects of the adjustments to the beginning balances of paid-in capital, deferred taxes and retained earnings for the earliest year presented been disclosed in the financial
Yes
No
476
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) statements in the year of adoption? [FASB 123(R).77] B. Cash Flows [NOTE: The guidance below related to the cash flow statement should be applied to the same periods in which the modified prospective and modified retrospective application methods are applied.] 8. Has the company included in cash inflows from financing activities the cash retained as a result of the tax deductibility of increases in the value of equity instruments issued under share-based payment arrangements that are not included in the costs of goods or services that is recognizable for financial reporting purposes? [NOTE: Excess tax benefits shall be determined on an individual award basis, or a portion thereof, for this purpose.] [FASB 123(R).68(a)] 9. Has the company included in cash outflows from operating activities, and disclosed separately, the cash that would have been paid for income taxes if increases in the value of equity instruments issued under share-based payment arrangements that are not included in the cost of goods or services recognized for financial reporting purposes also had not been deductible in determining taxable income? [FASB 123R.68(b)] C. Income Taxes 10. Has the company disclosed if it made the one-time election to adopt the transition method described in FSP FASB 123(R)-3, Transition Election Related to Accounting for the Tax Effect of Share-Based Payment Awards? [FSP FASB 123(R)-3.9] II. ENTITIES THAT HAVE NOT ADOPTED FASB 123(R) A. Disclosures 1. Regardless of the method used to account for stock-based employee compensation arrangements, has the financial statements of the entity included the disclosures specified in paragraphs 46-48 of FASB 123 (see below)? Has the entity disclosed the following information in the "Summary of Significant Accounting Policies" or its equivalent? [FASB 148.2e] a. The method used either the intrinsic value method or the fair value based method to account for stockbased employee compensation in each period
Yes
No
477
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) presented b. For an entity that adopts the fair value recognition provisions of FASB 123, for all financial statements in which the period of adoption is presented, a description of the method of reporting the change in accounting principle c. If awards of stock-based employee compensation were outstanding and accounted for under the intrinsic value method of APB Opinion 25 for any period for which an income statement is presented, a tabular presentation of the following information for all periods presented: (1) Net income and basic and diluted earnings per share as reported (2) The stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported (3) The stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value based method had been applied to all awards (4) Pro forma net income as if the fair value based method had been applied to all awards (5) Pro forma basic and diluted earnings per share as if the fair value based method had been applied to all awards. 2. Have the required pro forma amounts reflected the difference in stock-based employee compensation cost, if any, included in net income and the total cost measured by the fair value based method, as well as additional tax effects, if any, that would have been recognized in the income statement if the fair value based method had been applied to all awards? [FASB 148.2e] 3. Has the required pro forma per share amounts reflected the change in the denominator of the diluted earnings per share calculation as if the assumed proceeds under the treasury stock method, including measured but unrecognized compensation cost and the excess tax benefits credited to additional paid-in capital, were determined under the fair value based method? [NOTE: Examples of the required tabular presentation are included
Yes
No
478
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) in Appendix B of FASB 148.] [FASB 148.2e] [NOTE: A company may disclose supplemental information it believes would be useful to investors and creditors, such as a range of values calculated on the basis of different assumptions, provided that the supplemental information is reasonable and does not discredit the information required by FASB 123. [FASB 123.364] 4. Do the financial statements or accompanying notes disclose: a. In the year of adoption and for those years subsequently affected, the effects of applying FASB 123 for either recognizing compensation cost or providing pro forma disclosures that are not likely to be representative of the effects on reported net income for future years? b. A description of the plan(s), including general terms of awards under the plan(s), such as vesting requirements, the maximum term of options granted and the number of shares authorized for grants of options or other equity instruments? [FASB 123.46] [NOTE: Entities that use equity instruments to acquire goods and services other than employee services shall provide disclosures similar to those required in Question 4, Items c-f to the extent those disclosures are important in understanding the effects of those transactions on the financial statements.] c. The following for each year for which an income statement is presented: [FASB 123.47] (1) The number and weighted-average exercise prices of options for each of the following groups of options: (a) Outstanding at the beginning of the year? (b) Outstanding at the end of the year? (c) Exercisable at the end of the year? (d) Granted during the year? (e) Exercised during the year? (f) Forfeited during the year? (g) Expired during the year? (2) The weighted-average grant-date fair value of
Yes
No
479
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) options granted during the year. If the exercise prices of some options differ from the market price of the stock on the grant date, weightedaverage exercise prices and weighted-average fair values of options shall be disclosed separately for options whose exercise price (1) equals, (2) exceeds, or (3) is less than the market price of the stock on the grant date? (3) The number and weighted-average grant-date fair value of equity instruments other than options, (e.g., shares of nonvested stock) granted during the year? (4) A description of the method and significant assumptions used during the year to estimate the fair values of options, including the following weighted-average information: (a) Risk-free interest rate? (b) Expected life? (c) Expected volatility? (d) Expected dividends? (5) Total compensation cost recognized in income for stock-based employee compensation awards? (6) The terms of significant modifications of outstanding awards? Included within this disclosure are any modifications to accelerate the vesting of out-of-the-money share options in anticipation of adopting FASB 123(R) including the reasons for modifying the option terms.] [NOTE: For companies with multiple stock-based plans, separate disclosures are required for different types of awards if the characteristics of the awards make separate disclosure important to understanding the company's use of stock-based compensation.] [FASB 123.47] d. The following for options outstanding at the date of the latest balance sheet presented: [FASB 123.48] (1) Range of exercise prices? (2) Weighted-average exercise price? (3) Weighted-average remaining contractual life? e. The following, if the range of exercise prices is wide,
Yes
No
480
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) and the exercise prices are segregated into ranges that are meaningful for assessing the number and timing of additional shares that may be issued and the cash that may be received as a result of option exercises: (1) The number, weighted-average exercise price, and weighted-average remaining contractual life of options outstanding? (2) The number and weighted-average exercise price of options currently exercisable? [FASB 123.48] f. The accounting policy used for stock-based awards (either APB Opinion 25 or FASB 123)? [FASB 123.14]
Yes
No
5. Prior to the adoption of FASB 123(R) related to recognition of compensation cost for retirement eligible employees where compensation is recognized over the nominal vesting period: a. Has the company disclosed its accounting policy of recognizing compensation cost over the "nominal" vesting period and indicate that this policy differs from the policy required and applied for awards granted after the adoption of FASB 123(R)? b. Has the company quantified and disclosed the difference between the selected accounting method and the method required under FASB 123(R), as required by SEC Staff Accounting Bulletin Topic 11.M, "Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period?" (SAB 74) III. ALL ENTITIES Has the entity considered and complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? [NOTE: For entities that have adopted FASB 123(R), refer to paragraph F2 of that Statement for a listing of EITF Issues that are no longer applicable upon adoption of FASB 123(R).] 00-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option This Issue relates to the statement of cash flows under the indirect method, and
481
Disclosure: STOCK OR STOCK APPRECIATION RIGHTS ISSUED TO EMPLOYEES (12/08) how a company should classify the reduction of income tax paid as a result of the deduction triggered by employee exercise of stock options (the income tax benefit realized) if the income tax benefit realized is credited to equity and does not reduce income tax expense and whether disclosure of the amount of the income tax benefit realized should be required if that benefit is not presented as a separate line item in the statement of cash flows. The consensuses in this Issue are effective for financial statements for periods ending after July 20, 2000. Upon application of the consensuses, all comparative financial statements shall be restated (reclassified) to conform with the presentation required by the consensuses. D-90, Grantor Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted to a Nonemployee This D Topic addresses balance sheet presentation for unvested, forfeitable equity instruments granted to a nonemployee. This Topic is effective for arrangement entered after July 20, 2000.
Yes
No
Accounting: RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) 1. Has a liability been recognized and have research and development costs been charged to expense as incurred if: [FASB 68.06] a. The enterprise guarantees, or has a contractual commitment that assures repayment of the funds provided by other parties, regardless of the outcome of the research and development? b. Other parties can require the enterprise to purchase their interest in the research and development, regardless of the outcome of the research and development? c. Other parties will receive debt or equity securities of the enterprise automatically upon termination or completion of the research and development, regardless of the outcome of the research and development? d. Written agreements or contracts under the arrangement do not require the enterprise to repay any of the funds provided by other parties, but
Yes
No
482
Accounting: RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) surrounding conditions indicate that the enterprise is likely to bear the risk of failure of the research and development? [FASB 68.07] e. Conditions, such as the following, lead to the presumption that the enterprise will repay the other parties regardless of the outcome of the research and development: [FASB 68.08] (1) The enterprise has indicated an intent to repay all or a portion of the funds provided? (2) The enterprise would suffer a severe economic penalty if it failed to repay any of the funds provided to it? (3) A significant related-party relationship between the enterprise and the parties funding the research and development exists at the time the enterprise entered into the arrangement? (4) The enterprise has essentially completed the project before entering into the arrangement? f. Other conditions exist that indicate that the enterprise is obligated to repay (whether by paying cash, by issuing securities, or by some other means) any of the funds provided by the other parties, regardless of the outcome of the research and development, unless there is a substantive and genuine transfer of the financial risk involved with the research and development from the enterprise to the other parties? [FASB 68.05-.06]
Yes
No
2. In a research and development arrangement whereby the enterprise incurs a liability to repay the other parties (and, accordingly, the enterprise charges research and development costs to expense as incurred), if the amount of funds provided by the other parties exceeds the enterprise's liability, has the enterprise charged its portion of the research and development costs to expense in the same manner as the liability is incurred (e.g., as the initial funds are expended, or on a pro rata basis)? [FASB 68.09] 3. To the extent that the financial risk associated with the research and development has been transferred because repayment of any of the funds provided by the other parties depends solely on the results of the research and development having future economic benefit, has the
483
Accounting: RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) enterprise accounted for its obligation as a contract to perform research and development for others? [FASB 68.10] 4. If a loan or advance to other parties by the enterprise has been made and repayment of such loan or advance depends solely on the results of the research and development having future economic benefit, has the loan or advance been charged to research and development expense unless identified as relating to some other activity, in which case the costs shall be accounted for according to their nature? [FASB 68.12] 5. If the enterprise's obligation is to perform research and development for others and the enterprise subsequently decides to exercise an option to purchase the other parties' interest in the research and development arrangement or to obtain the exclusive rights to the results of the research and development, have the nature of those results and their future use determined the accounting for the purchase transaction? [FASB 68.11] 6. If warrants or similar instruments have been issued in connection with the research and development arrangement, has the enterprise reported a portion of the proceeds to be provided by the other parties as paid-in capital? [The amount reported should be the fair value of the instruments at the date of the arrangement.] [FASB 68.13] 7. If the enterprise acquires the results of the research and development arrangement, the rights to use the results, or ownership interests in the arrangement or a successor to the arrangement through the issuance of its stock. a. Has the transaction been accounted for as a purchase of tangible or intangible assets resulting from the activities of the research and development arrangement? [FTB 84-1.06] b. Has the stock issued been recorded at its fair value, or the fair value of the consideration received, whichever is more clearly evident, determined as of the date the enterprise exercises its option to acquire the results of the research and development arrangement? [FTB 841.07] Has the entity complied with the following Issue discussed by the Emerging Issues Task Force, when applicable?
Yes
No
484
Accounting: RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities This Issue addresses whether nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed or goods and services have been provided. The Task Force reached a consensus that nonrefundable advance payments for future R&D activities should be capitalized and recognized as an expense as the goods are delivered or services are performed. 99-16, Accounting for Transactions with Elements of Research and Development Arrangements This Issue addresses a sponsor's (the "Sponsor") accounting for certain research and development transactions. The Issue includes a specific fact pattern in which a sponsor capitalizes a new company ("Newco") with cash and rights to certain technology developed by the Sponsor, in exchange for Newco Class A and Class B common stock. The Class B common shares convey essentially no financial interest to the Sponsor and, other than certain blocking rights, provide the Sponsor essentially no voting rights. The Sponsor subsequently distributes the Newco Class A common stock to its shareholders subject to a purchase option held by the Sponsor. The Sponsor then receives funds from Newco to perform research and development activities. The Issue also acknowledges that other potential structures designed to achieve similar objectives exist. The Task Force reached a consensus on this Issue. EITF 00-21, Revenue Arrangements with Multiple Deliverables This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The Task Force considered the following Issues: Issue 1 How to determine whether an arrangement with multiple deliverables consists of more than one unit of accounting. Issue 2 If an arrangement consists of more than one unit of accounting, how the arrangement consideration should be allocated among the separate units of accounting Issue 3 What effect, if any, certain customer rights due to vendor nonperformance have on the measurement of arrangement consideration and/or the allocation of
Yes
No
485
Accounting: RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) consideration to the delivered unit(s) of accounting Issue 4 How to account for direct costs incurred related to an arrangement that (1) are not associated with a specific deliverable or (2) are associated with a specific deliverable but that deliverable is required to be combined with another deliverable (or other deliverables) Issue 5(a) The impact, if any, of a customer's ability to cancel a contract and incur a cancellation penalty on the measurement of arrangement consideration Issue 5(b) The impact, if any, of consideration that varies as a result of future customer actions on the measurement and/or allocation of arrangement consideration Issue 5(c) The impact, if any, of consideration that varies as a result of future vendor actions on the measurement and/or allocation of arrangement consideration Issue 6 The impact of a vendor's intent not to enforce its contractual rights in the event of customer cancellation on the measurement and/or allocation of arrangement consideration. The Task Force agreed not to provide guidance on Issue 4 but reached a consensus on all other issues. Example 6 of Exhibit 00-21B illustrates the allocation of the consideration related to a biotech license, research and development and contract manufacturing arrangement.
Yes
No
Disclosure: R55 RESEARCH AND DEVELOPMENT ARRANGEMENTS (12/08) 1. If an enterprise has accounted for its obligation under a research and development arrangement as a contract to perform research and development for others, have the following disclosures been made: [FASB 68.14] a. The terms of significant agreements under the arrangement (including royalty arrangements, purchase provisions, license agreements, and commitments to provide additional funding) as of the date of each balance sheet presented? b. The amount of compensation earned and costs incurred under the arrangement for each period for which an income statement is presented?
Yes
No
486
Accounting: REGULATED OPERATIONS (12/08) I. GENERAL 1. Is FASB 71 applied only to that portion of an enterprise's regulated operations that meet all of the following criteria, instead of any conflicting provisions of standards in other authoritative accounting pronouncements: [FASB 71.05.07] a. The enterprise's rates for regulated services or products provided to its customers are established, or subject to approval, by an independent third-party regulator or by its own governing board empowered by statute or contract to establish rates that bind customers; b. The regulated rates are designed to recover the specific enterprise's costs of providing the regulated services or products; and c. In view of the demand for the regulated services or products and the level of direct and indirect competition (including consideration of anticipated changes in levels of demand or competition during the recovery period for any capitalized costs), it is reasonable to assume that rates set at levels that will recover the enterprise's costs can be charged to and collected from customers. 2. Has the enterprise not applied FASB 71 to accounting for price controls that are imposed by governmental action in times of emergency, high inflation, or other unusual circumstances? [FASB 71.08] 3. Has the enterprise applied FASB 71 to the accounting for a contract between the enterprise and a customer, where the terms of the contract are subject to regulation and the criteria described in question 1 are met for the given contract? [FASB 71.08] B. General Standards 1. Has the enterprise capitalized all or part of an incurred cost that would otherwise be charged to expense if both of the following criteria are met: [FASB 71.09] a. It is probable (as amended by FASB 90, the term "probable" is consistent with its use in FASB 5) that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate-making purposes?
Yes
No
A. Scope
487
Accounting: REGULATED OPERATIONS (12/08) b. Based on available evidence, future revenue will be provided to permit recovery of the previously incurred cost rather than to provide for expected levels of similar future costs? If the revenue will be provided through an automatic rate-adjustment clause, this criterion requires that the regulator's intent clearly permit recovery of the previously incurred cost. 2. If, at any time, the incurred costs do not meet the criteria described in question 1, has the enterprise charged such costs to earnings? [FASB 71.09] 3. If a regulator excludes all or part of a cost from allowable costs, has the carrying amount of any asset recognized pursuant to the criteria described in question 1 been reduced to the extent of the excluded cost? [NOTE: Whether other assets have been impaired shall be judged the same as for enterprises in general and FASB 144. Disallowances of costs of recently completed plants, whether direct or indirect, should be accounted for in accordance with FASB 90.] [FASB 71.10] 4. If a regulator allows recovery through rates of costs previously excluded from allowable costs, has that action resulted in the recognition of a new asset? [NOTE: The classification of that asset shall be consistent with the classification that would have resulted had those costs been initially included in allowable costs.] [FASB 71.10A] 5. Have all liabilities imposed by a regulator been recorded consistent with the following: [FASB 71.11 and FASB 71.44-.45] a. If a regulator requires refunds to customers, have provisions for estimated refunds that meet the criteria of paragraph 8 of FASB 5 been accrued as loss contingencies by recording such amounts as liabilities and as reductions of revenue or as expense of the regulated enterprise? b. If the regulator has provided current rates that are intended to recover costs that are expected to be incurred in the future and requires the enterprise to remain accountable for any amounts charged pursuant to such rates but not yet expended for the intended purpose, have such amounts been recognized as liabilities (not as revenues) and taken into income only when the associated costs are incurred?
Yes
No
488
Accounting: REGULATED OPERATIONS (12/08) c. If a gain or other reduction of net allowable costs is to be amortized over future periods for rate-making purposes, did the regulated enterprise not recognize the gain or other reduction of net allowable cost in income of the current period, and instead has a liability been recorded for future reductions of charges to customers that are expected to result? [NOTE: Actions of a regulator can eliminate a liability only if the liability was imposed by actions of the regulator.] [FASB 71.12] C. Specific Standards Goodwill 1. Has the enterprise appropriately accounted for goodwill and any resulting regulatory asset as permitted by the regulator? [FASB 71.29-30] Accounting Changes 1. If the enterprise has changed accounting methods and the change does not affect costs that are allowable for ratemaking purposes, has the regulated enterprise applied the change in the same manner as would an unregulated enterprise? If the change affects allowable costs for ratemaking purposes, has the change generally been implemented in the way that it is implemented for regulatory purposes? [FASB 71.31-.32] Accounting for Leases 1. If the enterprise is lessee under a capital lease for financial reporting purposes, however, for rate-making purposes, the lease has been treated as an operating lease, has the enterprise modified the timing of expense recognition related to the leased asset amortization and interest on the lease obligation to conform to the rate treatment? [FASB 71.40-43] 2. If the enterprise has entered into sale-leaseback transactions, have the provisions of FASB 98.14-16 been followed regarding differences between the amount of income or expense recognized for a transaction under FASB 98 and the amount of income or expense included in allowable cost for rate-making purposes? If the difference in timing of income and expense recognition constitutes all or a part of a phase-in plan, has the difference been accounted for in accordance with FASB 92? [FASB 98.14-.16]
Yes
No
489
Accounting: REGULATED OPERATIONS (12/08) Early Extinguishment of Debt [NOTE: For rate-making purposes, a regulated enterprise may defer and amortize the difference between the net carrying amount of the extinguished debt and the reacquisition price.] 1. If the debt is reacquired for an amount in excess of the enterprise's net carrying amount, the regulator's decision to increase future rates by amortizing the difference for rate-making purposes provides reasonable assurance of the existence of an asset. Has the enterprise capitalized the excess cost and amortized it over the period during which it will be allowed for rate-making purposes? [FASB 71.36] 2. If the debt is reacquired for an amount that is less than the enterprise's net carrying amount, the regulator's decision to reduce future rates by amortizing the difference for rate-making purposes imposes a liability on the regulated enterprise. Has the enterprise recorded the difference as a liability and amortized it over the period during which permitted rates will be reduced? [FASB 71.37] Accounting for Contingencies 1. Has the enterprise recorded amounts for a contingency in allowable costs for rate-making purposes under direction by a regulator, although those costs do not represent liabilities under FASB 5? [FASB 71.38] 2. Has the enterprise recorded a liability for increased rates if the regulator requires the enterprise to remain accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose? [FASB 71.39] Accounting for Compensated Absences 1. Has the enterprise recorded a regulatory asset for compensated absences incurred under FASB 43 that have not yet been paid and that are recoverable in future rates? [FASB 71.49]
Yes
No
490
Accounting: REGULATED OPERATIONS (12/08) Allowance for Funds Used During Construction 1. If the enterprise is required to capitalize, as part of the cost of plant and equipment, the cost of financing construction (e.g., an allowance for funds used during construction) as financed partially by borrowings and partially by equity, and the resulting capitalized cost will be the basis for depreciation and unrecovered investment for rate-making purposes after the construction is completed (and as amended by FASB 90, their subsequent inclusion in allowable costs for rate-making purposes is probable): [FASB 71.15 and FASB 90.08] a. Is the amount capitalized for financial reporting purposes the same as the amount capitalized for ratemaking purposes, instead of the interest that would have been capitalized in accordance with FASB 34? b. Does the income statement include an item of other income, a reduction of interest expense, or both, in a manner that indicates the basis for the amount capitalized? Intercompany Profit 1. Has intercompany profit on sales to regulated affiliates not been eliminated if both of the following criteria are met: [FASB 71.16] a. The sales price is reasonable? b. It is probable that, through the rate-making process, future revenue approximately equal to the sales prices will result from the regulated affiliate's use of the products? 2. In determining whether the sales price is reasonable, has the price been: [FASB 71.17] a. Accepted or not challenged by the regulator that governs the regulated affiliate, or b. Considered reasonable in light of the circumstances (e.g., judged by the return on investment earned by the manufacturing or construction operations or by a comparison of the transfer prices with prices available from other sources)? Accounting for Income Taxes 1. In accounting for income taxes, have the following provisions been met: [FASB 109.29] a. Is net-of-tax accounting and reporting not followed?
Yes
No
491
Accounting: REGULATED OPERATIONS (12/08) b. Has a deferred tax liability been recognized for (1) tax benefits that are flowed through to customers when temporary differences originate, and (2) the equity component of the allowance for funds used during construction? c. Are deferred tax liabilities or assets adjusted for an enacted change in tax laws or rates? d. If, as a result of an action by a regulator, it is probable that the future increase or decrease in taxes payable for the items in (b) and (c) will be recovered from or returned to customers through future rates, has an asset or liability been recognized for that probable future revenue or reduction in future revenue pursuant to questions 2 through 5 under "General Standards?" e. If an asset or liability has been recognized pursuant to (d) above, has a deferred tax liability or asset been recognized for the deferred tax consequences of that temporary difference? Refunds to Customers 1. Are estimated refunds that were not previously accrued not considered prior-period adjustments and instead charged to income in the first period they meet the criteria for accrual (paragraph 8 of FASB 5)? [FASB 71.46-.47] Recovery of Costs Without Return on Investment 1. If a regulator approves rates that are intended to recover an incurred cost over an extended period without a return on the investment in the unrecovered cost during the recovery period, has the enterprise capitalized the cost (historical cost, not the discounted value) and amortized it over the period during which it will be allowed for ratemaking purposes? [FASB 71.33-.34] [FASB 90 provides an exception to this general rule for the costs of abandoned plants. See section B.]
Yes
No
492
Accounting: REGULATED OPERATIONS (12/08) D. Abandonments and Disallowances Paragraphs 16-25 of FASB No. 90, Regulated Enterprises Accounting for Abandonments and Disallowances of Plant Costs, amended FASB 71 for abandonment of plants and disallowances of costs of recently completed plants. These paragraphs were subsequently deleted by paragraph 4 of FASB Technical Bulletin (FTB) No. 87-2, Computation of a Loss on an Abandonment. FTB 87-2 states that the example in paragraphs 16-25 of FASB 90 does not accurately reflect the intent of paragraphs 3(b), 5, 6(b), and 14 of FASB 90. Accounting for Abandonments 1. Is it probable (as that term is used in FASB 5) that an operating asset or an asset under construction will be abandoned? (If the answer is "no," disregard questions 2 through 7.) [FASB 90.03] 2. Has the cost of that asset been removed from constructionwork-in-progress or plant-in-service? 3. Has consideration been given to the facts and circumstances, and past practice and current policies of the applicable regulatory jurisdiction whether recovery of any allowed costs will include a full return, partial return, or no return on investment? 4. Full return on investment is likely to be provided: a. If recovery of all allowed cost is likely to be provided with full return on investment during the period from the time when abandonment becomes probable to the time when recovery is completed, has the disallowed cost that is both probable and reasonably estimable been recognized as a loss with a corresponding reduction in the carrying basis of the asset? b. Has the remainder of the cost of the abandoned plant been reported as a separate new asset?
Yes
No
493
Accounting: REGULATED OPERATIONS (12/08) 5. Partial or no return on investment is likely to be provided: a. If partial or no return on investment on allowable cost is likely to be provided during the period from the time abandonment becomes probable to the time when recovery is completed, then, in addition to recognizing a loss on any disallowance of cost that is both probable and reasonably estimable, has a loss been recognized on any excess of the cost of the abandoned plant over the present value of the future revenues expected to be provided to recover the allowable cost of the abandoned plant and return on investment, if any? b. Is the discount rate used to compute the present value of expected future revenue based on the enterprise's incremental borrowing rate, that is, the rate the enterprise would have to pay to borrow an equivalent amount for a period equal to the expected recovery period? c. In determining the present value of the expected future revenue, has consideration been given to: (1) The probable time period before such recovery is expected to begin? (2) The probable time period over which recovery is expected to be provided? d. If the estimate of the time period in question B5(c) is a range, has the most likely period within the range been used to compute the present value? [NOTE: If no period within the range is a better estimate than any other, the present value shall be based on the minimum time period within the range.] e. With respect to the present value of the expected future revenue reported as a separate new asset: [FASB 90.03-.04] (1) Has the recorded amount of the new asset been adjusted to reflect changes in estimates of: (a) Whether a full return on investment will be provided? (b) The probable time period before recovery is expected to begin? (c) The probable time period over which recovery is expected to be provided?
Yes
No
494
Accounting: REGULATED OPERATIONS (12/08) (d) The amount of probable and reasonably estimable disallowance of recorded costs of the abandoned plant? (2) Has the recorded carrying amount of the new asset not been adjusted for changes in the enterprise's incremental borrowing rate? [NOTE: Refer to FTB 87-2 for corrections to examples of FASB 90 calculations.] (3) Has the amount of the adjustment been recognized in income as a gain or loss? 6. In the period between the date the new asset is recognized and the date on which recovery begins, the carrying amount should be increased by accruing a carrying charge: [FASB 90.05] a. If full return on investment is likely, has a carrying charge been provided at a rate equal to the allowed overall cost of capital in the relevant jurisdiction? b. If partial or no return on investment is likely to be provided, has a carrying charge been provided at the rate used to compute the present value of the expected future revenue? 7. The new asset should be amortized during the recovery period: [FASB 90.06] a. If full return on investment is likely to be provided, has the asset been amortized in the same manner as for rate-making purposes? b. If partial or no return on investment is likely to be provided, has the asset been amortized in a manner that will produce a constant return on the unamortized investment in the new asset equal to the rate at which the expected revenues were discounted? Disallowances of Costs of Recently Completed Plants 1. If it is probable that part of the cost of a recently completed plant will be disallowed for rate-making purposes and a reasonable estimate of the amount can be made, has the estimable amount of the probable disallowance been deducted from the cost of the plant and recognized as a loss? [FASB 90.07] 2. If part of the cost of the plant is explicitly, but indirectly, disallowed (e.g., an explicit disallowance of return on
Yes
No
495
Accounting: REGULATED OPERATIONS (12/08) investment of a portion of the plant), has an equivalent amount of cost been deducted from the cost of the plant and recognized as a loss? (Paragraph 60 of FASB 90 should be considered in determining applications to certain "excess capacity" disallowances.) [FASB 90.07 and FASB 90.60] E. Discontinuation of FASB 71 FASB No. 101, Regulated Enterprises Accounting for the Discontinuation of Application of FASB Statement No. 71, specifies how an enterprise that ceases to meet the criteria for application of FASB 71 to all or part of its operations (regardless of the reason) should report that event in its general-purpose external financial statements. [NOTE: Refer to EITF 97-4 for further information regarding application of FASB 71 and FASB 101.] Accounting 1. When an enterprise determines that its operations in a regulatory jurisdiction no longer meet the criteria for application of FASB 71 (refer to FASB 71.05), has the enterprise discontinued application of FASB 71 to its operations in that jurisdiction? [FASB 101.05] 2. If a separable portion of the enterprise's operations within a regulatory jurisdiction ceases to meet the criteria for application of FASB 71, has application of FASB 71 to only that separable portion been discontinued? [That situation creates a presumption that application of FASB 71 shall be discontinued for all of the enterprise's operations within that regulatory jurisdiction; that presumption can be overcome by establishing that the enterprise's other operations within that jurisdiction continue to meet the criteria for application of FASB 71.] [FASB 101.05] 3. When an enterprise discontinues application of FASB 71 to all or part of its operations, has the enterprise: [FASB 101.06] a. Eliminated from its statement of financial position, prepared for general purpose external financial reporting, the effects of any actions of regulators that had been recognized as assets and liabilities pursuant to FASB 71 but would not have been so recognized by enterprises in general? b. Not adjusted the carrying amounts of plant, equipment, and inventory measured and reported
Yes
No
496
Accounting: REGULATED OPERATIONS (12/08) pursuant to FASB 91, unless those assets are impaired (judged in the same manner as for enterprises in general)? c. Included the net effect of the required adjustments as an extraordinary item in income of the period in which the discontinuation occurs? d. Applied FASB 144 for assets determined to be impaired in b. above except for the provisions of income statement reporting in paragraphs 25 and 26 of that Statement? [FASB 101.06] 4. If an enterprise discontinues application of FASB 71, does it no longer recognize the effect of actions of a regulator as assets or liabilities unless the right to receive payment or the obligation to pay exists as a result of past events or transactions regardless of future transactions? [FASB 101.07] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 97-4, Deregulation of the Pricing of Electricity Issues Related to the Application of FASB Statements No. 71 and 101 This Issue addresses: 1. When an enterprise is being deregulated and legislation is passed or a rate order is issued that has the effect of deregulating the rates charged to customers, when should that enterprise stop applying FASB 71 to the separable portion of its business whose product or service pricing is being deregulated, 2. How an enterprise should evaluate whether to continue to recognize all or some portion of the regulatory assets and regulatory liabilities, respectively, that (a) originated from the separable portion of the business whose pricing is being deregulated and (b) exist at the date FASB 101 is applied, and 3. How an enterprise should evaluate whether to establish additional regulatory assets and regulatory liabilities related to expenses and obligations, respectively, that will originate from the separable portion of the business whose pricing is being deregulated but that will arise subsequent to applying FASB 101. 93-4, Accounting for Regulatory Assets This Issue addresses the recognition of FASB 106 costs as a regulatory asset if the rate-regulated enterprise initially fails to meet the regulatory asset recognition requirements at the date the cost is incurred but meets those requirements in a subsequent
Yes
No
497
Accounting: REGULATED OPERATIONS (12/08) period. This Issue also addresses regulatory asset impairment considerations. This asset impairment consensus has been effectively nullified by FASB 121 and FASB 144. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises This Issue addresses the accounting for regulatory assets related to FASB 106 costs for rate-regulated enterprises that meet the criteria for applying FASB 71. 92-7, Accounting by Rate-Regulated Utilities for the Effects of Certain Alternative Revenue Programs This Issue addresses the accounting by rate-regulated utilities for certain alternative revenue programs, such as Type A and Type B. F. Accounting for Asset Retirement Obligations 1. If the requirements of FASB 71 are met, did the enterprise recognize a regulatory asset or liability for differences in the timing of recognition of the period costs associated with asset retirement obligations for financial reporting purposes pursuant to FASB 143 (as interpreted by FIN 47) and rate-making purposes? [FASB 143.20] 2. Has the capitalized amount of an asset retirement cost been included in the assessment of impairment of the related long-lived asset? For the asset retirement cost of a long-lived asset that has been closed or abandoned, has FASB 90 been applied? [FASB 143.21] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 03-14, Participants' Accounting for Emissions Allowances under a "Cap and Trade" Program
Yes
No
Disclosure: REGULATED OPERATIONS (12/08) A. Refunds to Customers 1. If the enterprise has recognized refunds (that have a material effect on net income) in a period other than the period in which the related revenue was recognized, do the financial statements disclose the effect on net income and indicate the years in which the related revenue was recognized? [FASB 71.19] 2. If the effect of the refunds to customers is disclosed by including it as a line item on the income statement, is the item not presented as an extraordinary item? [FASB 71.19]
Yes
No
498
Disclosure: REGULATED OPERATIONS (12/08) B. Recovery of Costs Without Return on Investment 1. If recovery of major costs is provided without a return on investment during the recovery period, has the enterprise disclosed the remaining amounts of such assets and the remaining recovery period applicable to them? [FASB 71.20] C. Disclosure 1. For the period in which an enterprise reflects the discontinuation of application of FASB 71, does the enterprise: [FASB 101.08-.10] a. Disclose the reasons for the discontinuation and identify the portion of its operations to which the discontinuation applies? b. Follow the extraordinary items disclosure requirements of APB 30 for the net adjustment reported in the statement of operations as a result of applying FASB 101?
Yes
No
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) I. SCOPE 1. Has SOP 97-2 been applied to revenue earned on products or services containing software that is not incidental to the products or services as a whole? [SOP 97-2.2] [NOTE: Indicators of whether software is incidental to a product as a whole include (but are not limited to) (a) whether the software is a significant focus of the marketing effort or is sold separately, (b) whether the vendor is providing postcontract customer support, and (c) whether the vendor incurs significant costs that are within the scope of FASB 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, whether capitalized or not.] 2. If a lease of software includes property, plant, or equipment, has the revenue attributable to the property, plant, or equipment been accounted for in accordance with FASB 13, Accounting for Leases, and any revenue attributable to the software, including postcontract customer support (PCS), been accounted for separately in conformity with the guidance set forth in SOP 97-2,
Yes
No
499
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) unless in conformity with question 1, the property, plant, or equipment contains software that is incidental to the property, plant, or equipment as a whole? [SOP 97-2.4] a. If an arrangement includes software that is more than incidental to the products or services as a whole, have the software and software-related elements (such as those listed in paragraph 9 of SOP 97-2) as well as any nonsoftware deliverable(s) for which a software deliverable is essential to its functionality, been considered within the scope of SOP 97-2? [EITF 0305] b. For purposes of applying FASB 13, are payments and other consideration called for by the arrangement separated at the inception of the arrangement or upon a reassessment of the arrangement into (1) those for the lease, including the related executory costs and profits thereon, and (2) those for other services on a relative fair value basis, consistent with the guidance in paragraph 4(a) of EITF 00-21, Revenue Arrangements with Multiple Deliverables? [EITF 0108] c. If a contract for software also contains any nonsoftware deliverable(s) for which a software deliverable is not essential to its functionality, have the separation criteria of EITF 00-21 been considered? 3. If software products are licensed and the end users of the software do not take possession of the software, but rather the software application resides on the vendor's or a third party's hardware, and the customer accesses and uses the software on an as-needed basis over the Internet or via a dedicated line ("hosting"), has revenue been recognized in accordance with SOP 97-2 if (a) the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and (b) it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software? [EITF 00-3] a. If such a right does not exist or if the customer has the ability to take delivery of the software but (a) will incur significant cost or (b) the ability to use the software separately will result in a significant diminution in utility or value, has the arrangement been accounted for as a service contract outside the
Yes
No
500
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) scope of SOP 97-2? II. BASIC PRINCIPLES 4. If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customization of software, has the entire arrangement (except PCS for which VSOE exists) been accounted for in conformity with ARB 45, Long-Term ConstructionType Contracts, using the guidance provided in SOP 972.74-.91 and in SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts? [SOP 97-2.07] [TPA 5100.48] a. If a software arrangement includes services that meet the criteria discussed in SOP 97-2.65, have those services been accounted for separately? [SOP 97-2 fn4] b. If a software arrangement subject to contract accounting includes postcontract customer support and the vendor has vendor specific objective evidence of fair value of the PCS, has the vendor accounted for the PCS-related services separately from the balance of the arrangement that is being accounted for in conformity with ARB 45, and the relevant guidance in SOP 97-2.74-.91 and in SOP 81-1? [TPA 5100.49] 5. If the arrangement does not require significant production, modification, or customization of software, has revenue been recognized when all of the following criteria are met: [SOP 97-2.08] a. Persuasive evidence of an arrangement exists b. Delivery has occurred c. The vendor's fee is fixed or determinable d. Collectibility is probable? 6. With respect to arrangements that consist of multiple elements subject to SOP 97-2, has the vendor applied the requirements of SOP 97-2 to all additional products and services specified in the arrangements, including those described as being deliverable only on a when-and-ifavailable basis? [SOP 97-2.09] 7. Has the fee for an extension/renewal of an existing license and any additional product that is included with that extension/renewal been allocated between the
Yes
No
501
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) extension/renewal and the additional product based on VSOE of fair value of the products in the arrangement? [TPA 5100.72] 8. Has an option to extend a time-based license indefinitely not been treated as a separate element under the arrangement and has the additional fee to exercise the option been accounted for as an extension/renewal of a license? [TPA 5100.73] 9. If an arrangement includes multiple elements subject to SOP 97-2, has the fee been allocated to the various elements based on vendor-specific objective evidence of fair value, regardless of any separate prices stated within the contract for each element? [SOP 97-2.10] a. Is the amount allocated to undelivered elements not subject to later adjustment? b. If it is probable that the amount allocated to an undelivered element will result in a loss on that element of the arrangement, has the loss been recognized pursuant to FASB 5, Accounting for Contingencies? c. If the vendor's pricing is based on multiple factors, such as the number of products and the number of users, does the amount allocated to each element consider all the factors of the vendor's pricing structure? d. If vendor-specific objective evidence of fair value is established by management after the balance-sheet date but before the issuance of the financial statements (either by separate sales or by establishment of a price by a pricing committee), has the vendor treated this as a Type II subsequent event, as discussed in SAS No. 1, section 560, "Subsequent Events" (AU 560), and not used this as evidence of VSOE as of the balancesheet date? [TPA 5100.38] e. If subsequent to the balance-sheet date, management compiles vendor-specific objective evidence of fair value that existed at the balance-sheet date and all other conditions for revenue recognition have been met, has the vendor recognized revenue allocated to the delivered elements at the balance-sheet date? [TPA 5100.38] f. Have any contingent usage-based fees for software
Yes
No
502
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) and related PCS been considered in determining whether there is sufficient VSOE of fair value of all the elements of an arrangement? [TPA 5100.76] 10. If a discount is offered in a multiple-element arrangement, has a proportionate amount of that discount been applied to each element included in the arrangement based on each element's fair value without regard to the discount, except for any upgrade rights and if the residual method in SOP 97-2.12 is applied, has the discount been attributed entirely to the delivered elements? [SOP 97-2.11] [TPA 5100.51] 11. If a vendor is applying the residual method pursuant to SOP 98-9, for the purpose of assessing whether the discount on future purchases of future products offered in the initial arrangement is more than insignificant and incremental (and should therefore be accounted for using the guidance in TPA 5100.51), has the vendor computed the discount in the initial arrangement by comparing the published list price of the delivered elements in the initial arrangement to the residual value attributable to those delivered elements? [TPA 5100.74] 12. If the discount offered on additional licenses of the licensed product or other products that exist at the time of the offer but are not part of the arrangement is more than insignificant, has the arrangement been presumed to include an additional element(s)? [SOP 97-2.fn 3] a. If a discount exists and the residual method described in SOP 97-2.12 is used, has the discount been allocated entirely to the delivered elements? b. If a discount on future purchases is offered in a software arrangement, has it been characterized as more-than-insignificant if it is: Incremental to the range of discounts reflected in the pricing of the other elements of the arrangement Incremental to the range of discounts typically given in comparable transactions, and Significant? [TPA 5100.50] c. Have the provisions of footnote 3 to SOP 97-2.3 not been applied to an option within a software arrangement that allows the customer to purchase additional copies of products licensed by and
Yes
No
503
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) delivered to the customer under the same arrangement, and has revenue in such an arrangement been recognized as the rights to additional copies are purchased, based on the price per copy as stated in the arrangement? [TPA 5100.50] d. If a software arrangement includes a right to a significant incremental discount on a customer's future purchase of a product(s) or service(s), and (1) the future product(s) or service(s) to which the discount is to be applied is not specified in the arrangement (e.g., a customer is allowed a discount on any future purchases), or (2) the fair value of the future purchases cannot be determined under SOP 972.10, but the maximum amount of the incremental discount on the future purchases is quantifiable, has that quantifiable amount been allocated to the future purchases assuming that the customer will purchase the minimum amount necessary to utilize the maximum discount? [TPA 5100.51] e. If the maximum amount of the significant incremental discount on future purchases is not quantifiable (e.g., the future purchases that can be purchased under the significant incremental discount arrangement are not limited by quantity of product(s) or service(s)), has revenue otherwise allocated to each element covered by the arrangement without regard to the significant incremental discount been reduced by the rate of the significant incremental discount? [TPA 5100.51] f. Has the portion of the fee that is deferred as a result of the significant incremental discount been recognized as revenue proportionately as the future purchases are delivered, assuming all other revenue recognition criteria are met, such that a consistent discount rate is applied to all purchases under the arrangement? [TPA 5100.51]
Yes
No
g. If the future purchases are not limited by quantity of product(s) or service(s), has the portion of the fee that is deferred as a result of the presence of a significant incremental discount been recognized as revenue as a subscription in accordance with SOP 97-2.48-.49? [TPA 5100.51] 13. If sufficient vendor-specific objective evidence does not exist for the allocation of revenue to the various elements of the arrangement, has all revenue from the arrangement
504
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) been deferred until the earlier of the point at which (i) such sufficient vendor-specific objective evidence does exist or (ii) all elements of the arrangement have been delivered, with exceptions for the following: [SOP 972.12] a. If the only undelivered element is PCS, has the entire fee been recognized ratably (see questions 60-65)? b. If the only undelivered element is services that do not involve significant production, modification, or customization of software (e.g., training or installation), has the entire fee been recognized over the period during which the services are expected to be performed (see questions 66-74)? c. If the arrangement is, in substance, a subscription, has the entire fee been recognized ratably (see question 57)? d. If the fee is based on the number of copies, has the arrangement been accounted for in conformity with questions 55-56? e. If a vendor has vendor-specific objective evidence of the fair values of all undelivered elements in an arrangement, but vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement, has revenue been recognized using the residual method, provided that: (1) All other applicable revenue recognition criteria in SOP 97-2 are met and (2) The fair value of all of the undelivered elements is less than the arrangement fee? [SOP 97-2.12] f. Under the residual method, has the arrangement been recognized as follows: (1) the total fair value of the undelivered elements, as indicated by VSOE, has been deferred and (2) the difference between the total arrangement fee and the amount deferred for the undelivered elements has been recognized as revenue (assuming all other revenue recognition criteria have been met) related to the delivered elements? [SOP 97-2.12]
Yes
No
14. If there are undelivered elements that are essential to the functionality of the delivered element (because the customer would not have the full use of the delivered
505
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) element), has revenue on the arrangement been deferred? [SOP 97-2.13] 15. Has no portion of the fee (including amounts otherwise allocated to delivered elements) been deemed to meet the criterion of collectibility if the portion of the fee allocable to delivered elements is subject to forfeiture, refund, or other concession if any of the undelivered elements are not delivered? [SOP 97-2.14] a. Has all available evidence been considered in concluding that the portion of the fee to be recognized as revenue is not subject to forfeiture, refund, or other concession, including the following: Acknowledgment in the arrangement of products not currently available or not to be delivered currently Separate prices stipulated in the arrangement for each deliverable element Default and damage provisions as defined in the arrangement Enforceable payment obligations and due dates for the delivered elements that are not dependent on the delivery of the future deliverable elements, coupled with the intent of the vendor to enforce rights of payment Installation and use of the delivered software Support services, such as telephone support, related to the delivered software being provided currently by the vendor? b. Regardless of terms included in the arrangement that indicate that no concessions are required, and regardless of the preceding considerations, has recognition of revenue been deferred if the vendor has a historical pattern of making refunds or other concessions that were not required under the original provisions (contractual or other) of other arrangements? A. Evidence of an Arrangement 16. If the vendor operates in a manner that does not rely on signed contracts to document the elements and obligations of an arrangement, does the vendor have other forms of evidence to document the transaction (e.g., a purchase
Yes
No
506
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) order from a third party or on-line authorization)? [SOP 97-2.16] 17. If the vendor has a customary business practice of utilizing written contracts, is there a contract signed by both parties? [SOP 97-2.16] 18. Even if all other requirements set forth in SOP 97-2 for the recognition of revenue are met (including delivery), if persuasive evidence of an arrangement does not exist, has none of the arrangement fee been recognized? [SOP 972.17] B. Delivery 19. The principle of not recognizing revenue before delivery applies whether the customer is a user or a reseller. Has delivery been considered to have occurred: [SOP 97-2.18] a. Only upon transfer of the product master or, if the product master is not to be delivered, upon transfer of the first copy, except for arrangements in which the fee is a function of the number of copies? b. For software that is delivered electronically, when the customer either (1) takes possession of the software via a download (i.e., when the customer takes possession of the electronic data on its hardware), or (2) has been provided with access codes that allow the customer to take immediate possession of the software on its hardware pursuant to an agreement or purchase order for the software? c. For software that will not be physically transferred to a customer, has the vendor considered the provisions of EITF 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware? d. When the vendor has provided authorization for duplication of existing copies in the customer's possession? e. Only upon the commencement of the initial license term? [TPA 5100.70] f. Only upon the commencement of the renewal term if the original license had lapsed? [TPA 5100.71]
Yes
No
g. For additional software that is purchased in conjunction with the renewal of existing software,
507
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) only when the license term of the additional software commences? [TPA 5100.72] 20. In an arrangement that requires physical delivery of software, have delivery terms that indicate when the customer assumes the risks and rewards of its licensing rights (e.g., FOB destination and FOB shipping point terms) been considered in the assessment of whether software has been delivered? [TPA 5100.69] C. Customer Acceptance 21. After delivery, if uncertainty exists about customer acceptance of the software, has license revenue not been recognized until acceptance occurs? [SOP 97-2.20] 22. Have all of the following items been considered in evaluating the effect of customer acceptance on revenue recognition: (a) historical experience with similar types of arrangements or products, (b) whether the acceptance provisions are specific to the customer or are included in all arrangements, (c) the length of the acceptance term, and (d) historical experience with the specific customer? [TPA 5100.67] 23. If the software vendor is a public registrant subject to SOP 97-2, has the guidance in SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as it relates to customer acceptance, been considered? [TPA 5100.67] D. Determining Delivery Multiple Copies of Software Products Versus Multiple Licenses 24. If the vendor has arrangements to use multiple copies of a software product under site licenses with users or arrangements with resellers that permit the resellers to market multiple copies of a software product and the other criteria in SOP 97-2 for revenue recognition are met, has revenue been recognized upon delivery of the first copy or product master and have the estimated costs of duplication been accrued at the same time? [SOP 97-2.21] 25. If the vendor has arrangements to use or market multiple single licenses of the same software, has revenue been recognized as the copies are made by the user or sold by the reseller if the other criteria in SOP 97-2 for revenue recognition are met? [SOP 97-2.21] 26. For software arrangements that allow a user to change or alternate its use of multiple products/licenses (license mix)
Yes
No
508
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) included in a license arrangement after those products have been delivered by the software vendor, has revenue been recognized upon delivery of the first copy or product master for all of the products within the license mix? [TPA 5100.45] Delivery Other Than to the Customer 27. Has delivery not been considered complete unless (a) the destination to which the software is shipped is the customer's place of business or another site specified by the customer and (b) if a customer specifies an intermediate site but a substantial portion of the fee is not payable until delivery by the vendor to another site specified by the customer, the delivery is made to that other site? [SOP 97-2.22] Delivery Agents 28. If the vendor uses agents, often referred to as fulfillment houses, to either duplicate and deliver or only deliver software products to customers, has revenue from transactions involving delivery agents been recognized only when the software is delivered to the customer, even if (a) the vendor transfers the fulfillment obligation to the agent or (b) the vendor has no direct involvement in the actual delivery of the software product to the customer? [SOP 97-2.23] E. Authorization Codes 29. In software arrangements involving the use of authorization codes (commonly referred to as keys), has the vendor recognized revenue on delivery of the software only if all other requirements for revenue recognition under SOP 97-2 and the following conditions are met: [SOP 97-2.24-25] The customer has licensed the software and the vendor has delivered a version of the software that is fully functional except for the permanent key or the additional keys (if additional keys are used to control the reproduction of the software) The customer's obligation to pay for the software and the terms of payment, including the timing of payment, are not contingent on delivery of the permanent key or additional keys (if additional keys are used to control the reproduction of the software) The vendor will enforce and does not have a history of
Yes
No
509
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) failing to enforce its right to collect payment under the terms of the original arrangement? a. If a temporary key is used to enhance the vendor's ability to collect payment, has delivery been deemed to have occurred without requiring the delivery of additional keys, temporary or permanent, if (1) the above conditions are met and (2) the use of a temporary key in such circumstances is a customary practice of the vendor? b. If temporary keys are issued selectively, has the vendor considered whether collectibility might not be probable or that the software may be used only for demonstration purposes? F. Fixed or Determinable Fees and Collectibility 30. If the fee for an arrangement is based on the number of units distributed or copied, or the expected number of users of the product, has the vendor followed the revenue recognition policies for variable-pricing arrangements as discussed in questions 55-56? [SOP 97-2.26] 31. If an arrangement includes (1) rights of return or (2) rights to refunds without return of the software, has the vendor followed the requirements of FASB 48, which requires that certain conditions be met in order for the vendor to recognize revenue, including that the amount of future returns or refunds can be reasonably estimated? [SOP 972.26. G. Factors That Affect the Determination of Whether a Fee is Fixed or Determinable and Collectible 32. If an arrangement calls for extended payment terms that do not exceed twelve months after delivery, has the vendor considered that the fee may not be fixed or determinable? [SOP 97-2.28] 33. If payment of a significant portion of the software licensing fee is not due until after expiration of the license or more than twelve months after delivery and the vendor does not have a standard business practice of using longterm or installment contracts and a history of successfully collecting under the original payment terms without making concessions, has the licensing fee been presumed not to be fixed or determinable? [SOP 97-2.28] a. If a software vendor enters into an arrangement for which the licensing fee is not considered to be fixed or
Yes
No
510
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) determinable because a significant portion of the fee is due more than one year after delivery of the software and the vendor cannot overcome the presumption in SOP 97-2.28, has no revenue been recognized until it becomes due, including revenue that is due within the first 12 months of the arrangement? [TPA 5100.42] b. In assessing whether an extension/renewal arrangement fee is fixed or determinable, has the date that the extension/renewal arrangement is executed been used to determine whether the payment terms are extended? [TPA 5100.71, 5100.72] c. In assessing whether an extension/renewal arrangement fee is fixed or determinable, has the delivery date for any additional product that is ordered in connection with an extension/renewal been used to determine whether the payment terms associated with the additional product portion of the arrangement fee are extended? [TPA 5100.72] d. In determining whether the vendor has a history of successfully collecting under the original payment terms without making concessions, have the following types of changes to past arrangements been considered: Changes that would have affected the original amount of revenue recognized Changes that reduce the arrangement fee or extend the terms of payment Changes that increase the deliverables or extend the customer's rights beyond those in the original transaction? [TPA 5100.56] e. In determining whether the vendor has a history of successfully collecting under original payment terms of an arrangement without making concessions, are the historical arrangements comparable to the current arrangement considering the following factors: Similarity of type or class of customer Similarity of types of products Similarity of stage of product life cycles Similarity of elements included in the arrangement Similarity of length of payment terms
Yes
No
511
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) Similarity of the economies of the license arrangement? [TPA 5100.57] 34. If, at the outset of an arrangement, it cannot be concluded that a fee is fixed or determinable has revenue been recognized as payments from customers become due (assuming all other conditions for revenue recognition in SOP 97-2 have been satisfied)? [SOP 97-2.29] a. Has the presumption that the licensing fee is not fixed or determinable been considered NOT to have been overcome if, at the outset of the arrangement or subsequently, if the vendor received cash on the transfer of the extended payment term arrangement or if the vendor irrevocably transferred or otherwise converted to cash the extended payment term arrangement without recourse to the vendor? [TPA 5100.58] 35. If a vendor receives amounts (related to an arrangement with extended payment terms) directly from customers (without the software vendor's participation in its customers' financing arrangements) in advance of scheduled payments, has revenue been recognized when such payments are received provided that all other conditions for revenue recognition in SOP 97-2 are met? [TPA 5100.41] a. If at the outset of an arrangement the software vendor determined that the licensing fee is not fixed or determinable and, subsequent to the vendor's year end, the license fee is received directly from the customer in full before the payments have become due, has the determination that the license fee was not fixed or determinable NOT been modified and has revenue been recognized in the period that the payments were received? [TPA 5100.59] 36. If a vendor entered into an arrangement with an end user customer that contained customary (i.e., nonextended) payment terms and the end user customer obtained, without the software vendor's participation, financing from a party unrelated to the software vendor, has revenue been recognized upon delivery of the software product, provided that all other requirements of revenue recognition in SOP 97-2 have been met? [TPA 5100.60] 37. If a software vendor enters into an arrangement with an end user customer that contains extended payment terms
Yes
No
512
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) and (1) the software vendor receives payments in advance of the scheduled due dates after the software vendor participates in the customer's financing with a party unrelated to the software vendor and (2) the software vendor's participation in the customer's financing results in incremental risk that the software vendor will provide a refund or concession to either the end user customer or the financing party (see question 39), has the fee been presumed not fixed or determinable? a. If that presumption could not be overcome (see question 35), did the software vendor recognize revenue as payments from the customer became due and payable to the financing party, provided that all other requirements of revenue recognition in SOP 972 are met? b. Did the software vendor account for any proceeds received from the customer or the financing party prior to revenue recognition as a liability for deferred revenue? [TPA 5100.61] 38. If a software vendor (a) lacks the intent or ability to enforce the original payment terms of the software arrangement if the financing (with an unrelated third party in which the vendor participated) is not successfully completed or (b) in past software arrangements, has altered the terms of original software arrangements or entered into another arrangement with customers to provide extended payment terms consistent with the terms of the financing, has the arrangement fee been considered not to be fixed or determinable? [TPA 5100.62] 39. In considering if a software vendor's participation in an end user customer's financing results in incremental risk that the software vendor will provide a refund or concession to either the end user customer or the financing party, have all of the following indicators been considered: a. Provisions that require the software vendor to indemnify the financing party above and beyond the standard indemnification provisions that are explicitly included in the software arrangement between the software vendor and the end user customer?
Yes
No
513
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) b. Provisions that require the software vendor to make representations to the financing party related to customer acceptance of the software that are above and beyond the written acceptance documentation, if any, that the software vendor has already received from the end user customer? c. Provisions that obligate the software vendor to take action (such as to terminate the license agreement and/or any related services), which results in more than insignificant direct incremental costs, against the customer on behalf of the financing party in the event that the end user customer defaults under the financing, unless, as part of the original arrangement, the customer explicitly authorizes the software vendor, upon request by the financing party, to take those specific actions against the customer and does not provide for concessions from the vendor as a result of such action? d. Provisions that prohibit or limit the ability of the software vendor to enter into another software arrangement with the customer for the same or similar product if the end user customer defaults under the financing, unless, as part of the original arrangement, the customer explicitly authorizes the software vendor, upon request by the financing party, to take those specific actions against the customer? e. Provisions that require the software vendor to guarantee, certify, or otherwise attest in any manner to the financing party that the customer meets the financing party's qualification criteria? f. Software vendor has previously provided concessions to financing parties or to customers to facilitate or induce payment to financing parties?
Yes
No
g. Provisions that lead to the software vendor's guarantee of the customer's indebtedness to the financing party? [TPA 5100.62]
514
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) 40. Have all the following software vendor actions that generally do not cause the software vendor to assume incremental risk that the software vendor will provide a refund or concession to either the end user customer or the financing party related to the software vendor's participation in an end user customer's financing of a software arrangement been considered in determining if the arrangement fee is fixed and determinable: a. Software vendor introduces the customer and financing party and facilitates their discussions? b. Software vendor assists the customer in prequalifying for financing as long as the software vendor does not guarantee, certify, or otherwise attest in any manner to the financing party that the customer meets the financing party's qualification criteria? c. Software vendor represents to the financing party that the software vendor has free and clear title to the licensed software or the right to sublicense if the software vendor makes the same written representations in the software arrangement with the end user customer? d. Software vendor warrants to the financing party that the software functions according to the software vendor's published specifications if the software vendor makes the same written warranty in the software arrangement with the end user customer? e. Software vendor takes action, which was explicitly authorized by the customer in the original arrangement, to terminate the license agreement and/or any related services, or to not enter into another arrangement for the same or similar product? f. Software vendor makes customary recourse provisions to its customer related to warranties for defective software? [TPA 5100.64]
Yes
No
41. Has the arrangement fee been considered to be fixed and determinable if the vendor participated in customer financing and both of the following are present? The software vendor has a standard business practice of entering into similar arrangements with financing parties that have substantially similar provisions. The software vendor has a history of not providing
515
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) refunds or concessions to the customer or the financing party. [TPA 5100.63] 42. If the software vendor guaranteed the customer's indebtedness to the financing party and has a history of granting concessions to either (a) its customers in similar arrangements in which it provided extended payment terms or (b) unrelated financing parties in similar arrangements in which the software vendor participated, has the arrangement fee been considered not to be fixed and determinable? [TPA 5100.63] 43. Has an interest rate "buy down" that is evidenced contemporaneously and occurs simultaneously with the original arrangement between the software vendor and customer been considered an integral part of the arrangement because of its timing, and has the amount of the interest rate "buy down" been treated as a reduction of the total arrangement fee to be recognized in accordance with SOP 97.2, and not as a financing or other expense? [TPA 5100.65] a. Has a software vendor's "buy-down" of an interest rate that is not evidenced contemporaneously, or occurs other than simultaneously with the original arrangement been considered a concession because it represents a reduction in the arrangement fee not contemplated in the original arrangement? 44. For reseller arrangements, have the following additional factors been considered in evaluating whether the fixed or determinable fee and collectibility criteria for revenue recognition are met: [SOP 97-2.30] Business practices, the reseller's operating history, competitive pressures, informal communications, or other factors that may indicate payment is substantially contingent on the reseller's success in distributing individual units of the product. Resellers are new, undercapitalized, or in financial difficulty and may not demonstrate an ability to honor a commitment to make fixed or determinable payments until they collect cash from their customers.
Yes
No
516
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) Uncertainties about the potential number of copies to be sold by the reseller that may indicate the amount of future returns cannot be reasonably estimated on delivery; examples of such factors include the newness of the product or marketing channel, competitive products, or dependence on the market potential of another product offered (or anticipated to be offered) by the reseller. Distribution arrangements with resellers that require the vendor to rebate or credit a portion of the original fee if the vendor subsequently reduces its price for a product and the reseller still has rights with respect to that product (sometimes referred to as price protection). a. If a vendor is unable to reasonably estimate future price changes in light of competitive conditions, or if significant uncertainties exist about the vendor's ability to maintain its price, has the vendor treated the arrangement fee as not being fixed or determinable, and deferred revenue from the arrangement until the effects of future price changes are reasonably estimable and the other conditions of SOP 97-2 have been satisfied? 45. Have all the factors discussed in questions 36-43 been considered in determining if a fee is fixed and determinable when the software vendor participates in the financing provided by an independent third party to a reseller customer? Additionally, has consideration been given to the fact that the existence of financing by a reseller customer may increase the risk that: a. Payment of the arrangement fee is substantially contingent on the distributor's success at reselling the product? b. The reseller may not have the ability to honor a commitment to pay, which could increase the risk of software vendor concessions regardless of the source of the financing? c. Returns or price protection cannot be reasonably estimated because of the potential for increased concession risk? [TPA 5100.66] 46. Have arrangements under which resellers are obligated to pay only as and if sales are made to users been accounted
Yes
No
517
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) for as consignments? [SOP 97-2 footnote 7] 47. Customer Cancellation Privileges. Has the vendor deemed fees from licenses cancelable by customers neither fixed nor determinable until the cancellation privileges lapse? [SOP 97-2.31] [NOTE: Short-term rights of return, such as thirty-day money-back guarantees, should not be considered cancellation privileges; the related returns should be accounted for in conformity with FASB 48.] a. If cancellation privileges expire ratably over the license period, are fees considered to become determinable ratably over the license period as the cancellation privileges lapse? b. Are obligations related to warranties for defective software, including warranties that are routine, shortterm, and relatively minor, accounted for in conformity with FASB 5? c. If a software vendor provides bug fixes (free of charge under warranty obligations) that are necessary to maintain compliance with published specifications, has the vendor accounted for the estimated costs to provide such fixes (that are necessary to maintain compliance with published specifications) in accordance with FASB 5? [TPA 5100.43] 48. Fiscal Funding Clauses. Have software licensing arrangements with governmental units containing a fiscal funding clause been evaluated to determine whether the uncertainty of a possible license arrangement cancellation is a remote contingency in accordance with FASB Technical Bulletin 79-10, Fiscal Funding Clauses in Lease Agreements? [SOP 97-2.33] a. If the likelihood is assessed as remote, considering the factors discussed in questions 32-33, have such licensing arrangements been considered noncancelable? b. If the likelihood is assessed as other than remote, have such licensing arrangements been considered cancelable, thus precluding revenue recognition? c. Have software licensing arrangements that include fiscal funding clauses with customers other than governmental units been treated as cancelable, thus precluding revenue recognition until the requirements
Yes
No
518
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) of the clause and all other provisions of SOP 97-2 have been satisfied? H. Nonmonetary Exchanges of Software 49. Has all available evidence been considered in determining whether a nonmonetary exchange of software licenses between a vendor and a customer should be recorded at fair value or at carryover basis? [TPA 5100.46] a. If the technology/products received by the software vendor in the exchange were to be sold, licensed, or leased in the same line of business as the software vendor's technology/products delivered in the exchange, has the software vendor recorded the exchange at carryover basis? b. If the technology/products received by the software vendor in the exchange were to be sold, licensed, or leased in a different line of business from the software vendor's technology/products delivered in the exchange, has the software vendor recorded the exchange at fair value, provided that: The fair value of the technology/products exchanged or received can be determined within reasonable limits (i.e., vendor-specific objective evidence of fair value of the software given up, or the value of the technology/products received, as if the software vendor had received or paid cash) The technology/products received in the exchange are expected, at the time of the exchange, to be deployed and utilized by the software vendor and the value ascribed to the transaction reasonably reflects such expected use, and The transaction has commercial substance? c. If the criteria in (b) are not met has the exchange been recorded at carryover basis? 50. Has all available evidence been considered in determining whether a software vendor's nonmonetary exchange of a software license in exchange for a license to customer technology that the software vendor intends to utilize for internal use should be recorded at fair value or at carryover basis? [TPA 5100.47]
Yes
No
519
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) a. Has such an exchange been recorded at fair value if: The fair value of the technology/products exchanged or received can be determined within reasonable limits (i.e., vendor-specific objective evidence of fair value of the software given up, or the value of the technology/products received, as if the software vendor had received or paid cash), The technology/products received in the exchange are expected, at the time of the exchange, to be deployed and utilized by the software vendor and the value ascribed to the transaction reasonably reflects such expected use, and The transaction has commercial substance? b. If the criteria in (a) are not met, has the exchange been recorded at carryover basis? II. MULTIPLE-ELEMENT ARRANGEMENTS A. Additional Software Deliverables and Rights to Exchange or Return Software 51. For multiple-element arrangements (including arrangements in which a more than insignificant discount is offered to the customer): a. Has the vendor accounted for individual elements in such arrangements where contract accounting does not apply in accordance with questions 5-15? b. Has the vendor considered whether separate contracts or agreements with a single customer should be treated as one multiple-element arrangement when determining the appropriate amount of revenue to be recognized in accordance with SOP 97-2 considering the following indicators: [TPA 5100.39]
Yes
No
520
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) The contracts or agreements are negotiated or executed within a short time frame of each other The different elements are closely interrelated or interdependent in terms of design, technology, or function The fee for one or more contracts or agreements is subject to refund or forfeiture or other concession if another contract is not completed satisfactorily One or more elements in one contract or agreement are essential to the functionality of an element in another contract Payment terms under one contract or agreement coincide with performance criteria of another contract or agreement The negotiations are conducted jointly with two or more parties (i.e., from different divisions of the same company) to do what in essence is a single project? 52. Upgrades/enhancements. If a multiple-element arrangement includes an upgrade right: [SOP 97-2.36-38] a. Has the upgrade right been accounted for as a separate element of the arrangement? b. Is the fee allocated to the upgrade right the price for the upgrade/enhancement that would be charged to existing users of the software product? c. If the arrangement fee includes a discount, has no portion of the discount been allocated to the upgrade right? d. If sufficient vendor-specific evidence exists to reasonably estimate the percentage of customers that are not expected to exercise the upgrade right, has the fee allocated to the upgrade right been reduced to reflect that percentage? e. If sufficient vendor-specific objective evidence does not exist for the allocation of the fee to the upgrade right, has revenue from the arrangement been deferred until the earlier of the point at which (1) such sufficient vendor- specific objective evidence does exist or (2) all elements of the arrangement have been delivered?
Yes
No
521
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) f. If the right is to receive unspecified upgrades/enhancements on a when-and-if-available basis, has the right been accounted for as PCS in accordance with questions 60 through 65?
Yes
No
53. Additional Software Products. If the rights to the specified additional software products are included in a license or PCS arrangement, has the revenue allocable to the additional software products been accounted for separately as an element of a multiple-element arrangement and accounted for in accordance with questions 5 through 15? [SOP 97-2.39-40] 54. If the vendor has multiple-element arrangements that include rights to undelivered additional software products that are not subscriptions: [SOP 97-2.41-42] a. Has the allocation of the fee from the arrangement been based on the relative sales prices of the products? b. If vendor-specific objective evidence of fair value does not exist, has all revenue from the arrangement been deferred until the earlier of the point at which (1) such sufficient vendor-specific objective evidence does exist or (2) all elements of the arrangement have been delivered? c. Has the fee allocated to the additional software products not been reduced by the percentage of any customers that are not expected to exercise the right to receive additional software products? d. If the arrangement is based on a price per product (not a price per copy), has the portion of the fee allocated to a product been recognized as revenue when the product is delivered, assuming all other requirements for revenue recognition have been met?
522
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) 55. If a vendor has fixed-fee multiple-element arrangements, that include rights to undelivered additional software products that are not subscriptions and that provide the customer with the right to reproduce or obtain copies at a specified price per copy (rather than per product), but do not impose a maximum number of copies to which the customer is entitled, assuming all other requirements for revenue recognition have been met: [SOP 97-2.43-45] a. Until the first copy or product master of each product covered by the arrangement has been delivered to the customer, has revenue been recognized as copies of delivered products either (1) are reproduced by the customer or (2) are furnished to the customer if the vendor is duplicating the software? b. Once the vendor has delivered the product master or the first copy of all products covered by the arrangement, has any licensing fee not previously recognized been recognized because only duplication of the software is required to satisfy the vendor's delivery requirement? c. Has the vendor recognized any licensing fees not previously recognized if the arrangement has terminated? d. Has revenue not been recognized fully until at least (1) delivery is complete for all products covered by the arrangement or (2) the aggregate revenue attributable to all copies of the software products delivered is equal to the fixed fee, provided that the vendor is not obligated to deliver additional software products under the arrangement? 56. If a vendor has multiple element arrangements that include rights to additional software products that are undeliverable at the inception of the arrangement are not subscriptions and provide the customer with the right to reproduce or obtain copies at a specified price per copy (rather than per product), and the arrangements impose a maximum number of copies to which the customer is entitled: [SOP 97-2.46-47] a. Has the vendor allocated the arrangement fee to the undeliverable product(s) assuming that the customer will elect to receive the maximum number of copies of the undeliverable product(s)?
Yes
No
523
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) b. Has the revenue allocated to the delivered products been recognized when the product master or first copy is delivered? c. If during the term of the arrangement, the customer reproduces or receives enough copies of these delivered products so that revenue allocable to the delivered products exceeds the revenue previously recognized has (1) such additional revenue been recognized as the copies are reproduced or delivered, and (2) the revenue allocated to the undeliverable product(s) been reduced by a corresponding amount? 57. Subscriptions. As part of a multiple-element arrangement with a user, if a vendor agreed to deliver software currently and to deliver unspecified additional software products in the future (e.g., the vendor may agree to deliver all new products to be introduced in a family of products over the next two years): [SOP 97-2.48-49] a. Has no allocation of revenue been made among any of the software products? b. Has all software product-related revenue from the arrangement been recognized ratably over the term of the arrangement beginning with delivery of the first product, even if the vendor has no intent to develop new products during the term of the arrangement? c. If the term of the arrangement is not stated, has the revenue been recognized ratably over the estimated economic life of the products covered by the arrangement, beginning with delivery of the first product? 58. If the software is not returned physically and the customer contractually is entitled to continue to use the previously delivered software, has the arrangement been accounted for in the manner prescribed in the section herein entitled "Additional Software Products" (questions 53-56)? [SOP 97-2.50] 59. If the software is not returned physically and the customer contractually is not entitled to continue to use the previously delivered software, has the transaction been accounted for either as a return or as an exchange, as follows: [SOP 97-2.51-55]
Yes
No
524
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) a. If the rights are offered to users (but not resellers), have the exchanges been treated as "exchanges by ultimate customers of one item for another of the same kind, quality, and price . . . [that] are not considered returns" as described in footnote 3 of FASB 48, unless the exchanges are for dissimilar software or for similar software products with more than minimal differences in price, functionality, or features? b. Have exchanges by users of software products for dissimilar software products or for similar software products with more than minimal differences in price, functionality, or features been considered returns, and revenue related to arrangements that provide users with the rights to make such exchanges been accounted for in conformity with FASB 48? c. If the other product(s) is not available at the time the initial product is delivered and the arrangement is with an end-user, is there persuasive evidence that demonstrates there will be no more than minimal differences in price, features, or functionality among the products in order for the right to qualify as a right to exchange? d. If the vendor expects to incur a significant amount of development costs related to the other product, has the other product been considered to have more than a minimal difference in functionality? B. Platform Transfer Rights e. If as part of a multiple-element arrangement, the vendor has granted a user a platform-transfer right, has the exercise of the platform-transfer right been evaluated to determine if it represents an exchange, a return, or additional software products for accounting purposes? f. If as part of a multiple-element arrangement, the vendor has granted a user a platform-transfer right and the customer is contractually entitled to continue to use the software that was delivered originally, has the platform-transfer right been accounted for in the manner prescribed in the section herein entitled "Additional Software Products" (questions 53-56)?
Yes
No
525
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) g. If as part of a multiple-element arrangement, the vendor has granted a user a platform-transfer right for the same product (i.e., there are no more than minimal differences in price, features, and functions) and does not increase the number of copies or concurrent users of the software product available under the license arrangement, has the platform-transfer right been treated as an exchange? h. If as part of the standard sales terms or as a matter of practice, a vendor grants resellers the rights to exchange unsold software for other software (including software that runs on a different hardware platform or operating system), have such exchanges, including those referred to as stock balancing arrangements, been accounted for as returns in conformity with FASB 48, even if the vendor requires the resellers to purchase additional software to exercise the exchange rights? C. Postcontract Customer Support 60. If the vendor has developed historical patterns of regularly providing all customers or certain kinds of customers with the services or unspecified upgrades/enhancements normally associated with PCS or anticipates doing so, has the vendor treated the right to receive PCS services or unspecified upgrades/enhancements, or both, offered to users or resellers, as PCS that commences upon product delivery? [SOP 97-2.56] 61. If a multiple-element software arrangement includes explicit or implicit rights to PCS, has the arrangement been accounted for as follows: a. Have the total fees from the arrangement been allocated among the elements based on vendorspecific objective evidence of fair value, in conformity with question 9? If not, skip to question 62. [SOP 97-2.57] b. Has the fair value of the PCS been determined by reference to the price the customer will be required to pay when it is sold separately (i.e., the renewal rate)? [SOP 97-2.57] c. If the vendor expresses the PCS renewal rate as a consistent percentage of the stipulated license fee, has that percentage been used as VSOE of fair value of
Yes
No
526
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) PCS only if the percentage is considered substantive? [TPA 5100.55] d. If the PCS renewal rates are calculated using two different price methodologies for different periods and: [TPA 5100.75] (1) The renewal price for PCS in the earlier years is more likely than not to be more than the price in the latter years, has the price for PCS in the earlier years been considered VSOE of the fair value of bundled PCS? (2) The renewal price for PCS in the latter years is more likely than not to be more than the price in the earlier years, has VSOE for the bundled PCS not been established? e. For time-based license arrangements, (1) Except for term licenses of one year or less, if the renewal PCS is for a term shorter than the term of PCS included in the arrangement, has the renewal rate multiplied by the term of the PCS included in the arrangement been used to determine VSOE of fair value only if the PCS renewal rate and renewal term are substantive? [TPA 5100.52] (2) If a time-based software license has a duration of one year or less and is bundled with PCS services, has the arrangement fee been recognized over the PCS term (if the only undelivered element is PCS) or upon delivery of the software if all of the conditions in SOP 972.59 (see question 63) have been met? [TPA 5100.53] (3) If an arrangement for multiyear time-based software license includes: (a) initial (bundled) PCS services for only a portion of the software license's term (e.g., a five-year time-based software license that includes initial PCS services for four years) and (b) a renewal rate for PCS for an additional year(s) within the timebased license period, has the vendor determined that the PCS renewal rate and term are not substantive(for purposes of determining VSOE of the fair value of the PCS) if the following indicators exist:
Yes
No
527
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) The period of initial (bundled) PCS services is relatively long compared to the term of the software license The aggregate PCS renewal term is less than the initial (bundled) PCS period The PCS renewal rate is significantly below the vendor's normal pricing practices in combination with a time-based software license that is for a relatively short period? [TPA 5100.54] f. If the vendor provides PCS in an arrangement that deploys its software product in stages and only has a renewal rate of PCS for fully deployed software, has the PCS renewal rate for the fully deployed software been used as VSOE of fair value of the PCS when the product is less than fully deployed? [TPA 5400.44]
Yes
No
g. If the stipulated term of the PCS period begins after the delivery of the product, but the vendor has a history of regularly making available to all customers the services or unspecified upgrades/enhancements normally associated with PCS as soon as its products are delivered, has the delivery date been assumed to be the commencement date of the PCS term? [TPA 5100.44] h. If the software vendor offers licenses for the same product currently as (1) a perpetual license and (2) a multi-year time-based license (for example, two or more years), and (1) The pricing of the licenses reflects the duration of the license rights; (2) VSOE of fair value exists for PCS services in the perpetual licenses; (3) For the multi-year, time-based licenses, PCS services for the entire license term are included (bundled) in the license fee; and (4) There is no renewal rate inasmuch as the timebased license rights are co-terminus with the PCS service period, have the PCS renewal terms in the perpetual license not been used to provide VSOE of the fair value of the PCS services element included (bundled) in the multi-year
528
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) time-based software arrangement, unless both: (a) The term of the multi-year, time-based software arrangement is substantially the same as the estimated economic life of the software product and related enhancements that occur during that term; and (b) The fees charged for the perpetual (including fees from the assumed renewal of PCS for the estimated economic life of the software) and multi-year, time-based licenses are substantially the same? [TPA 5100.68] i. Has the portion of the fee allocated to PCS been recognized as revenue ratably over the term of the PCS arrangement, because the PCS services are assumed to be provided ratably unless (1) sufficient vendor-specific historical evidence exists demonstrating that costs (including allocated portions of research and development and amortization of costs related to the upgrade-enhancement capitalized in conformity with FASB 86) to provide PCS are incurred on other than a straight-line basis, and (2) the vendor believes that it is probable that the costs incurred in performing under the current arrangement will follow a similar pattern? [SOP 97-2.57] Has the point at which unspecified upgrades/enhancements are expected to be delivered not been used to support income recognition on other than a straight-line basis? [SOP 97-2.57]
Yes
No
j.
62. If sufficient vendor-specific objective evidence does not exist to allocate the fee to the separate elements and the only undelivered element is PCS, has the entire arrangement fee been recognized ratably over (1) the contractual PCS period (for those arrangements with explicit rights to PCS), or (2) the period during which PCS is expected to be provided (for those arrangements with implicit rights to PCS)? [SOP 97-2.58] 63. Has PCS revenue been recognized together with the initial licensing fee on delivery of the software only if all of the following conditions are met: [SOP 97-2.59-61] a. The PCS fee is included with the initial licensing fee?
529
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) b. The PCS included with the initial license is for one year or less (except for postdelivery phone support provided to users by the vendor at no additional charge where the vendor has established a history of providing substantially all the telephone support within one year of the licensing or sale of the software)? c. The estimated cost of providing PCS during the arrangement is insignificant? d. Unspecified upgrades/enhancements offered during PCS arrangements historically have been and are expected to continue to be minimal and infrequent? e. The vendor has accrued all estimated costs of providing the services, including upgrades/enhancements? (Costs of upgrades/enhancements should be allocated between PCS arrangements and other licenses.) 64. PCS Granted by Resellers. Has the vendor treated an arrangement in which it grants a reseller the right to provide unspecified upgrades/enhancements to the reseller's customers as an implied PCS arrangement between the vendor and the reseller, even if the vendor does not provide direct telephone support to the reseller's customers? [SOP 97-2.62] 65. If sufficient vendor-specific objective evidence does not exist to allocate the fee to the software and the PCS granted by resellers, has the revenue from both the licensing arrangement and the PCS been recognized ratably over the period during which PCS is expected to be provided? [SOP 97-2.62] D. Services 66. If the arrangement includes both software and service elements, such as training, installation, and/or consulting (often implementation support, software design or development, or the customization or modification of the licensed software) answer questions 67-74, otherwise skip to question 75. [SOP 97-2.63]
Yes
No
530
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) 67. Has the vendor concluded that services do not involve significant production, modification, or customization of software such that the service element qualifies for separate accounting? [SOP 97-2.63-65] In addition: a. Is there sufficient vendor-specific objective evidence of fair value to permit allocation of the revenue to the various elements of the arrangement (as discussed in question 9)? b. Are the services (1) not essential to the functionality of any other element of the transaction and (2) described in the contract, such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services? 68. If the services require significant production, modification, or customization of software, has the vendor applied contract accounting to both the software and service elements included in the arrangement? [SOP 972.64] 69. If an arrangement includes services that meet the criteria for separate accounting, has revenue been allocated among the service and software elements of the contract based on vendor-specific objective evidence of fair values and has the service revenue been recognized as the services are performed or, if no pattern of performance is discernible, on a straight-line basis over the period during which the services are performed? [SOP 97-2.66] 70. If vendor-specific objective evidence of the fair value does not exist to allocate a portion of the fee to the service element, and the only undelivered element is services that do not involve significant production, modification, or customization of the software (e.g., training or installation), has the entire arrangement fee been recognized either as services are performed if a pattern of performance is discernible or on a straight-line basis over the period during which the services are performed if no pattern of performance is discernible? [SOP 97-2.67] 71. Has the vendor treated as core software any software included in the arrangement that is not sold as is because customers cannot use it unless it is customized to meet system objectives or customer specifications? [SOP 972.68]
Yes
No
531
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) 72. Off-the-shelf software is software that is marketed as a stock item that can be used by customers with little or no customization. If the software that is included in the arrangement is not considered to be off-the-shelf software, or if significant modifications or additions to the off-theshelf software are necessary to meet the customer's functionality, has no element of the arrangement been accounted for as a service, and has contract accounting been applied to both the software and service elements of the arrangement? [SOP 97-2.68-69] 73. Have the following factors indicating that the service element is essential to the functionality of the other elements of the arrangement, and consequently should not be accounted for separately, been considered by the vendor: [SOP 97-2.70] The software is not off-the-shelf software The services include significant alterations to the features and functionality of the off-the-shelf software Building complex interfaces is necessary for the vendor's software to be functional in the customer's environment The timing of payments for the software is coincident with performance of the services Milestones or customer-specific acceptance criteria affect the realizability of the software-license fee? 74. Have the following factors indicating that the service element of an arrangement should be accounted for separately from the delivery of software, been considered? [SOP 97-2.71] The services are available from other vendors The services do not carry a significant degree of risk or unique acceptance criteria The software vendor is an experienced provider of the services The vendor is providing primarily implementation services, such as implementation planning, loading of software, training of customer personnel, data conversion, building simple interfaces, running test data, and assisting in the development and documentation of procedures
Yes
No
532
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) Customer personnel are dedicated to participate in the services being performed? 75. Funded Software Development Arrangements Has a funded software-development arrangement within the scope of FASB 68, Research and Development Arrangements, been accounted for in conformity with that Statement? [SOP 97-2.73] 76. If the technological feasibility of the computer software product has been established pursuant to the provisions of FASB 86 before the arrangement has been entered into, has FASB 68 not been applied because the arrangement is not a research and development arrangement? [SOP 972.73] 77. If capitalization of the software development costs commences pursuant to FASB 86, has any income from the funding party under a funded software development arrangement been credited first to the amount of the development costs capitalized? [SOP 97-2.73] 78. If the income from the funding party exceeds the amount of development costs capitalized, has the excess been deferred and credited against future amounts that subsequently qualify for capitalization? [SOP 97-2.73] 79. For any deferred amount remaining after the project is completed (i.e., when the software is available for general release to customers and capitalization has ceased) has that remaining amount then been credited to income? [SOP 97-2.73] E. Contract Accounting 80. If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customization of software, has the entire arrangement been accounted for in conformity with ARB 45, using the relevant guidance in SOP 81-1? [SOP 97-2.74] 81. In applying contract accounting, has the vendor used only the percentage-of-completion method or the completedcontract method and made the determination of the appropriate method in accordance with of SOP 81-1.21.33? [SOP 97-2.75] 82. Segmentation. If a contract is segmented in accordance with the segmentation criteria of SOP 81-1.39-.42, has the
Yes
No
533
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) vendor: [SOP 97-2.76-80] a. Treated each segment as a separate profit center? b. Measured progress-to-completion for each segment using the method that best approximates the progressto completion, whether it be input or output measures? c. Chosen measurement methods consistently such that similar methods are used to measure progress-tocompletion on similar elements? 83. Input Measures. If the vendor is using input measures: a. Have costs incurred been included in measuring progress-to-completion only to the extent that they relate to contract performance, and b. Have costs of items not specifically produced for the arrangement, such as hardware purchased from third parties or off-the-shelf software not been included in the measurement of progress-to-completion? [SOP 97-2.82] 84. Output Measures. If the vendor is using output measures, has progress been measured in terms of the value added or milestones reached as follows: [SOP 97-2.85-91] a. Value Added In order for the value added to be verifiable, has the vendor identified elements or subcomponents of those elements and if such measures are neither known nor reasonably estimable, have they not been used to measure progress-tocompletion? b. Value Added If value added by off-the-shelf software has been included in the measurement of progress-to-completion, does such software not required more than minor modifications and is it usable by the customer for the customer's purpose in the customer's environment? c. Value Added If more than minor modifications or additions to the off-the-shelf software are necessary to meet the functionality required under the arrangement terms, either by changing or making additions to the software, or because the software would not be usable by the customer in its off-the-shelf form for the customer's purpose in the customer's environment, has the software been accounted for as core software? d. Value Added Has value added by the
Yes
No
534
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) customization of core software been included in the measurement of progress-to-completion of the customization and installation at the user's site, unless the installation and customization processes are divided into separate output modules? e. Value Added If the installation and customization processes are divided into separate output modules, has the value of core software associated with the customization of a module been included in the measurement of progress-to-completion when that module is completed? f. Contract Milestones Even though the achievement of contract milestones may cause arrangement revenues to become billable under the arrangement, have the amounts billable been used to measure progress-to-completion only if such amounts indicate such progress?
Yes
No
g. Contract Milestones Are the milestones that are selected to measure progress-to-completion part of the management review process and has the percentageof-completion designated for each milestone been determined considering the experience of the vendor on similar projects? F. Costs of Computer Software to be Sold, Leased, or Otherwise Marketed 1. Have all costs incurred by the company to establish the technological feasibility of a computer software product to be sold, leased, or otherwise marketed been charged to expense when incurred as required by FASB 2, Accounting for Research and Development Costs? [FASB 86.03] 2. Has the company established the minimum required evidence of technological feasibility of its product by performing the activities in categories a. or b. below, as appropriate: [FASB 86.04] a. If the process of creating the computer software product includes a detail program design: (1) Have the product design and the detail program design been completed and does the company have the means to produce the product? (2) Have the completeness of the detail program design and its consistency with the product
535
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) design been confirmed by documenting and tracing the detail program design to product specifications? (3) Has the detail program design been reviewed for high-risk development issues and have any uncertainties been resolved through coding and testing? b. If the process of creating the computer software product does not include a detail program design as noted above: (1) Have a product design and a working model of the product been developed? (2) Have the completeness of the working model and its consistency with the product design been confirmed by testing? 3. Have the costs of producing product masters, including coding and testing, performed subsequent to establishing technological feasibility, been capitalized? [FASB 86.05] 4. If computer software is to be used as an integral part of a product or process, has the capitalization of software production costs been delayed until both (a) the technological feasibility of the software has been established and (b) all R&D activities for the other components of the product or process have been completed? [FASB 86.05] 5. Has capitalization of costs ceased when the product is available for general release to customers? [FASB 86.06] 6. Have maintenance and customer support costs been charged to expense when related revenue was recognized or when those costs were incurred, whichever occurred first? 7. Has the cost of purchased computer software to be sold, leased, or otherwise marketed that has no alternative future use been accounted for the same as costs incurred for internally developed software? [FASB 86.07] 8. If purchased software has an alternative future use, has the cost been capitalized and accounted for in accordance with its use? 9. Are capitalized software costs being amortized on an individual product basis commencing at the point that the product becomes available for release to customers, and at
Yes
No
536
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) a rate equal to the greater of (a) the ratio that current gross revenue bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line rate based on the remaining estimated economic life of the product including the current period? [FASB 86.08] 10. Have the costs incurred for duplicating the computer software, documentation, and training materials from the product masters and for physically packaging the product for distribution been capitalized as inventory on a unitspecific basis and charged to cost of sales as revenue from the sale of those units is recognized? [FASB 86.09] 11. a. Are the unamortized capitalized costs of each computer software product stated at the lower-of-cost or net realizable value, with net realizable value computed as estimated future gross revenues less estimated future costs of completing and disposing of that product, including costs of maintenance and customer support required to satisfy the entity's responsibility set forth at the time of sale? [FASB 86.10] b. Has the amount of any write-down NOT been subsequently restored? 12. Has the company considered the guidance on applying FASB 86 included in the FASB Staff Implementation Guide? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) The Task Force addressed the accounting by a vendor for consideration given to a customer including classification and measurement. 00-2, Accounting for Web Site Development Costs This Issue includes guidance on the accounting for costs relating to software used to develop and operate a web site, including whether these costs should be accounted for under SOP 98-1 or FASB 86. 96-6, Accounting for the Film and Software Costs Associated with Developing Entertainment and Educational Software Products This Issue addresses the accounting for film production and software costs associated with the development of entertainment and educational software
Yes
No
537
Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) applications.
Yes
No
Disclosure: SOFTWARE REVENUE RECOGNITION AND COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED (12/08) SOFTWARE REVENUE RECOGNITION (12/08) 1. Have the following required disclosures been made: [FASB 86.11] a. Unamortized computer software costs included in each balance sheet presented? b. In each income statement presented, the total amount charged to expense for: (1) Amortization of capitalized computer software costs? (2) Amounts written down to net realizable value? c. Computer software research and development costs in accordance with FASB 2? [See section R50.] [FASB 86.12]
Yes
No
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) Scope and Definition 1. Has the entity accounted for all financial instruments or other contracts with all three of the following characteristics as derivative instruments pursuant to FASB 133 (except for contracts for which one or more of the scope exceptions in paragraphs 10-11 of FASB 133 apply)? [FASB 133.6] a. It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. b. It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. c. Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it
Yes
No
538
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. 2. Has the entity accounted for all loan commitments that relate to the origination of mortgage loans that will be held for sale, as discussed in FASB 65, Accounting for Mortgage Banking Activities (as amended), as derivative instruments if it is the issuer of the loan commitment (that is, the potential lender), except for contracts for which one or more of the scope exceptions in paragraphs 10-11 of FASB 133 applies? [FASB 133.6] 3. Has the entity applied the "regular-way" securities trade exception from the scope of FASB 133 only to those contracts that provide for delivery of a security within the time generally established by regulations or conventions in the marketplace or exchange in which the transaction is being executed? [FASB 133.10(a)] 4. Has the entity refrained from applying the "regular-way" securities trade exception from the scope of FASB 133 for any contract for an existing security if the contract requires or permits net settlement or if a market mechanism to facilitate net settlement of that contract exists (except for an entity that is required to account for a contract to purchase or sell an existing security on a trade-date basis)? [FASB 133.10(a)] Normal Purchases and Normal Sales 5. Has the entity applied the normal purchases and normal sales exception from the scope of FASB 133 only to those contracts that satisfy the following conditions? [FASB 133.10(b)] a. Does the contract provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold by the reporting entity over a reasonable period in the normal course of business? b. Did the entity document the designation of the contract as a normal purchase or normal sale? c. For forward contracts, did the entity document the basis for concluding that it is probable that the contract will not settle net and will result in physical delivery? d. For power purchase or sales agreements, did the entity document the basis for concluding that the agreement
Yes
No
539
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) meets the criteria of paragraph 58(b) of FASB 133? e. Does the contract meet the other conditions for applying the normal purchases and normal sales exception of FASB 133? 6. Has the entity applied the scope exception from FASB 133 for financial guarantee contracts only if they meet all of the following conditions? [FASB 133.10(d)] a. Do they provide for payments to be made solely to reimburse the guaranteed party for failure of the debtor to satisfy its required payment obligations under a nonderivative contract, either at pre-specified payment dates or accelerated payment dates as a result of the occurrence of an event of default (as defined in the financial obligation covered by the guarantee contract) or notice of acceleration being made to the debtor by the creditor? b. Is payment under the financial guarantee contract made only if the debtor's obligation to make payments as a result of conditions as described in (1) above is past due? c. Is the guaranteed party, as a precondition in the contract (or in the back-to-back arrangement, if applicable) for receiving payment of any claim under the guarantee, exposed to the risk of nonpayment both at inception of the financial guarantee contract and throughout its term either through direct legal ownership of the guaranteed obligation or through a back-to-back arrangement with another party that is required by the back-to-back arrangement to maintain direct ownership of the guaranteed obligation? 7. Has the entity appropriately applied the scope exceptions from FASB 133 for (a) certain insurance contracts, (b) financial guarantee contracts, (c) certain contracts not traded on an exchange, (d) derivatives that serve as impediments to sales accounting, (f) investments in life insurance contracts, (g) certain investment contracts, (h) loan commitments, and (i) registration payment arrangements within the scope of EITF 00-19-2 only if such contracts qualify for those scope exceptions? [FASB 133.10(c-i)]
Yes
No
540
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) Embedded Derivatives [NOTE: The following questions assume the entity has not elected the fair value option under FASB 159.] 8. Unless the circumstances in question 10 12 apply, has the entity separated from their host contracts (e.g., bonds, insurance policies, and leases) those embedded derivative instruments that meet all of the following criteria and accounted for them as derivative instruments? [FASB 133.12 and 16 as amended by FASB 155] a. The economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract (as discussed in FASB 133). b. The contract ('the hybrid instrument') that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur. c. A separate instrument with the same terms as the embedded derivative instrument would be a derivative instrument subject to the requirements of FASB 133 (except if the separate instrument with the same terms as the embedded derivative instrument would be classified in stockholders' equity absent the provisions in FASB 150). 9. If the entity is a holder of an interest in securitized financial assets (other than interest-only strips and principal-only strips that represent the right to receive only a specified proportion of the contractual interest or principal cash flows of a specific debt instrument and do not incorporate any terms not present in the original debt instrument), has the entity determined whether the interest is a freestanding derivative or contains an embedded derivative that under paragraphs 12 and 13 of FASB 133 would be required to be separated from the host contract and accounted for separately? [FASB 133.14A, as added by FASB 155] 10. Has the entity refrained from accounting for the following as an embedded derivative: (a) any changes in cash flows attributable to changes in the creditworthiness of an interest resulting from securitized financial assets and liabilities (including derivative contracts) that represent the assets or liabilities held by the issuing entity, and (b) the
Yes
No
541
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) concentration of credit risk in the form of subordination of one financial instrument to another? [FASB 133.14B, as added by FASB 155] 11. Has the entity refrained from separating a foreign currency derivative instrument from the host contract, if the host contract is not a financial instrument and it requires payment(s) denominated in (a) the functional currency of any substantial party to the contract, (b) the currency in which the price of the related good or service that is acquired or delivered is routinely denominated in international commerce, (c) the local currency of any substantial party to the contract, or (d) the currency used by a substantial party to the contract as if it were the functional currency because the primary economic environment in which the party operates is highly inflationary? [FASB 133.15] 12. If an embedded derivative instrument that FASB 133 requires to be separated from its host contract can not be reliably identified and measured, has the entity measured the entire contract at fair value with gain or loss recognized in earnings? [FASB 133.16] 13. Has the entity accounted for those host contracts from which embedded derivatives have been separated based on generally accepted accounting principles applicable to instruments of that type that do not contain embedded derivatives? [FASB 133.16] 14. Has the entity irrevocably elected to initially and subsequently measure at fair value (with changes in fair value recognized in earnings) only those hybrid instruments that under paragraph 12 of FASB 133 would be required to be separated into a host contact and a derivative instrument or that are eligible for the fair value option under FASB 159? [FASB 133.16, as amended by FASB 155 and FASB 159] 15. If the entity has made the fair value election for any hybrid instrument (see question 14), is that election supported by concurrent documentation or a preexisting documented policy for automatic election? [FASB 133.16, as amended by FASB 155] 16. Has the entity refrained from designating any hybrid financial instrument for which the fair value election has been made (see question 14) as a hedging instrument pursuant to FASB 133? [FASB 133.16, as amended by
Yes
No
542
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) FASB 155] 17. Has the entity appropriately considered the guidance in paragraph 17 of FASB 157 in determining whether or not the transaction price is representative of fair value at inception? [FASB 133.16A as amended by FASB 157.E18(a), FASB 157.17] [NOTE: FASB 157 amends FASB 133 to remove paragraph 16A (as well as similar guidance in footnote 3 of EITF Issue 02-3). Under FASB 157 entities must consider the guidance in paragraph 17 in determining whether or not the transaction price represents fair value at inception.] 18. Has the entity applied retroactively the provisions of FASB 157 to a hybrid financial instrument that was measured at fair value at initial recognition under FASB 133 using the transaction price in accordance with the guidance in FASB 133 (added by FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments) prior to initial application of FASB 157 as a cumulative-effect adjustment to the opening balance of retained earnings measured as a difference between the carrying amount and the fair values of those instruments at the date of adoption? [FASB 133.16A, as amended by FASB 157.E18(a); FASB 157.37(c)] Derivatives 1. Has the entity recognized all derivative instruments in the statement of financial position as either assets or liabilities and measured them at fair value? [FASB 133.17] 2. Has the entity recognized currently in earnings all gains and losses on derivative instruments (or proportion thereof) not designated as a hedging instrument? [FASB 133.18] Fair Value Hedges 1. Has the entity applied fair value hedge accounting only to those hedging relationships for which the entity designated a derivative instrument (rather than a nonderivative instrument) as a hedging instrument, except as permitted for foreign currency fair value hedges of unrecognized firm commitments (paragraph 37 of FASB 133)? [FASB 133.20] 2. Has the entity applied fair value hedge accounting only to those hedging relationships for which the entity is hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable
Yes
No
543
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) to a particular risk? (The reference to an asset or a liability includes a firm commitment.) [FASB 133.20] 3. Has the entity applied fair value hedge accounting only to those designated hedging instruments and hedged items for which there was at the inception of the hedge formal documentation of the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge? [FASB 133.20(a)] 4. Has the entity applied fair value hedge accounting only to those designated hedging instruments and hedged items for which the formal documentation at the inception of the hedge include identification of all of the following? [FASB 133.20(a), FASB 133.62, and EITF Topic D-102] a. The hedging instrument? b. The hedged item or transaction? c. The nature of the risk being hedged? d. The method that would be used to retrospectively and prospectively assess the hedging instrument's effectiveness? e. The method that would be used to measure hedge ineffectiveness? 5. Has the entity applied fair value hedge accounting to fair value hedges of firm commitments only to those hedges for which the entity's formal documentation at the inception of the hedge include a reasonable method for recognizing in earnings the asset or liability representing the gain or loss on the hedged firm commitment? [FASB 133.20(a)(1)] 6. Has the entity applied fair value hedge accounting only to those designated hedging instruments and hedged items for which the hedging relationship both at inception of the hedge and on an ongoing basis is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk during the period that the hedge is designated? [FASB 133.20(b)] 7. Has the entity applied fair value hedge accounting only to those designated hedging instruments and hedged items for which assessments of effectiveness were undertaken whenever financial statements or earnings were reported and at least every three months? [FASB 133.20(b)] 8. Has the entity applied fair value hedge accounting only to those designated hedging instruments and hedged items for
Yes
No
544
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) which assessments of effectiveness were consistent with the risk management strategy documented for that particular hedging relationship? [FASB 133.20(b)] 9. For those written options that were designated as hedging instruments in fair value hedges of a recognized asset or liability or an unrecognized firm commitment, has the entity applied fair value hedge accounting only to those hedging relationships for which the combination of the hedged item and the written option provide at least as much potential for gains as a result of a favorable change in the fair value of the combined instruments as exposure to losses from an unfavorable change in their combined fair value in accordance with paragraph 20(c) of FASB 133? [FASB 133.20(c)] 10. Has the entity applied fair value hedge accounting only to those hedging relationships for which the hedged item meets the following conditions? [FASB 133.21(a)] a. Is the hedged item specifically identified as either all or a specific portion of a recognized asset or liability or of an unrecognized firm commitment? b. Is the hedged item a single asset or liability (or a specific portion thereof) or a portfolio of similar assets or a portfolio of similar liabilities (or a specific portion thereof)? 11. If the entity aggregated and hedged similar assets or similar liabilities and designated them in fair value hedges as a hedged item on a portfolio basis, has the entity applied fair value hedge accounting only to those hedging relationships for which the following conditions are met: [FASB 133.21(a)(1)] a. Do the individual assets or individual liabilities share the risk exposure for which they were designated as being hedged? b. Is the change in fair value attributable to the hedged risk for each individual item in the hedged portfolio expected to respond in a generally proportionate manner to the overall change in fair value of the aggregate portfolio attributable to the hedged risk? 12. If the entity designated as a hedged item in a fair value hedge a specific portion of an asset or liability (or of a portfolio of similar assets or a portfolio of similar liabilities), has the entity applied fair value hedge
Yes
No
545
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) accounting only to those hedging relationships for which the hedged item is one of the following: (a) a percentage of the entire asset or liability (or of the entire portfolio), (b) one or more selected contractual cash flows (such as the portion of the asset or liability representing the present value of the interest payments in the first two years of a four-year debt instrument), (c) a put option or call option (including an interest rate or price cap or an interest rate or price floor) embedded in an existing asset or liability that is not an embedded derivative accounted for separately, or (d) the residual value in a lessor's net investment in a direct financing or sales-type lease? [FASB 133.21(a)(2)] 13. Has the entity applied fair value hedge accounting only to those hedging relationships for which the hedged item presents an exposure to changes in fair value attributable to the hedged risk that could affect reported earnings (except for an entity that does not report earnings as a separate caption in a statement of financial performance, such as a not-for-profit organization)? [FASB 133.21(b)] 14. Has the entity applied fair value hedge accounting only to those hedging relationships for which the hedged item is something other than the following? [FASB 133.21(c)] a. An asset or liability that is remeasured with the changes in fair value attributable to the hedged risk reported currently in earnings? b. An investment accounted for by the equity method in accordance with the requirements of APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock? c. A minority interest in one or more consolidated subsidiaries? d. An equity investment in a consolidated subsidiary? e. A firm commitment either to enter into a business combination or to acquire or dispose of a subsidiary, a minority interest, or an equity method investee? f. An equity instrument issued by the entity and classified in stockholders' equity in the statement of financial position?
Yes
No
15. If the entity is hedging all or a portion of a debt security (or a portfolio of similar debt securities) that is classified as held-to-maturity in accordance with FASB 115, Accounting for Certain Investments in Debt and Equity Securities, has
546
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) the entity applied fair value hedge accounting only if the designated risk being hedged is the risk of changes in its fair value attributable to credit risk, foreign exchange risk, or both? [FASB 133.21(d)] 16. If the entity is hedging an option component of a held-tomaturity security that permits its prepayment, has the entity applied fair value hedge accounting only if the designated risk being hedged is the risk of changes in the entire fair value of that option component? [FASB 133.21(d)] 17. If the entity is hedging a nonfinancial asset or liability (other than a recognized loan servicing right or a nonfinancial firm commitment with financial components), has the entity applied fair value hedge accounting only if the designated risk being hedged is the risk of changes in the fair value of the entire hedged asset or liability (reflecting its actual location if a physical asset) (i.e., the price risk of a similar asset in a different location or of a major ingredient may not be the hedged risk)? [FASB 133.21(e)] 18. If the entity is hedging a financial asset or liability, a recognized loan servicing right, or a nonfinancial firm commitment with financial components, has the entity applied fair value hedge accounting only if the designated risk being hedged is either (a) the risk of changes in the overall fair value of the entire hedged item or (b) one or more of the following risks: (i) the risk of changes in its fair value attributable to changes in the designated benchmark interest rate (referred to as interest rate risk), (ii) the risk of changes in its fair value attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk), or (iii) the risk of changes in its fair value attributable to both changes in the obligor's creditworthiness and changes in the spread over the benchmark interest rate with respect to the hedged item's credit sector at inception of the hedge (referred to as credit risk)? [FASB 133.21(f)] 19. If the entity designated interest rate risk as the risk being hedged in a fair value hedge, has the entity applied fair value hedge accounting only if all of the following conditions are met? [FASB 133.21(f)] a. Was the benchmark interest rate being hedged specifically identified as part of the designation and documentation at the inception of the hedging relationship?
Yes
No
547
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) b. Is the use of different benchmark interest rates for similar hedges rare and justified? c. In calculating the change in the hedged item's fair value attributable to changes in the benchmark interest rate, are the estimated cash flows used in calculating fair value based on all of the contractual cash flows of the entire hedged item? 20. Has the entity accounted for gains and losses on qualifying fair value hedges as follows? [FASB 133.22] a. Has the gain or loss on the hedging instrument been recognized currently in earnings? b. Has the gain or loss (i.e., the change in fair value) on the hedged item attributable to the hedged risk been recorded as an adjustment to the carrying amount of the hedged item and been recognized currently in earnings? 21. For all hedging relationships designated as a fair value hedge, has the entity measured hedge ineffectiveness consistent with the entity's risk management strategy and the method of measuring hedge ineffectiveness that it documented at the inception of the hedging relationship? [FASB 133.22] 22. If the hedged item in a fair value hedge is otherwise measured at fair value with changes in fair value reported in other comprehensive income (e.g., available-for-sale securities), has the entity recognized in earnings the adjustment of the hedged item's carrying amount attributable to the hedged risk rather than making an adjustment to other comprehensive income in order to offset the gain or loss on the hedging instrument? [FASB 133.23] 23. Has the entity accounted for adjustments to the carrying amount of the hedged item in the same manner as other components of the carrying amount of that asset or liability? For example, an adjustment to the carrying amount of a hedged asset held for sale (e.g., inventory) would remain as part of the carrying amount of the asset until it is sold, at which point the entire carrying amount of the hedged asset would be recognized as the cost of the item sold in determining earnings. [FASB 133.24] 24. If the entity has fair value hedged an interest-bearing financial instrument, has the entity amortized to earnings the adjustment to the carrying amount of the interest-
Yes
No
548
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) bearing financial instrument beginning no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged? [FASB 133.24] 25. Has the entity prospectively discontinued hedge accounting for any existing fair value hedge if any of the following occurred? [FASB 133.25] a. Any of the qualifying criteria for a fair value hedge were no longer met? b. The derivative expired or was sold, terminated, or exercised? c. The entity removed the designation of the fair value hedge? 26. If a periodic assessment of effectiveness indicated noncompliance with the effectiveness criterion of FASB 133, as amended and interpreted, did the entity cease to recognize the adjustment to the carrying amount of the hedged item on the last date on which compliance with the effectiveness criterion was established or, if the event or change in circumstances that caused the hedging relationship to fail the effectiveness criterion can be identified, on that date of the change in circumstances? [FASB 133.26] 27. If the entity discontinued a fair value hedge of a firm commitment because the hedged item no longer meets the definition of a firm commitment, has the entity derecognized any asset or liability previously recognized as a result of this hedging relationship and recognized the corresponding loss or gain currently in earnings? [FASB 133.26] 28. If the entity has designated an asset or liability as a hedged item in a fair value hedge, has the entity applied the applicable requirements in generally accepted accounting principles for assessing impairment for that type of asset or for recognizing an increased obligation for that type of liability after hedge accounting has been applied for the period and the carrying amount of the hedged asset or liability been adjusted? [FASB 133.27] 29. If the entity has made an assumption of no ineffectiveness for hedging relationships of interest rate risk involving a recognized interest-bearing asset or liability (or a firm commitment arising on the trade [pricing] date to purchase or issue an interest-bearing asset or liability provided that
Yes
No
549
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) the trade date of the asset or liability differs from its settlement date due to generally established conventions in the market place in which the transaction is executed) and an interest rate swap (or a compound hedging instrument composed of an interest rate swap and a mirror-image call or put option), has the entity applied fair value hedge accounting only to those hedging relationships for which all of the following conditions are met? a. Does the notional amount of the swap match the principal amount of the interest-bearing asset or liability being hedged? [FASB 133.68(a)] b. If the hedging instrument is solely an interest rate swap, is the fair value of that swap at the inception of the hedging relationship zero (with one exception: the fair value of the swap may be other than zero at the inception of the hedging relationship only if the swap was entered into at the relationships inception, the transaction price of the swap was zero in the entitys principal market (or most advantageous market), and the difference between transaction price and fair value is attributable solely to differing prices within the bidask spread between the entry transaction and a hypothetical exit transaction)? [FASB 133.68(b)] c. If the hedging instrument is a compound derivative composed of an interest rate swap and mirror-image call or put option, is the premium for the mirror-image call or put option paid or received in the same manner as the premium on the call or put option embedded in the hedged item as discussed in paragraph 68(b) of FASB 133? [FASB 133.68(b)] d. Is the formula for computing net settlements under the interest rate swap the same for each net settlement? (That is, is the fixed rate the same throughout the term, and is the variable rate based on the same index and includes the same constant adjustment or no adjustment?) [FASB 133.68(c)] e. Is the interest-bearing asset or liability not prepayable (that is, able to be settled by either party prior to its scheduled maturity), except for (1) an interest-bearing asset or liability that is prepayable solely due to an embedded call option provided that the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image call option and (2) an interest-bearing asset or liability that is
Yes
No
550
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) prepayable solely due to an embedded put option provided that the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image put option? [FASB 133.68(d)] f. Does the index on which the variable leg of the swap is based match the benchmark interest rate designated as the interest rate risk being hedged for that hedging relationship? [FASB 133.68(dd)]
Yes
No
g. Are any other terms in the interest-bearing financial instruments or interest rate swaps typical of those instruments and do they not invalidate the assumption of no ineffectiveness? [FASB 133.68(e)] h. Does the expiration date of the swap match the maturity date of the interest-bearing asset or liability? [FASB 133.68(f)] i. j. Is there no floor or cap on the variable interest rate of the swap? [FASB 133.68(g)] Is the interval between repricings of the variable interest rate in the swap frequent enough to justify an assumption that the variable payment or receipt is at a market rate (generally three to six months or less)? [FASB 133.68(h)]
30. Has the entity applied the shortcut method described in paragraph 114 of FASB 133 only to fair value hedges for which an assumption of no ineffectiveness applies for an interest rate swap used as a fair value hedge of a fixed-rate asset or liability? [FASB 133.114] Cash Flow Hedges 1. Has the entity applied cash flow hedge accounting only to hedging relationships for which the entity has designated a derivative instrument (rather than a nonderivative instrument) as a hedging instrument? [FASB 133.28] 2. Has the entity applied cash flow hedge accounting only to those hedging relationships in which the entity is hedging the exposure to variability in expected future cash flows that is attributable to a particular risk? (That exposure may be associated with an existing recognized asset or liability or a forecasted transaction.) [FASB 133.28] 3. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which there was at the inception of the hedge formal
551
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) documentation of the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge? [FASB 133.28] 4. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which the formal documentation at the inception of the hedge include identification of all of the following? [FASB 133.28(a), FASB 133.62, and EITF Topic D-102] a. The hedging instrument? b. The hedged item (or transaction)? c. The nature of the risk being hedged? d. The method that would be used to retrospectively and prospectively assess the hedging instrument's effectiveness? e. The method that would be used to measure hedge ineffectiveness? 5. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which the formal documentation at the inception of the hedging relationship include all relevant details, including all of the following, as applicable: [FASB 133.28(a)(2)] a. The date on or period within which the forecasted transaction is expected to occur? b. The specific nature of asset or liability involved (if any)? c. For hedges of foreign currency exchange risk, the expected currency amount of the forecasted transaction (i.e., specification of the exact amount of foreign currency being hedged)? d. For hedges of risks other than foreign currency exchange risk, the expected quantity (i.e., specification of the physical quantity (i.e., the number of items or units of measure) encompassed by the hedged forecasted transaction) and the current price of a forecasted transaction? 6. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which the formal documentation at the inception of the hedging relationship describe the hedged forecasted transaction with sufficient specificity so that when a
Yes
No
552
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) transaction occurs, it is clear whether that transaction is or is not the hedged transaction? [FASB 133.28(a)] 7. Has the entity applied cash flow hedge accounting only to those hedging relationship that both at inception of the hedge and on an ongoing basis were expected to be highly effective in achieving offsetting changes in cash flows attributable to the hedged risk during the term of the hedge, except as indicated for certain swaps from one variable rate to another variable rate in paragraph 28(d) of FASB 133? [FASB 133.28(b)] 8. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which assessments of effectiveness were undertaken whenever financial statements or earnings were reported and at least every three months? [FASB 133.28(b)] 9. Has the entity applied cash flow hedge accounting only to those designated hedging instruments and hedged items for which assessments of effectiveness were consistent with the risk management strategy documented for that particular hedging relationship? [FASB 133.28(b)] 10. If the entity designated a written option as hedging the variability in cash flows for a recognized asset or liability or an unrecognized firm commitment, has the entity applied cash flow hedge accounting only to those hedging relationships for which the combination of the hedged item and the written option provide at least as much potential for favorable cash flows as exposure to unfavorable cash flows in accordance with paragraph 28(c) of FASB 133? [FASB 133.28(c)] 11. If the entity used a hedging instrument to modify the interest receipts or payments associated with a recognized financial asset or liability from one variable rate to another variable rate, has the entity applied cash flow hedge accounting only to those hedging relationships for which the hedging instrument is: [FASB 133.28(d)] a. A link between an existing designated asset (or group of similar assets) with variable cash flows and an existing designated liability (or group of similar liabilities) with variable cash flows? b. Highly effective at achieving offsetting cash flows? 12. Has the entity applied cash flow hedge accounting only to those hedging relationships for which the forecasted
Yes
No
553
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) transaction designated as being hedged is specifically identified as a single transaction or a group of individual transactions? [FASB 133.29(a)] 13. If the hedged transaction in a cash flow hedge is a group of individual transactions, has the entity applied cash flow hedge accounting only to those hedging relationships for which those individual transactions share the same risk exposure for which they are designated as being hedged (e.g., forecasted purchase and a forecasted sale cannot both be included in the same group of individual transactions that constitute the hedged transaction)? [FASB 133.29(a)] 14. Has the entity applied cash flow hedge accounting only to those hedging relationships for which the occurrence of the forecasted transaction designated as being hedged is probable? [FASB 133.29(b)] 15. Has the entity applied cash flow hedge accounting only to those hedging relationships for which the forecasted transaction designated as being hedged is a transaction with a party external to the reporting entity (except as permitted by paragraph 40 of FASB 133)? [FASB 133.29(c)] 16. Has the entity applied cash flow hedge accounting only to those hedging relationships for which the forecasted transaction designated as being hedged presents an exposure to variations in cash flows for the hedged risk that could affect reported earnings? [FASB 133.29(c)] 17. Has the entity applied cash flow hedge accounting only to those hedging relationships for which the forecasted transaction designated as being hedged is something other than the acquisition of an asset or incurrence of a liability that will subsequently be remeasured with changes in fair value attributable to the hedged risk reported currently in earnings? [FASB 133.29(d)] 18. If the entity is hedging a forecasted transaction related to a recognized asset or liability, has the entity applied hedge accounting only to those hedging relationships for which that asset or liability is an asset or liability that is not remeasured with changes in fair value attributable to the hedged risk reported currently in earnings? [FASB 133.29(d)] 19. If the entity is hedging variable cash flows related to a debt security that is classified as held-to-maturity under FASB 115, has the entity applied hedge accounting only to those hedging relationships for which the risk being hedged is the
Yes
No
554
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) risk of changes in cash flows attributable to credit risk, foreign exchange risk, or both? [FASB 133.29(e)] 20. Has the entity refrained from applying cash flow hedge accounting to any forecasted transaction that involves any of the following? [FASB 133.29(f)] a. A business combination subject to the provisions of FASB 141? b. A parent company's interests in consolidated subsidiaries? c. A minority interest in a consolidated subsidiary? d. An equity-method investment? e. An entity's own equity instruments? 21. If the entity is hedging the forecasted purchase or sale of a nonfinancial asset, has the entity applied hedge accounting only to those hedging relationships for which the designated risk being hedged is either (a) the risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates or (b) the risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset reflecting its actual location if a physical asset? [FASB 133.29(g)] 22. If the entity is hedging the forecasted purchase or sale of a financial asset or liability (or the interest payments on that financial asset or liability) or the variable cash inflow or outflow of an existing financial asset or liability, has the entity applied hedge accounting only to those hedging relationships for which the designated risk being hedged is one or more of the following risks: (a) the risk of overall changes in the hedged cash flows related to the asset or liability, (b) the risk of changes in its cash flows attributable to changes in the designated benchmark interest rate (referred to as interest rate risk), (c) the risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (referred to as foreign exchange risk), or (d) the risk of changes in its cash flows attributable to default, changes in the obligor's creditworthiness, and changes in the spread over the benchmark interest rate with respect to the hedged item's credit sector at inception of the hedge (referred to as credit risk)? [FASB 133.29(h)] 23. If the entity has designated interest rate risk as the risk
Yes
No
555
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) being hedged in a cash flow hedge, has the entity applied cash flow hedge accounting only to those hedging relationships for which the following conditions are met? [FASB 133.29(h)] a. Was the benchmark interest rate being hedged specifically identified as part of the designation and documentation at the inception of the hedging relationship? b. Is the use of different benchmark interest rates for similar hedges rare and justified? c. In a cash flow hedge of a variable-rate financial asset or liability, either existing or forecasted, is the designated risk being hedged not the risk of changes in its cash flows attributable to changes in the specifically identified benchmark interest rate if the cash flows of the hedged transaction are explicitly based on a different index? [FASB 133.29(h)] 24. Has the entity reported the effective portion of the gain or loss on a derivative designated as a cash flow hedge in other comprehensive income? [FASB 133.30] 25. Has the entity reported the ineffective portion of the gain or loss on a derivative designated as a cash flow hedge in earnings? [FASB 133.30(c)] 26. If the entity's defined risk management policy excludes specific components of the gain or loss, or the related cash flows, on the hedging instrument from the assessment of effectiveness (e.g., the time value of an option), has the entity recognized that excluded component of the gain or loss currently into earnings? [FASB 133.30(a)] 27. Has the entity adjusted its accumulated other comprehensive income balance to the lesser (in absolute amounts) of (a) the cumulative gain or loss on the derivative from inception of the hedge less (1) the excluded component discussed in paragraph 30(b) of FASB 133 and (2) the derivative's gain or loss previously reclassified from other comprehensive income into earnings, or (b) the portion of the cumulative gain or loss on the derivative necessary to offset the cumulative change in expected future cash flows on the hedged transaction from inception of the hedge less the derivative's gains or losses previously reclassified into earnings from other comprehensive income? [FASB 133.30(b)]
Yes
No
556
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 28. In a cash flow hedge of the variability of the functionalcurrency-equivalent cash flows for a recognized foreigncurrency-denominated asset or liability that is remeasured at spot exchange rates under FASB 52, has the entity reclassified: [FASB 133.30(d)] a. An amount that will offset the related transaction gain or loss arising from that remeasurement each period from other comprehensive income to earnings if (1) a nonoption-based contract is the hedging instrument and (2) the assessment of effectiveness and measurement of ineffectiveness are based on total changes in the nonoption-based instrument's cash flows? b. An amount to or from other comprehensive income with respect to the changes in the underlying that result in a change in the hedging option's intrinsic value if an option contract is the hedging instrument in a hedge to provide only one-sided offset against the hedged foreign exchange risk? c An amount that adjusts earnings for the amortization of the cost of the option on a rational basis from other comprehensive income to earnings if the assessment of effectiveness and measurement of ineffectiveness are based on total changes in the option contract's cash flows (i.e., the assessment includes the hedging instrument's entire change in fair value its entire gain or loss)?
Yes
No
29. Has the entity reclassified amounts from other comprehensive income into earnings in the same period or periods during which the hedged forecasted transaction affects earnings (e.g., when a forecasted sale actually occurs)? For example, if the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gains and losses in other comprehensive income shall be reclassified into earnings in the same period or periods during which the asset acquired or liability incurred affects earnings (such as in the periods that depreciation expense, interest expense, or cost of sales is recognized)? [FASB 133.31]
557
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 30. If the entity expects that continued reporting of a loss in accumulated other comprehensive income would lead to recognizing a net loss on the combination of the hedging instrument and the hedged transaction (and related asset acquired or liability incurred) in one or more future periods, has the entity reclassified a loss immediately into earnings for the amount that is not expected to be recovered? For example, a loss shall be reported in earnings for a derivative that is designated as hedging a forecasted purchase of inventory to the extent that the cost basis of the inventory plus the related amount reported in accumulated other comprehensive income exceeds the amount expected to be recovered through sales of that inventory. [FASB 133.31] 31. Has the entity prospectively discontinued hedge accounting for any existing cash flow hedge if any of the following occurred? [FASB 133.32] a. Any of the qualifying criteria for a cash flow hedge were no longer met? b. The derivative expired or was sold, terminated, or exercised? c. The entity removed the designation of the cash flow hedge? 32. If the entity discontinued hedge accounting for any existing cash flow hedge, did the entity retain any net gain or loss in accumulated other comprehensive income and reclassify that net gain or loss into earnings only when the forecasted transaction affected earnings (see paragraph 31 of FASB 133) or it was probable the forecasted transaction will not occur (see paragraph 33 of FASB 133)? [FASB 133.32] 33. If the entity discontinued a cash flow hedge because it is probable that the original forecasted transaction will not occur at the end of the originally specified time period or within an additional two-month period of time thereafter (and the hedged forecasted transaction also does not qualify for the exception in paragraph 33 of FASB 133 for rare cases where the existence of extenuating circumstances related to the nature of the forecasted transaction and outside the control or influence of the entity causes the forecasted transaction to be probable of occurring on a date that is beyond the additional two-month period of time), has the entity reclassified the net gain or loss in accumulated other comprehensive income immediately into earnings? [FASB 133.33]
Yes
No
558
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 34. Did the entity apply existing requirements in generally accepted accounting principles for assessing asset impairment or recognizing an increased obligation to assets or liabilities for which variable cash flows had been designated as being hedged in a cash flow hedge after hedge accounting had been applied for the period? [FASB 133.34] 35. If, under existing requirements in generally accepted accounting principles, an impairment loss was recognized on an asset or an additional obligation was recognized on a liability to which a hedged forecasted transaction in a cash flow hedge relates, did the entity reclassify any offsetting net gain or loss to that transaction accumulated in other comprehensive income immediately into earnings? [FASB 133.35] 36. If a recovery was recognized on an asset or liability to which the forecasted transaction in a cash flow hedge relates and for which an impairment loss previously had been recognized, did the entity reclassify any offsetting net loss that had been accumulated in other comprehensive income immediately into earnings? [FASB 133.35] 37. If the entity has made an assumption of no ineffectiveness for hedging relationships of interest rate risk involving a recognized interest-bearing asset or liability (or a firm commitment arising on the trade [pricing] date to purchase or issue an interest-bearing asset or liability provided that the trade date of the asset or liability differs from its settlement date due to generally established conventions in the market place in which the transaction is executed) and an interest rate swap (or a compound hedging instrument composed of an interest rate swap and a mirror-image call or put option), has the entity applied cash flow hedge accounting only to those hedging relationships for which all of the following conditions are met? a. Does the notional amount of the swap match the principal amount of the interest-bearing asset or liability being hedged? [FASB 133.68(a)] b. If the hedging instrument is solely an interest rate swap, is the fair value of that swap at the inception of the hedging relationship zero (with one exception: the fair value of the swap may be other than zero at the inception of the hedging relationship only if the swap was entered into at the relationships inception, the
Yes
No
559
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) transaction price of the swap was zero in the entitys principal market (or most advantageous market), and the difference between transaction price and fair value is attributable solely to differing prices within the bidask spread between the entry transaction and a hypothetical exit transaction)? [FASB 133.68(b)] c. If the hedging instrument is a compound derivative composed of an interest rate swap and mirror-image call or put option, is the premium for the mirror-image call or put option paid or received in the same manner as the premium on the call or put option embedded in the hedged item as discussed in paragraph 68(b) of FASB 133? [FASB 133.68(b)] d. Is the formula for computing net settlements under the interest rate swap the same for each net settlement? (That is, is the fixed rate the same throughout the term, and is the variable rate based on the same index and includes the same constant adjustment or no adjustment?) [FASB 133.68(c)] e. Is the interest-bearing asset or liability not prepayable (that is, able to be settled by either party prior to its scheduled maturity), except for (i) an interest-bearing asset or liability that is prepayable solely due to an embedded call option provided that the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image call option and (ii) an interest-bearing asset or liability that is prepayable solely due to an embedded put option provided that the hedging instrument is a compound derivative composed of an interest rate swap and a mirror-image put option? [FASB 133.68(d)] f. Does the index on which the variable leg of the swap is based match the benchmark interest rate designated as the interest rate risk being hedged for that hedging relationship? [FASB 133.68(dd)]
Yes
No
g. Are any other terms in the interest-bearing financial instruments or interest rate swaps typical of those instruments and do they not invalidate the assumption of no ineffectiveness? [FASB 133.68(e)] h. Are all interest receipts or payments on the variable-rate asset or liability during the term of the swap designated as hedged, and are no interest payments beyond the term of the swap designated as hedged? [FASB
560
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 133.68(i)] i. Is there no floor or cap on the variable interest rate of the swap unless the variable-rate asset or liability has a floor or cap? [FASB 133.68(j)] If the variable-rate asset or liability has a floor or cap, does the swap have a floor or cap on the variable interest rate that is comparable to the floor or cap on the variable-rate asset or liability? [FASB 133.68(j)]
Yes
No
j.
k. Do the repricing dates match those of the variable-rate asset or liability? [FASB 133.68(k)] 38. Has the entity applied the shortcut method described in paragraph 132 of FASB 133 only to cash flow hedges for which the assumption of no ineffectiveness applies for an interest rate swap used as a cash flow hedge of interest receipts on a variable-rate asset (or interest payments on a variable-rate liability)? [FASB 133.132] Foreign Currency Hedges 1. If the hedged item is denominated in a foreign currency, did the entity apply hedge accounting only to the following types of hedges of foreign currency exposure: (a) a fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale security), (b) a cash flow hedge of a forecasted transaction, an unrecognized firm commitment, the forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability, or a forecasted intercompany transaction, or (c) a hedge of a net investment in a foreign operation? [FASB 133.36] 2. For fair value hedges of the foreign currency exposure of an unrecognized firm commitment (or a specific portion thereof), has the entity applied hedge accounting only to those hedging relationships for which all of the following conditions are met? [FASB 133.37] a. Is the designated hedging instrument either (a) a derivative instrument or (b) a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under FASB 52? [FASB 133.37] b. Is the entity hedging changes in the fair value of an unrecognized firm commitment, or a specific portion thereof attributable to foreign currency exchange rates? [FASB 133.37]
561
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) c. Are all the criteria for fair value hedge accounting of FASB 133 met? [FASB 133.37] d. For consolidated financial statements, is either (1) the operating unit that has the foreign currency exposure is a party to the hedging instrument or (2) another member of the consolidated group that has the same functional currency as that operating unit a party to the hedging instrument and, if so, is there no intervening subsidiary with a different functional currency? [FASB 133.40(a)] e. Is the hedged transaction denominated in a currency other than the hedging unit's functional currency? [FASB 133.40(b)] 3. For fair value hedges of the foreign currency exposure of a recognized asset or liability (or a specific portion thereof), has the entity applied hedge accounting only to those hedging relationships for which all of the following conditions are met? [FASB 133.37A] a. Is the designated hedging instrument a derivative instrument (rather than a nonderivative financial instrument)? [FASB 133.37A] b. Is the entity hedging the changes in the fair value of a recognized asset or liability (or a specific portion thereof) for which a foreign currency transaction gain or loss is recognized in earnings under FASB 52? [FASB 133.37A] c. Are all the criteria for fair value hedge accounting of FASB 133 met? [FASB 133.37A] d. For consolidated financial statements, is either (1) the operating unit that has the foreign currency exposure is a party to the hedging instrument or (2) another member of the consolidated group that has the same functional currency as that operating unit a party to the hedging instrument and, if so, is there no intervening subsidiary with a different functional currency? [FASB 133.40(a)] e. Is the hedged transaction denominated in a currency other than the hedging unit's functional currency? [FASB 133.40(b)] 4. For fair value hedges of the foreign currency exposure of an available-for-sale security (or a specific portion thereof),
Yes
No
562
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) has the entity applied hedge accounting only to those hedging relationships for which all of the following conditions are met? [FASB 133.38] a. Is the hedging instrument a derivative instrument (rather than a nonderivative financial instrument)? [FASB 133.38] b. Is the entity hedging the changes in the fair value of an available-for-sale debt security (or a specific portion thereof) attributable to changes in foreign currency exchange rates? [FASB 133.38] c. Are all of the criteria for fair value hedge accounting of FASB 133 met? [FASB 133.38] d. For consolidated financial statements, is either (1) the operating unit that has the foreign currency exposure is a party to the hedging instrument or (2) another member of the consolidated group that has the same functional currency as that operating unit a party to the hedging instrument and there is no intervening subsidiary with a different functional currency? [FASB 133.40(a)] e. Is the hedged transaction denominated in a currency other than the hedging unit's functional currency? [FASB 133.40(b)] f. Is the security not traded on an exchange (or other established marketplace) on which trades are denominated in the investor's functional currency? [FASB 133.38(a)]
Yes
No
g. Are dividends or other cash flows to holders of the security all denominated in the same foreign currency as the currency expected to be received upon sale of the security? [FASB 133.38(b)] 5. For fair value hedges of the foreign currency exposure of an available-for-sale security (or a specific portion thereof), has the entity reported the change in fair value of the hedged available-for-sale equity security attributable to foreign exchange risk in earnings (rather than other comprehensive income) to offset the gain or loss on the hedging instrument? [FASB 133.38] 6. Has the entity accounted for gains and losses on qualifying foreign currency fair value hedges as specified for fair value hedges? [FASB 133.39]
563
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 7. Has the entity recognized the gains and losses on nonderivative hedging instruments attributable to foreign currency risk currently in earnings along with the change in the carrying amount of the hedged firm commitments? [FASB 133.39] 8. For cash flow hedges of the foreign currency exposure of a forecasted transaction, an unrecognized firm commitment, the forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability, or a forecasted intercompany transaction, has the entity applied hedge accounting only to those hedging relationships for which all of the following conditions are met? a. Is the hedging instrument a derivative instrument (rather than a nonderivative financial instrument)? [FASB 133.40] b. Is the entity hedging the foreign currency exposure to variability in the functional-currency-equivalent cash flows associated with a forecasted transaction (for example, a forecasted export sale to an unaffiliated entity with the price to be denominated in a foreign currency), a recognized asset or liability, an unrecognized firm commitment, or a forecasted intercompany transaction (for example, a forecasted sale to a foreign subsidiary or a forecasted royalty from a foreign subsidiary)? [FASB 133.40] c. For consolidated financial statements, is either (1) the operating unit that has the foreign currency exposure a party to the hedging instrument or (2) another member of the consolidated group that has the same functional currency as that operating unit a party to the hedging instrument and, if so, is there no intervening subsidiary with a different functional currency? [FASB 133.40(a)] d. Is the hedged transaction denominated in a currency other than the hedging unit's functional currency? [FASB 133.40(b)] e. Are all of the criteria for cash flow hedge accounting of FASB 133 met, except for the criterion in paragraph 29(c) that requires that the forecasted transaction be with a party external to the reporting entity? [FASB 133.40(c)] f. If the hedged transaction is a group of individual forecasted foreign-currency-denominated transactions,
Yes
No
564
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) are a forecasted inflow of a foreign currency and a forecasted outflow of the foreign currency not included in the same group? [FASB 133.40(d)] g. If the hedged item is a recognized foreign-currencydenominated asset or liability, is all the variability in the hedged item's functional-currency-equivalent cash flows eliminated by the effect of the hedge? (For example, a cash flow hedge cannot be used with a variable-rate foreign-currency-denominated asset or liability and a derivative based solely on changes in exchange rates because the derivative does not eliminate all the variability in the functional currency cash flows.) [FASB 133.40(e)] 9. If the entity in the consolidated financial statements has designated as a hedging instrument in a foreign currency cash flow hedge a foreign currency derivative contract that has been entered into with another member of a consolidated group (such as a treasury center), has the entity applied hedge accounting only if both of the following conditions are satisfied? (That foreign currency derivative instrument is referred to as an "internal derivative.") a. From the perspective of the member of the consolidated group using the derivative as a hedging instrument (the "hedging affiliate"), are the criteria for foreign currency cash flow hedge accounting of FASB 133 satisfied? [FASB 133.40A(a)] b. Did the member of the consolidated group not using the derivative as a hedging instrument (the "issuing affiliate") either (1) enter into a derivative contract with an unrelated third party to offset the exposure that results from that internal derivative or (2) enter into derivative contracts with unrelated third parties that would offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative contracts? [FASB 133.40A(b)] 10. If the entity in the consolidated financial statements has designated an internal derivative as a hedging instrument in a foreign currency cash flow hedge and the issuing affiliate has offset exposure arising from multiple internal derivative contracts on an aggregate or net basis, has the entity applied hedge accounting only if all of the following conditions are satisfied?
Yes
No
565
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) a. Has the issuing affiliate entered into a derivative contract with an unrelated third party to offset, on a net basis for each foreign currency, the foreign exchange risk arising from multiple internal derivative contracts? [FASB 133.40B(a)] b. Does the derivative contract with the unrelated third party generate equal or closely approximating gains and losses when compared with the aggregate or net losses and gains generated by the derivative contracts issued to affiliates? [FASB 133.40B(a)] c. Does the entity exclude internal derivatives that are not designated as hedging instruments from the determination of the foreign currency exposure on a net basis that is offset by the third-party derivative? [FASB 133.40B(b)] d. Does the entity use no nonderivative contracts as hedging instruments to offset exposures arising from internal derivative contracts? [FASB 133.40B(b)] e. Does the foreign currency exposure that is offset by a single net third-party contract arise from internal derivative contracts that (i) mature within the same 31day period and (ii) involve the same currency exposure as the net third-party derivative? [FASB 133.40B(c)] f. Does the offsetting net third-party derivative related to that group of contracts (i) offset the aggregate or net exposure to that currency and (ii) mature within the same 31-day period? [FASB 133.40B(c)]
Yes
No
g. Was the offsetting net third-party derivative related to that group of contracts entered into within 3 business days after the designation of the internal derivatives as hedging instruments? [FASB 133.40B(c)] h. Does the issuing affiliate track the exposure that it acquires from each hedging affiliate? [FASB 133.40B(d)] i. Does the issuing affiliate maintain documentation supporting linkage of each internal derivative contract and the offsetting aggregate or net derivative contract with an unrelated third party? [FASB 133.40B(d)] Did the issuing affiliate refrain from altering or terminating the offsetting derivative with an unrelated third party unless the hedging affiliate initiated that
566
j.
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) action? [FASB 133.40B(e)] k. If the issuing affiliate did alter or terminate the offsetting third-party derivative (which should be rare), did the hedging affiliate prospectively cease hedge accounting for the internal derivatives that are offset by that third-party derivative? [FASB 133.40B(e)] l. Did no member of the consolidated group offset exposures arising from multiple internal derivative contracts on a net basis for foreign currency cash flow exposures related to recognized foreign-currencydenominated assets or liabilities (including situations in which a recognized foreign-currency-denominated asset or liability in a fair value hedge or cash flow hedge results from the occurrence of a specifically identified forecasted transaction initially designated as a cash flow hedge)? [FASB 133.40C]
Yes
No
11. Has the entity accounted for the gains and losses on qualifying foreign currency cash flow hedges as specified for cash flow hedges? [FASB 133.41] 12. For hedges of the foreign currency exposure of a net investment in a foreign operation, has the entity applied hedge accounting only to those hedging relationships for which all of the following conditions are met: [FASB 133.42] a. Is the designated hedging instrument either (a) a derivative instrument or (b) a nonderivative financial instrument that may give rise to a foreign currency transaction gain or loss under FASB 52? [FASB 133.42] [NOTE: A nonderivative financial instrument that is reported at fair value does not give rise to a foreign currency transaction gain or loss under FASB 52 and, thus, cannot be designated as hedging the foreign currency exposure of a net investment in a foreign operation.] b. For consolidated financial statements, is either (1) the operating unit that has the foreign currency exposure a party to the hedging instrument or (2) another member of the consolidated group that has the same functional currency as that operating unit a party to the hedging instrument and, if so, is there no intervening subsidiary with a different functional currency? [FASB 133.40(a)]
567
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) c. Is the hedged transaction denominated in a currency other than the hedging unit's functional currency? [FASB 133.40(b)] 13. Has the entity reported the gains and losses on hedging derivative instruments (or foreign currency transaction gains and losses on nonderivative hedging instruments) that are designated as, and are effective as, economic hedges of net investments in foreign operations in the same manner as a translation adjustment to the extent the hedge is effective? [FASB 133.42] [NOTE: A nonderivative financial instrument that is reported at fair value does not give rise to a foreign currency transaction gain or loss under FASB 52 and, thus, cannot be designated as hedging the foreign currency exposure of a net investment in a foreign operation.] 14. If the entity is hedging foreign currency risk on an after-tax basis, has the entity included the portion of the gain or loss on the hedging instrument that exceeds the loss or gain on the hedged item as an offset to the related tax effects in the period in which those tax effects are recognized? [FASB 133.71] Assessment of Hedge Effectiveness 1. Has the entity applied hedge accounting only to hedging relationships for which all of the following conditions related to the assessment of hedge effectiveness are met: a. Did the entity assess effectiveness for similar hedges in a similar manner or, if it used different methods for similar hedges, was it able to justify the use of different methods? [FASB 133.62] b. In defining how hedge effectiveness will be assessed, did the entity specify whether it will include in that assessment all of the gain or loss on a hedging instrument or exclude all or a part of the hedging instrument's time value from the assessment? [FASB 133.63] c. If the entity in defining how hedge effectiveness will be assessed has excluded all or a part of the hedging instrument's time value from the assessment of hedge effectiveness and is hedging with an option contract, is it assessing effectiveness either based on changes in the option's intrinsic value or the option's minimum value (i.e., its intrinsic value plus the effect of discounting)?
Yes
No
568
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) [FASB 133.63] d. If the entity in defining how hedge effectiveness will be assessed has excluded all or a part of the hedging instrument's time value from the assessment of hedge effectiveness and is hedging with a forward or futures contract, is it assessing effectiveness based on changes in fair value attributable to changes in spot prices? [FASB 133.63] e. Has the entity included currently in earnings changes in any excluded component together with any ineffectiveness that results under the method defined by the entity of assessing ineffectiveness? [FASB 133.63] f. Did the entity exclude no other components of a gain or loss on the designated hedging instrument from the assessment of hedge effectiveness? [FASB 133.63]
Yes
No
g. In assessing the effectiveness of a cash flow hedge, did the entity generally consider the time value of money if significant in the circumstances? [FASB 133.64] h. Did the entity recognize any hedge ineffectiveness resulting from a difference between the basis of the hedging instrument and the hedged item, to the extent that those bases do not move in tandem? [FASB 133.66(a)] i. Did the entity recognize any hedge ineffectiveness resulting from differences in critical terms of the hedging instrument and the hedged item or hedged transaction, such as differences in notional amounts, maturities, quantity, location, or delivery dates? [FASB 133.66(b)] Did the entity recognize any hedge ineffectiveness resulting from a change in the fair value of a derivative hedging instrument that is attributable to a change in the counterparty's creditworthiness? [FASB 133.66]
j.
Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 08-5, Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement This Issue relates to how an issuer should account for debt issued with an inseparable third-party credit enhancement that is measured or disclosed at fair value.
569
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock This Issue relates to whether certain instruments are considered issued for accounting purposes by the issuer or the holder. This Issue also relates to whether certain instruments are considered indexed to a company's own stock within the meaning of EITF 00-19 and FASB 133 for the issuer. 06-7, Issuer's Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133 This Issue relates to how an issuer should account for a previously bifurcated conversion option in a convertible debt instrument if that conversion option no longer meets the bifurcation criteria in FASB 133. 05-2, The Meaning of "Conventional Convertible Debt Instrument" in Issue No. 00-19 This Issue relates to certain aspects of how an entity determines whether an embedded feature in convertible debt meets the scope exception in paragraph 11(a) of FASB 133. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not "Held for Trading Purposes" as Defined in EITF Issue No. 02-3 This Issue relates to whether realized gains and losses should be shown gross or net in the income statement for contracts that are not held for trading purposes, but are derivatives subject to FASB 133. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities This Issue addresses whether recognition of unrealized gains and losses at inception of a derivative contract is appropriate in the absence of quoted market prices or current market transactions for transactions with similar terms. This Issue also addresses whether gains and losses on derivative instruments within the scope of FASB 133 should be shown gross or net in the income statement, if the derivative instruments are held for trading purposes. [NOTE: FASB 157 nullifies the guidance in footnote 3 of this Issue. Entities should instead look to paragraph 17 of FASB 157 in determining whether or not the transaction price is representative of fair value at inception.]
Yes
No
570
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 02-2, When Certain Contracts That Meet the Definition of Financial Instruments Should Be Combined for Accounting Purposes This Issue relates to how to determine when certain contracts that meet the definition of a financial instrument should be combined for accounting purposes. 01-12, The Impact of the Requirements of FASB Statement No. 133 on Residual Value Guarantees in Connection with a Lease This Issue relates to the scope overlap between FASB 13 and FASB 133 with respect to residual value guarantees. This Issue also relates to whether a third-party residual value guarantor should account for a residual value guarantee under FASB 133. 01-6, The Meaning of "Indexed to a Company's Own Stock" This Issue relates to whether certain instruments are considered issued for accounting purposes by the issuer or the holder. This Issue also relates to whether certain instruments are considered indexed to a company's own stock within the meaning of EITF 00-19 and FASB 133 for the issuer. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock This Issue relates to how freestanding contracts that are indexed to, and potentially settled in, a company's own stock should be classified and measured by the company. 00-9, Classification of a Gain or Loss from a Hedge of Debt That Is Extinguished This Issue addresses how a gain or loss from a fair value hedge or a cash flow hedge should be classified when the debt is extinguished. 00-6, Accounting for Freestanding Derivative Financial Instruments Indexed to, and Potentially Settled in, the Stock of a Consolidated Subsidiary This Issue relates to how freestanding derivative instruments entered into by a parent company that are indexed to, and potentially settled in, the stock of a consolidated subsidiary should be classified and measured in the consolidated financial statements. 00-4, Majority Owner's Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest in That Subsidiary This Issue relates to how a majority owner that undertakes certain derivative transactions that are indexed to, and potentially settled in, the shares of a consolidated subsidiary should account for those transactions.
Yes
No
571
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 99-9, Effect of Derivative Gains and Losses on the Capitalization of Interest This Issue relates to whether the interest rate used in capitalizing interest as part of the historical cost of acquiring certain assets under FASB 34 should be the effective yield after gains and losses on the effective portion of a derivative instrument that qualifies as a fair value hedge of the fixed interest rate debt or the original effective rate of the fixed-rate debt. 99-8, Accounting for Transfers of Assets That Are Derivative Instruments but That Are Not Financial Assets This Issue relates to how transfers of assets that are derivative instruments and subject to FASB 133, but not financial assets, should be accounted for. 99-7, Accounting for an Accelerated Share Repurchase Program This Issue relates to how an entity should account for an accelerated share repurchase program. 99-2, Accounting for Weather Derivatives This Issue relates to how an entity should account for non-exchangetraded weather derivatives. 99-1, Accounting for Debt Convertible into the Stock of a Consolidated Subsidiary This Issue relates to how debt issued by a consolidated subsidiary or a parent company and that is convertible into subsidiary stock should be accounted for in the consolidated financial statements. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios This Issue relates to the accounting for beneficial conversion features present in convertible securities. 97-15, Accounting for Contingency Arrangements Based on Security Prices in a Purchase Business Combination This Issue relates to how contingent consideration based on a future security price should be recorded when the contingency arrangement based on security prices guarantees a future security price that is below the price of such securities at the date of a business combination or when the contingency arrangement based on security prices does not result in a guarantee of the minimum value of the total consideration. 97-8, Accounting for Contingent Consideration in a Purchase Business Combination This Issue relates to whether contingent consideration issued in a purchase business combination that is embedded in a security or that
Yes
No
572
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) is in the form of a separate financial instrument should be recorded by the issuer at fair value at the acquisition date pursuant to APB Opinion 16 or recognized only when the contingency is resolved. 97-7, Accounting for Hedges of Foreign Currency Risk Inherent in an Available-for-Sale Marketable Equity Security This Issue relates to whether foreign currency transaction gains or losses on a foreign currency forward exchange contract or foreign-currency-denominated liability may be reported in the FASB 115 separate component of stockholders' equity to offset the portion of the change in fair value of an AFS marketable equity security attributable to foreign exchange rates if the forward exchange contract or the foreign-currency-denominated liability is designated as, and is effective as, a hedge of the AFS marketable equity security. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes This Issue relates to how an investor in a structured note should estimate the cash flows that will be received and how changes in those cash flow estimates should be recognized and measured in interest income. 96-11, Accounting for Forward Contracts and Purchased Options to Acquire Securities Covered by FASB Statement No. 115 This Issue relates to how to account for forward contracts and purchased options with no intrinsic value at acquisition that are entered into to purchase securities that will be accounted for under FASB 115 during the period that the forward or option is outstanding and when the securities are acquired. 90-22, Accounting for Gas-Balancing Arrangements This Issue relates to how to account for a gas-balancing arrangement. 86-28, Accounting Implications of Indexed Debt Instruments This Issue relates to how to account for issued debt instruments with both guaranteed and contingent payments. 86-25, Offsetting Foreign Currency Swaps This Issue relates to how the effect of a change in exchange rates on a foreign currency swap contract should be displayed in the balance sheet. 86-15, Increasing-Rate Debt This Issue relates to how to account for extendable, increasing-rate debt.
Yes
No
573
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 85-29, Convertible Bonds with a "Premium Put" This Issue relates to the accounting for convertible bonds that are issued at par with a "premium put" allowing the investor to redeem the bonds for cash at a multiple of the bond's par value at a date or dates prior to maturity. 85-25, Sales of Preferred Stocks with a Put Option This Issue relates to the accounting for the transfer of perpetual preferred stock with a put option. 85-23, Effect of a Redemption Agreement on Carrying Value of a Security This Issue relates to the accounting for an investment in perpetual preferred stock for which a third party redemption agreement exists 85-20, Recognition of Fees for Guaranteeing a Loan This Issue relates to when a loan guarantor should recognize the guarantee fees in income and whether the guarantor should recognize a liability for potential obligations under the guarantee. 85-9, Revenue Recognition on Options to Purchase Stock of Another Entity This Issue relates to the accounting for issued debt securities that permit the holder to acquire a fixed number of shares of common stock held by the company. D-50, Classification of Gains and Losses from the Termination of an Interest Rate Swap Designated to Commercial Paper This SEC staff announcement relates to the income statement classification of a gain or loss resulting from the termination of an interest rate swap designated to a commercial paper program that subsequently is canceled. D-98, Classification and Measurement of Redeemable Securities This SEC staff announcement addresses financial statement classification and measurement of securities subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. D-102, Documentation of the Methods Used to Measure Hedge Ineffectiveness under FASB Statement No. 133 This FASB staff announcement addresses the documentation requirements, at inception of a hedge, for all types of hedges-fair value, cash flow, and net investment hedges. D-109, Determining the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a
Yes
No
574
Accounting: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) Share under FASB Statement No. 133 This SEC staff announcement addresses the determination of whether the characteristics of a host contract related to a hybrid financial instrument issued in the form of a share are more akin to a debt instrument or more akin to an equity instrument.
Yes
No
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) FASB No. 161, Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No. 133, was issued in March 2008. This section addresses the amended disclosure requirements for derivative instruments that are included within the scope of FASB 133 [FASB 161.02]. These disclosure requirements are effective for quarterly interim periods beginning after November 15, 2008, and fiscal years that include those quarterly interim periods. Comparative disclosures are only required for periods subsequent to initial adoption. Early application is encouraged. Prior to the adoption of the Statement, only Section I below should be completed. Upon adoption of the Statement, only Section II below should be completed. Section I 1. For entities that hold or issue derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments of foreign currency exposures in an unrecognized firm commitment or in a net investment in a foreign operation), the following disclosures should be made: a. Has the entity disclosed its objectives for holding or issuing those instruments? [FASB 133.44] b. Has the entity disclosed the context needed to understand the objectives for holding or issuing those instruments? [FASB 133.44] c. Has the entity disclosed its strategies for achieving its objectives for holding or issuing those instruments?
Yes
No
575
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) [FASB 133.44] d. Has the entity's description distinguished between derivatives (and nonderivative instruments) designated as fair value hedging instruments, derivative instruments designated as cash flow hedging instruments, derivative instruments (and nonderivative instruments) designated as hedging instruments for hedges of the foreign currency exposure of a net investment in a foreign operation and all other derivatives? [FASB 133.44] e. Has the entity's description indicated its risk management policy for each of those types of hedges, including a description of the items or transactions for which risks are hedged? [FASB 133.44] f. For derivative instruments not designated as hedging instruments, does the entity disclose a description of the purpose of the derivative activity? [FASB 133.44]
Yes
No
2. In each statement of financial position presented, has the entity reported those hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133 (as amended by FASB 155) in a manner that separates those reported fair values from the carrying amounts of assets and liabilities subsequently measured using another measurement attribute on the face of the statement of financial position? (To accomplish that separate reporting, an entity may either (a) display separate line items for the fair value and non-fair-value carrying amounts or (b) present the aggregate of those fair value and non-fair-value amounts and parenthetically disclose the amount of fair value included in the aggregate amount.) For those hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133, an entity shall also disclose the information specified in paragraphs 1822 of FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. [FASB 133.44A as amended by FASB 155 and FASB 159] 3. Has the entity provided information that will allow users to understand the effect of changes in the fair value of hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133 on earnings (or other performance indicators for entities that do not report
576
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) earnings)? [FASB 133.44B as amended by FASB 155] Fair Value Hedges 4. For derivative instruments, as well as nonderivative instruments that may give rise to foreign currency transaction gains or losses under FASB 52, that have been designated and have qualified as fair value hedging instruments and for the related hedged items, has the entity disclosed: a. The net gain or loss recognized in earnings during the reporting period representing: [FASB 133.45(a)] (1) The amount of the hedges' ineffectiveness? (2) The component of the derivative instruments' gain or loss, if any, excluded from the assessment of hedge effectiveness? (3) A description of where the net gain or loss is reported in the statement of income or other statement of financial performance? b. The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge? [FASB 133.45(a)] Cash Flow Hedges 5. For derivative instruments that have been designated and have qualified as cash flow hedging instruments and for the related hedged transactions, has the entity disclosed: a. The net gain or loss recognized in earnings during the reporting period representing: [FASB 133.45(b)] (1) The amount of the hedges' ineffectiveness? (2) The component of the derivative instruments' gain or loss, if any, excluded from the assessment of hedge effectiveness? (3) A description of where the net gain or loss is reported in the statement of income or other statement of financial performance? b. A description of the transactions or other events that will result in the reclassification into earnings of gains or losses that are reported in accumulated other comprehensive income? [FASB 133.45(b)] c. The estimated net amount of the existing gains or losses at the reporting date that is expected to be
Yes
No
577
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) reclassified into earnings within the next 12 months? [FASB 133.45(b)] d. The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted transactions excluding those forecasted transactions related to the payment of variable interest on existing financial instruments? [FASB 133.45(b)] e. The amount of gains and losses reclassified into earnings as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transaction will not occur by the end of the originally specified time period or within an additional two month period of time thereafter (or longer due to extenuating circumstances, as discussed in paragraph 33)? [FASB 133.45(b)] Net Investment in Foreign Operations 6. For derivative instruments, as well as nonderivative instruments that may give rise to foreign currency transaction gains or losses under FASB 52, that have been designated and have qualified as hedging instruments for hedges of the foreign currency exposure of a net investment in a foreign operation, has the entity disclosed the net amounts of gains or losses included in the cumulative translation adjustment during the reporting period? [FASB 133.45(c)] Reporting Cash Flows 7. If a derivative that at its inception includes either offmarket terms, or requires an up-front cash payment, or both, has the borrower-entity identified an other-thaninsignificant financing element and reported all cash inflows and outflows associated with that derivative financial instrument in a manner consistent with financing activities as described in paragraphs 18-20 in FASB 95? [FASB 133.45A] Reporting Changes in Other Comprehensive Income 8. Has the entity displayed as a separate classification within other comprehensive income the net gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that are reported in comprehensive income pursuant to paragraphs 30 (cash flow hedges) and 41 (foreign currency cash flow hedges)?
Yes
No
578
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) [FASB 133.46] 9. As part of the disclosures of accumulated other comprehensive income pursuant to paragraph 26 of FASB 130, Reporting Comprehensive Income, has the entity separately disclosed the beginning and ending accumulated derivative gain or loss, the related net change associated with current period hedging transactions, and the net amount of any reclassification into earnings? [FASB 133.47] FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161, was issued in September 2008. This section addresses the disclosures for credit derivatives within the scope of FASB 133 and hybrid instruments that have embedded credit derivatives [FSP No. FAS 133-1 and FIN 45-4.02]. These disclosure requirements are effective for reporting periods (annual or interim) ending after November 15, 2008. Comparative disclosures are only required for periods ending subsequent to initial adoption. Early adoption is encouraged. 1. If the entity is a seller of credit derivatives, has it disclosed for each statement of financial position presented the following information for each credit derivative, or each group of similar credit derivatives, even if the likelihood of the sellers having to make any payments under the credit derivative is remote: [FASB 133.44DD] [Note: for the purpose of the disclosures in paragraph 44DD of FASB 133, a credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the entity to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives include, but are not limited to, credit default swaps, credit spread options, and credit index products. These disclosures also pertain to hybrid instruments that have embedded credit derivatives (e.g., credit-linked notes).] a. The nature of the credit derivative, including the approximate term of the credit derivative, the reason(s) for entering into the credit derivative, the
Yes
No
579
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) events or circumstances that would require the entity to perform under the credit derivative, and the current status (i.e., as of the date of the statement of financial position) of the payment/performance risk of the credit derivative? [FASB 133.44DD(a)] (1) For an entity that uses its own internal groupings for risk management purposes and as support for its disclosure of the current status of the payment/performance risk of the credit derivative, has it also disclosed how those groupings are determined and used for managing risk? b. The maximum potential amount of future payments (undiscounted) the entity could be required to make under the credit derivative? [FASB 133.44DD(b)] (1) Has the entity NOT reduced the maximum potential amount of future payments by the effect of any amounts that may possibly be recovered under recourse or collateralization provisions in the credit derivative? (2) If the terms of the credit derivative provide for no limitation to the maximum potential future payments under the contract, has the entity disclosed that fact? (3) If the entity is unable to develop an estimate of the maximum potential amount of future payments under the credit derivative, has it disclosed the reasons why it cannot develop that estimate? c. The fair value of the credit derivative as of the date of the statement of financial position? [FASB 133.44DD(c)] d. The nature of (1) any recourse provisions that would enable the entity 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 triggering event or condition under the credit derivative, the entity can obtain and liquidate to recover all or a portion of the amounts paid under the credit derivative? [FASB 133.44DD(d)]
Yes
No
580
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (1) Has the entity disclosed, 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? (2) In its estimate of potential recoveries, has the entity, as the seller of credit protection, considered the effect of any purchased credit protection with identical underlying(s)? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 08-5, Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement This Issue relates to how an issuer should account for debt issued with an inseparable third-party credit enhancement that is measured or disclosed at fair value. 06-7, Issuer's Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133 This Issue relates to how an issuer should account for a previously bifurcated conversion option in a convertible debt instrument if that conversion option no longer meets the bifurcation criteria in FASB 133. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities This Issue addresses whether recognition of unrealized gains and losses at inception of a derivative contract is appropriate in the absence of quoted market prices or current market transactions for transactions with similar terms. This Issue also addresses whether gains and losses on derivative instruments within the scope of FASB 133 should be shown gross or net in the income statement, if the derivative instruments are held for trading purposes. [NOTE: FASB 157 nullifies the guidance in footnote 3 of this Issue. Entities should instead look to paragraph 17 of FASB 157 in determining whether or not the transaction price is representative of fair value at inception.] 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock This Issue relates to how freestanding contracts that are indexed to, and potentially settled in, a company's own stock
Yes
No
581
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) should be classified and measured by the company. D-98, Classification and Measurement of Redeemable Securities This FASB staff announcement addresses financial statement classification and measurement of securities subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. SECTION II For entities that have adopted FASB No. 161, the following section should be completed. Prior to the adoption of FASB No. 161, only Section I above should be completed. 1. For an entity that holds or issues derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments of foreign currency exposures in an unrecognized firm commitment or in a net investment in a foreign operation) (collectively, instruments), the following disclosures should be made for every annual and interim reporting period for which a statement of financial position and statement of financial performance are presented: a. Has the entity disclosed its objectives for holding or issuing those instruments? [FASB 133.44] b. Has the entity disclosed the context needed to understand the objectives for holding or issuing those instruments? [FASB 133.44] c. Has the entity disclosed its strategies for achieving its objectives for holding or issuing those instruments? [FASB 133.44] d. Has the entity disclosed information about those instruments in the context of each instruments primary underlying risk exposure (e.g., interest rate, credit, foreign exchange rate, interest rate and foreign exchange rate, or overall price)? [FASB 133.44] (1) Has the entity distinguished those instruments used for risk management purposes from those used for other purposes (instruments used for risk management purposes include those designated as hedging instruments under FASB 133 as well as those used as economic hedges and for other
Yes
No
582
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) purposes related to the entitys risk exposures)? e. For instruments designated as hedging instruments under FASB 133, does the entitys disclosure distinguish between instruments designated as fair value hedging instruments, instruments designated as cash flow hedging instruments, and instruments designated as hedging instruments of the foreign currency exposure in a net investment in a foreign operation? [FASB 133.44] f. For instruments not designated as hedging instruments under FASB 133, does the entity disclose a description of the purpose of the derivative activity? [FASB 133.44]
Yes
No
g. Has the entity disclosed information that would enable users of its financial statements to understand the volume of its derivative activity (has the entity selected the format and the specifics of disclosures relating to its volume of derivative activity that is most relevant and practicable for the entitys individual facts and circumstances)? [FASB 133.44] 2. In each statement of financial position presented, has the entity reported those hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133 (as amended by FASB 155) in a manner that separates those reported fair values from the carrying amounts of assets and liabilities subsequently measured using another measurement attribute on the face of the statement of financial position? [Note: To accomplish that separate reporting, an entity may either (a) display separate line items for the fair value and non-fair-value carrying amounts or (b) present the aggregate of those fair value and non-fair-value amounts and parenthetically disclose the amount of fair value included in the aggregate amount.] For those hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133, an entity shall also disclose the information specified in paragraphs 1822 of FASB No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. [FASB 133.44A]
583
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 3. Has the entity provided information that will allow users to understand the effect of changes in the fair value of hybrid financial instruments measured at fair value under the election and under the practicability exception in paragraph 16 of FASB 133 on earnings (or other performance indicators for entities that do not report earnings)? [FASB 133.44B] 4. For an entity that holds or issues derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB 133) (collectively, instruments), has it disclosed the following, in tabular format, for every annual and interim reporting period for which a statement of financial position and statement of financial performance are presented: [FASB 133.44C] a. The location and fair value amounts of instruments reported in the statement of financial position? [Note: fair value amounts required to be reported for nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB 133 shall be the carrying value of the nonderivative hedging instrument, which includes the adjustment for the foreign currency transaction gain or loss on that instrument.] [FASB 133.44C(a)] (1) Has the entity presented the fair value amounts on a gross basis, even when the instruments are subject to master netting arrangements and qualify for net presentation in the statement of financial position in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts? [Note: cash collateral payables and receivables associated with the instruments shall not be added to or netted against the fair value amounts.] [FASB 133.44C(a)(1)] (2) Has the entity presented the fair value amounts as separate asset and liability values segregated between derivatives that are designated and qualifying as hedging instruments under FASB 133 and those that are not? [FASB 133.44C(a)(2)]
Yes
No
584
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (a) Has the entity presented separately within each of those two broad categories (designated and qualifying hedges versus those that are not) the fair value amounts by type of derivative contract (e.g., interest rate contracts, foreign exchange contracts, equity contracts, commodity contracts, credit contracts, other contracts, and so forth)? [FASB 133.44C(a)(2)] (3) Has the entity disclosed the line item(s) in the statement of financial position in which the fair value amounts for these categories of instruments are included? [FASB 133.44C(a)(3)] b. The location and amount of the gains and losses reported in the statement of financial performance (or when applicable, the statement of financial position, e.g., gains and losses initially recognized in other comprehensive income) on instruments and related hedged items? (1) Has the entity separately presented the gains and losses for the following: (a) Instruments designated and qualifying as hedging instruments in fair value hedges and related hedged items designated and qualifying in fair value hedges? [Note: The quantitative disclosures for hedged items can be presented in a tabular or nontabular format.] [FASB 133.44C(b)(1)] (b) The effective portion of gains and losses on instruments designated and qualifying in cash flow hedges and net investment hedges that was recognized in other comprehensive income during the current period? [FASB 133.44C(b)(2)] (c) The effective portion of gains and losses on instruments designated and qualifying in cash flow hedges and net investment hedges recorded in accumulated other comprehensive income during the term of the hedging relationship and reclassified into earnings during the current period? [FASB 133.44C(b)(3)]
Yes
No
585
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (d) The portion of gains and losses on instruments designated and qualifying in cash flow hedges and net investment hedges representing (a) the amount of the hedges ineffectiveness and (b) the amount, if any, excluded from the assessment of hedge effectiveness? [FASB 133.44C(b)(4)] (e) Instruments not designated or qualifying as hedging instruments under FASB 133? [FASB 133.44C(b)(5)] (2) Has the entity presented the information separately by type of derivative contract (e.g., interest rate contracts, foreign exchange contracts, equity contracts, commodity contracts, credit contracts, other contracts, and so forth)? [FASB 133.44C(b)] (3) Has the entity identified the line item(s) in the statement of financial performance in which the gains and losses for these categories of instruments are included? [FASB 133.44C(b)] c. For instruments that are not designated or qualifying as hedging instruments under FASB 133, if an entitys policy is to include those instruments in its trading activities (e.g., as part of its trading portfolio that includes both derivative and nonderivative or cash instruments) and the entity has elected to not separately disclose gains and losses as required by subparagraph 44C(b)(5) of FASB 133 (item 4b(1)(e) above), has the entity alternatively disclosed all of the following: [FASB 133.44C(c)] (1) The gains and losses on its trading activities (including both derivative and nonderivative instruments) recognized in the statement of financial performance, separately by major types of items (such as fixed income/interest rates, foreign exchange, equity, commodity, and credit)? [FASB 133.44C(c)(1)] (2) The line items in the statement of financial performance in which trading activities gains and losses are included? [FASB 133.44C(c)(2)]
Yes
No
586
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (3) A description of the nature of its trading activities and related risks, and how the entity manages those risks? [FASB 133.44C(c)(3)] 5. For an entity that holds or issues derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB 133) (collectively, instruments), has the entity disclosed the following for every annual and interim reporting period for which a statement of financial position is presented: [FASB 133.44D] a. The existence and nature of credit-risk-related contingent features and the circumstances in which the features could be triggered in instruments that are in a net liability position at the end of the reporting period? [FASB 133.44D(a)] b. The aggregate fair value amounts of instruments that contain credit-risk-related contingent features that are in a net liability position at the end of the reporting period? [Note: fair value amounts required to be reported for nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB 133 shall be the carrying value of the nonderivative hedging instrument, which includes the adjustment for the foreign currency transaction gain or loss on that instrument.] [FASB 133.44D(b)] c. The aggregate fair value of assets that are already posted as collateral at the end of the reporting period and (1) the aggregate fair value of additional assets that would be required to be posted as collateral and/or (2) the aggregate fair value of assets needed to settle the instrument immediately, if the credit-riskrelated contingent features were triggered at the end of the reporting period? [FASB 133.44D(c)] 6. If information on derivative instruments (or nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of FASB 133) is disclosed in more than a single footnote, has the entity cross-referenced from the derivative footnote to other footnotes in which derivative-related information is disclosed? [FASB 133.44E]
Yes
No
587
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) 7. An entitys disclosures for every annual and interim reporting period for which a statement of financial position and a statement of financial performance are presented also shall include the following: [FASB 133.45] Fair Value Hedges a. For derivative instruments, as well as nonderivative instruments that may give rise to foreign currency transaction gains or losses under FASB 52, that have been designated and have qualified as fair value hedging instruments and for the related hedged items, has the entity disclosed: [FASB 133.45(a)] (1) The net gain or loss recognized in earnings during the reporting period representing the following: [FASB 133.45(a)(1)] (a) The amount of the hedges' ineffectiveness? [FASB 133.45(a)(1)] (b) The component of the derivative instruments' gain or loss, if any, excluded from the assessment of hedge effectiveness? [FASB 133.45(a)(1)] (2) The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge? [FASB 133.45(a)(2)] Cash Flow Hedges b. For derivative instruments that have been designated and have qualified as cash flow hedging instruments and for the related hedged transactions, has the entity disclosed: [FASB 133.45(b)] (1) A description of the transactions or other events that will result in the reclassification into earnings of gains or losses that are reported in accumulated other comprehensive income? [FASB 133.45(b)(2)]
Yes
No
588
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (2) The estimated net amount of the existing gains or losses at the reporting date that is expected to be reclassified into earnings within the next 12 months? [FASB 133.45(b)(2)] (3) The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted transactions excluding those forecasted transactions related to the payment of variable interest on existing financial instruments? [FASB 133.45(b)(3)] (4) The amount of gains and losses reclassified into earnings as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transaction will not occur by the end of the originally specified time period or within an additional two month period of time thereafter (or longer due to extenuating circumstances, as discussed in paragraph 33 of FASB 133)? [FASB 133.45(b)(4)] Reporting Cash Flows 8. If a derivative that at its inception includes either offmarket terms, or requires an up-front cash payment, or both, has the borrower-entity identified an other-thaninsignificant financing element and reported all cash inflows and outflows associated with that derivative financial instrument in a manner consistent with financing activities as described in paragraphs 18-20 in FASB 95? [FASB 133.45A] Reporting Changes in Other Comprehensive Income 9. Has the entity displayed as a separate classification within other comprehensive income the net gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that are reported in comprehensive income pursuant to paragraphs 30 (cash flow hedges) and 41 (foreign currency cash flow hedges) of FASB 133? [FASB 133.46] 10. As part of the disclosures of accumulated other comprehensive income pursuant to paragraph 26 of FASB 130, Reporting Comprehensive Income, has the entity separately disclosed the beginning and ending
Yes
No
589
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) accumulated derivative gain or loss, the related net change associated with current period hedging transactions, and the net amount of any reclassification into earnings? [FASB 133.47] FSP No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161, was issued in September 2008. This section addresses the disclosures for credit derivatives within the scope of FASB 133 and hybrid instruments that have embedded credit derivatives [FSP No. FAS 133-1 and FIN 45-4.02]. These disclosure requirements are effective for reporting periods (annual or interim) ending after November 15, 2008. Comparative disclosures are only required for periods ending subsequent to initial adoption. Early adoption is encouraged. 1. If the entity is a seller of credit derivatives, has it disclosed for each statement of financial position presented the following information for each credit derivative, or each group of similar credit derivatives, even if the likelihood of the sellers having to make any payments under the credit derivative is remote: [FASB 133.44DD] [NOTE: For the purpose of the disclosures in paragraph 44DD of FASB 133, a credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the entity to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives include, but are not limited to, credit default swaps, credit spread options, and credit index products. These disclosures also pertain to hybrid instruments that have embedded credit derivatives (e.g., credit-linked notes).]: a. The nature of the credit derivative, including the approximate term of the credit derivative, the reason(s) for entering into the credit derivative, the events or circumstances that would require the entity to perform under the credit derivative, and the current status (i.e., as of the date of the statement of financial position) of the payment/performance risk of the credit derivative? [FASB 133.44DD(a)]
Yes
No
590
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (1) For an entity that uses its own internal groupings for risk management purposes and as support for its disclosure of the current status of the payment/performance risk of the credit derivative, has it also disclosed how those groupings are determined and used for managing risk? b. The maximum potential amount of future payments (undiscounted) the entity could be required to make under the credit derivative? [FASB 133.44DD(b)] (1) Has the entity NOT reduced the maximum potential amount of future payments by the effect of any amounts that may possibly be recovered under recourse or collateralization provisions in the credit derivative? (2) If the terms of the credit derivative provide for no limitation to the maximum potential future payments under the contract, has the entity disclosed that fact? (3) If the entity is unable to develop an estimate of the maximum potential amount of future payments under the credit derivative, has it disclosed the reasons why it cannot develop that estimate? c. The fair value of the credit derivative as of the date of the statement of financial position? [FASB 133.44DD(c)] d. The nature of (1) any recourse provisions that would enable the entity 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 triggering event or condition under the credit derivative, the entity can obtain and liquidate to recover all or a portion of the amounts paid under the credit derivative? [FASB 133.44DD(d)]
Yes
No
591
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) (1) Has the entity disclosed, 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? (2) In its estimate of potential recoveries, has the entity, as the seller of credit protection, considered the effect of any purchased credit protection with identical underlying(s)? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 08-5, Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement This Issue relates to how an issuer should account for debt issued with an inseparable third-party credit enhancement that is measured or disclosed at fair value. 06-7, Issuer's Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133 This Issue relates to how an issuer should account for a previously bifurcated conversion option in a convertible debt instrument if that conversion option no longer meets the bifurcation criteria in FASB 133. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities This Issue addresses whether recognition of unrealized gains and losses at inception of a derivative contract is appropriate in the absence of quoted market prices or current market transactions for transactions with similar terms. This Issue also addresses whether gains and losses on derivative instruments within the scope of FASB 133 should be shown gross or net in the income statement, if the derivative instruments are held for trading purposes. [NOTE: FASB 157 nullifies the guidance in footnote 3 of this Issue. Entities should instead look to paragraph 17 of FASB 157 in determining whether or not the transaction price is representative of fair value at inception.] 00-19, Accounting for Derivative Financial Instruments
Yes
No
592
Disclosure: ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (12/08) Indexed to, and Potentially Settled in, a Company's Own Stock This Issue relates to how freestanding contracts that are indexed to, and potentially settled in, a company's own stock should be classified and measured by the company. D-98, Classification and Measurement of Redeemable Securities This SEC staff announcement addresses financial statement classification and measurement of securities subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. Accounting: FAIR VALUE MEASUREMENTS (12/08) FASB Statement No. 157, Fair Value Measurements (FASB 157), is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted so long as financial statements for any period (interim or annual) of the fiscal year have not yet been issued. On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of FASB 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. FSP FAS 157-2 states that a measurement is recurring if it happens at least annually and defines nonfinancial assets and nonfinancial liabilities as all assets and liabilities other than those meeting the definition of a financial asset or financial liability in FASB 159. Paragraphs 9 and 10 of the FSP include examples of items to which the deferral would and would not apply. FASB 157 essentially applies to all fair value measurements required or permitted by GAAP (the few exceptions are discussed in paragraphs 2 and 3 of FASB 157 and include stock-based compensation (FASB 123(R)). Over 60 accounting pronouncements (see Appendix D of FASB 157 for a listing) require or permit fair value measurements, encompassing both financial and nonfinancial assets and liabilities. Examples include, derivative assets and liabilities (FASB 133), an entity's own debt (liability) elected to be carried at fair value through earnings (FASB 159), impairments of long-lived assets (FASB 144), and intangible assets in a business combination (FASB 141).
Yes
No
Yes
No
593
Accounting: FAIR VALUE MEASUREMENTS (12/08) Entities should answer all the questions in this section of the checklist if it has any fair value measurements within the scope of FASB 157. For entities that have adopted FASB 157, complete the items below. 1. Has the entity applied FASB 157's definition of fair value, which states: "Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date?" [FASB 157.5] 2. Has the fair value measurement of a standalone asset or liability or a group of assets and/or liabilities considered the attributes specific to the asset or liability, for example, the condition and/or location of the asset or liability and restrictions, if any on the use of the asset at the measurement date? [FASB 157.6] 3. Has the unit of account for the asset or liability been determined in accordance with the provisions of other accounting pronouncements (i.e., not FASB 157), except as provided in paragraph 27 (note that paragraph 27 addresses the prohibition against block discounts when the identical asset or liability trades in an active market)? [FASB 157.6] 4. Has the fair value been determined assuming an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date, such that the transaction assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities (i.e., it is not a forced liquidation or distress sale)? [FASB 157.7] 5. Has fair value been determined assuming the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in absence of a principal market, the most advantageous market for the asset or liability based on volume and level of activity from the reporting entity's perspective? [FASB 157.8]
Yes
No
594
Accounting: FAIR VALUE MEASUREMENTS (12/08) 6. If there is a principal market for the asset or liability being measured, does the fair value measurement represent the price in the market (whether that price is directly observable or otherwise determined using a valuation technique) even if the price in a different market is potentially more advantageous at the measurement date? [FASB 157.8] 7. Has the fair value not been adjusted for transaction costs? [FASB 157.9] 8. Has the fair value been adjusted for transportation costs when location is an attribute of the asset or liability (as might be the case for a commodity)? [FASB 157.9] 9. In determining the fair value of an asset or liability, has the entity used market participant assumptions and in developing those assumptions has the entity identified characteristics that distinguish market participants generally, considering factors specific to (a) the asset or liability, (b) the principal (or most advantageous) market for the asset or liability, and (c) market participants with whom the reporting entity would transact in that market? [FASB 157.11] A. Application to Assets and Liabilities 1. Has the fair value of the asset been measured using an inuse or an in-exchange valuation premise, using market participant assumptions (even if the intended use of the asset or liability by the reporting entity is different), as appropriate? [FASB 157.12-14] 2. If the highest and best use of the asset is "in-use," has the fair value of the asset determined based on the price that would be received in a current transaction to sell the asset assuming that the asset would be used with other assets as a group and that those assets would be available to market participants? [FASB 157.13] 3. If the highest and best use of the asset is "in-exchange," has the fair value of the asset measured using an inexchange valuation premise based on the price that would be received in a current transaction to sell the asset standalone? [FASB 157.13] B. Application to Liabilities 1. Has the entity reflected the nonperformance risk in measuring the fair value of a liability, thereby considering the effect of changes in its credit risk (credit standing) on the fair value of liability as well as any credit enhancements related to the liability, if any? [FASB
Yes
No
595
Accounting: FAIR VALUE MEASUREMENTS (12/08) 157.15] C. Fair Value at Initial Recognition 1. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, has the entity considered factors specific to the transaction and the asset or liability, including whether the following factors are present (which may indicate that the transaction price is not representative of fair value)? [FASB 157.17] a. The transaction is between related parties. b. The transaction occurs under duress or the seller is forced to accept the price in the transaction because of urgency. c. The unit of account represented by the transaction is different from the unit of account for the asset or liability measured at fair value. d. The market in which the transaction occurs is different from the principal (or most advantageous) market in which the reporting entity would sell or otherwise dispose of the asset or transfer the liability. D. Valuation Techniques 1. Has the entity measured fair value by using a valuation technique (or a combination of valuation techniques) that is appropriate in the entity's given circumstances and for which sufficient data is available? [FASB 157.19] 2. If the entity has used multiple valuation techniques, are the results (respective indicators of fair value) evaluated and weighted, as appropriate, to determine a single best fair value measure, which is a point within that range that is most representative of fair value? [FASB 157.19] 3. Has the entity consistently applied valuation techniques used to measure fair value? [FASB 157.20] 4. Have valuation techniques or their application only been changed when it results in a measure that equally or better represents fair value in the circumstances? [FASB 157.20] 5. Are the revisions resulting from a change in a valuation technique or its application (e.g., a change in its weighing when multiple valuation techniques are used) accounted for as a change in accounting estimate in accordance with paragraph 19 of FASB Statement No. 154, Accounting
Yes
No
596
Accounting: FAIR VALUE MEASUREMENTS (12/08) Changes and Error Corrections? [FASB 157.20] 6. In developing inputs to a valuation technique, has the entity used market participant assumptions in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique? [FASB 157.21] 7. Has the entity's valuation technique maximized the use of observable inputs and minimized the use of unobservable inputs? [FASB 157.21] E. Fair Value Hierarchy 1. Has the entity determined the level within the hierarchy within which the fair value measurement in its entirety falls based on the lowest level input that is significant to the fair value measurement in its entirety? [FASB 157.22] 2. When available, has the entity determined fair value using quoted prices (unadjusted) for identical assets or liabilities in active markets except as discussed below? [FASB 157.24] a. If the entity holds a large number of similar assets or liabilities (e.g., debt securities) that are required to be measured at fair value, a quoted price in an active market might be available but not readily accessible for each of those assets or liabilities individually. In that case, the fair value may be measured using an alternative pricing method that does not rely exclusively on quoted prices (e.g., matrix pricing) as a practical expedient. [FASB 157.25] b. In some situations, a quoted price in an active market might not represent fair value at the measurement date. That might be the case if, for example, significant events (principal-to-principal transactions, brokered trades, or announcements) occur after the close of a market but before the measurement date. Has the entity established and consistently applied a policy for identifying those events that might affect fair value measurements? [FASB 157.26] 3. Has the fair value of a position in a single financial instrument (including a block) traded in an active market been measured within Level 1 as the product of the quoted price for the individual instrument times the quantity held and therefore not adjusted the quoted price because of the
Yes
No
597
Accounting: FAIR VALUE MEASUREMENTS (12/08) size of the position relative to the trading volume (blockage factor), even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price? [FASB 157.27] [NOTE: This represents a change in practice for broker-dealers and investment companies with the scope of the AICPA Audit and Accounting Guides for those industries.] 4. If the asset or liability has a specified (contractual) term, has the entity only considered the input to be a Level 2 input if the input is observable for substantially the full term of the asset or liability (e.g., 9 of 10 years)? [FASB 157.28 & 157.A24(b)] 5. Has the entity adjusted Level 2 inputs depending on factors specific to the asset or liability, such as: [FASB 157.29] a. Condition of the asset or liability? b. Location of the asset or liability? c. Extent to which the inputs relate to items that are comparable to the asset or liability? d. Volume and level of activity in the markets within which inputs are observed? 6. Has the entity considered whether any adjustment(s) made to a Level 2 input are significant to the fair value measurement in its entirety, thereby potentially rendering the measurement a Level 3 measurement, depending on the level in the fair value hierarchy within which the inputs used to determine the adjustment(s) fall? [FASB 157.29] 7. Has the entity developed its Level 3, unobservable inputs in the following manner: a. Unobservable inputs have only been used to the extent that observable inputs are not available. b. In developing the inputs the entity's objective is an exit price from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). c. Unobservable inputs have been developed based on the best information available in the circumstances,
Yes
No
598
Accounting: FAIR VALUE MEASUREMENTS (12/08) which might include the reporting entity's own data. [NOTE: In developing unobservable inputs, the reporting entity need not undertake all possible efforts to obtain information about market participant assumptions.] d. The reporting entity has not ignored information about market participant assumptions that is reasonably available without undue cost and effort. e. The reporting entity's own data used to develop unobservable inputs has been adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions? [FASB 157.30] 8. If the measurement of fair value is based on bid and ask prices (e.g., in a dealer market), has the price within the bid-ask spread that is most representative of fair value used to measure fair value? [NOTE: FASB 157 does not preclude the use of mid-market pricing or other pricing conventions in certain circumstances as a practical expedient for fair value measurements within a bid-ask spread.] [FASB 157.31] F. Transition 1. Has the entity applied the provisions of FASB 157 prospectively as of the beginning of the fiscal year in which FASB 157 is initially applied, except as follows? For the following financial instruments has the entity applied the requirements of FASB 157 retrospectively as a cumulative-effect adjustment to the opening balance of retained earnings (measured as the difference between the carrying amount and the fair values of those instruments at the date of adoption): [FASB 157.37-.38] a. A position in a financial instrument that trades in an active market held by a broker-dealer or investment company within the scope of the AICPA Audit and Accounting Guides for those industries that was measured at fair value using a blockage factor prior to initial application of FASB 157? b. A financial instrument that was measured at fair value at initial recognition under FASB 133 using the transaction price in accordance with the guidance in footnote 3 of EITF Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," prior to initial
Yes
No
599
Accounting: FAIR VALUE MEASUREMENTS (12/08) application of FASB 157? c. A hybrid financial instrument that was measured at fair value at initial recognition under FASB 133 using the transaction price in accordance with the guidance in FASB 133 (added by FASB Statement No. 155, Accounting for Certain Hybrid Financial Instruments) prior to initial application of FASB 157? 2. Has the entity applied all the disclosure requirements of FASB 157 (paragraphs 32-35), including those disclosures that are required in annual periods only, in the first interim period of the fiscal year in which this Statement is initially applied? [NOTE: The disclosure requirements of FASB 157 need not be applied for financial statements for periods presented prior to initial application of this Statement.] Disclosure: FAIR VALUE MEASUREMENTS (12/08) Presentation of Items Measured at Fair Value under SFAS 155 and SFAS 159 1. Has the entity presented those assets and liabilities for which the fair value option has been elected under one of the following methods: [FASB 159.15] a. In aggregate of fair value and non-fair-value amounts in the same line item in the statement of financial position and parenthetically disclosing the amount measured at fair value included in the aggregate amount? b. As two separate line items to display the fair value and non-fair-value carrying amounts? 2. Has the entity presented cash receipts and cash payments related to items measured at fair values according to their nature and purpose as required by FASB Statement No. 95, Statement of Cash Flows (as amended)? [FASB 159.16] 3. Have the following disclosures been made for items measured at fair value under FASB 159 and the option in paragraph 16 of FASB 133 (as amended), except for those securities classified as trading securities under FASB 115, life settlement contracts measure at fair value pursuant to FASB Staff Position FTB 85-4-1, or servicing rights measured at fair value pursuant to FASB 156. These
Yes
No
Yes
No
600
Disclosure: FAIR VALUE MEASUREMENTS (12/08) disclosures are required as of each date for which an Interim or Annual Statement of Financial Position Is Presented? [FASB 159.17-18]: a. Management's reasons for electing a fair value option for each eligible item or group of similar eligible items? b. If the fair value option is elected for some but not all eligible items within a group of similar eligible items: (1) A description of those similar items and the reasons for partial election? (2) Information to enable users to understand how the group of similar items relates to individual line items on the statement of financial position? c. For each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (1) Information to enable users to understand how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with FASB 157's fair value disclosure requirements? (2) The aggregate carrying amount of items included in each line item in the statement of financial position that are not eligible for the fair value option? d. The difference between the aggregate fair value and the aggregate unpaid principal balance of: (1) Loans and long-term receivables (other than securities subject to FASB 115) that have contractual principal amounts and for which the fair value option has been elected? (2) Long-term debt instruments that have contractual principal amounts and for which the fair value option has been elected? e. For loans held as assets for which the fair value option has been elected: (1) The aggregate fair value of loans that are 90 days or more past due? (2) If the entity's policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in
Yes
No
601
Disclosure: FAIR VALUE MEASUREMENTS (12/08) nonaccrual status? (3) The difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in non accrual status, or both? f. For investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required by paragraph 20 of APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (excluding the disclosures in paragraph 20(a)(3), 20(b), and 20(e) of that Opinion)?
Yes
No
4. If an entity has chosen to elect the fair value option, has the following been disclosed for each period for which an interim or annual income statement is presented: [FASB 159.19] a. For each line item in the statement of financial position, the amounts of gains and losses from fair value changes included in earnings during the period and in which line in the income statement those gains and losses are reported? b. A description of how interest and dividends are measured and where they are reported in the income statement? c. For loans and other receivables held as assets: (1) The estimated amount of gains or losses included in earnings during the period attributable to changes in instrument-specific credit risk? (2) How the gains or losses attributable to changes in instrument-specific credit risk were determined? d. For liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (1) The estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument specific credit risk? (2) Qualitative information about the reasons for those changes?
602
Disclosure: FAIR VALUE MEASUREMENTS (12/08) (3) How the gains and losses attributable to changes in instrument-specific credit risk were determined? 5. Has the entity disclosed the methods and significant assumptions used to estimate the fair value of items for which the fair value option has been elected for each annual period? [FASB 159.21] 6. If an entity elects the fair value option at the time of occurrence of an event described in paragraphs 9(d) and 9(e) (a remeasurement event), has the entity disclosed the following in financial statements for the period of the election? [FASB 159.22] Transition 7. Have the following items been removed from the statement of financial position and included in the cumulative effect at the effective date: [FASB 159.26] a. Unamortized deferred costs, fees, premiums, and discounts? b. Valuation allowances (e.g., allowances for loan losses)? c. Accrued interest, which would be reported as part of the fair value of the eligible item? 8. Has an entity that elects the fair value option for items existing at the effective date provided the following in its annual and first-interim-period financial statements for the fiscal year that includes the effective date: [FASB 159.27] a. A schedule that presents the following by line item in the statement of financial position: (1) The pretax portion of the cumulative-effect adjustment to retained earnings (or appropriate class or classes of net assets) for items on that line? (2) The fair value at the effective date of eligible items for which the fair value option is elected and the carrying amount of those same items immediately before electing the fair value option? b. The net effect on the entity's deferred tax assets and liabilities of electing the fair value option?
Yes
No
603
Disclosure: FAIR VALUE MEASUREMENTS (12/08) c. Management's reasons for electing the fair value option for each existing eligible item or group of similar eligible items? d. If the fair value option is elected for some but not all eligible items within a group of similar eligible items: (1) A description of those similar items and the reasons for partial election? (2) Information to enable users to understand how the group of similar items relates to individual line items on the statement of financial position? e. The amount of valuation allowances that were removed from the statement of financial position because they related to items for which the fair value option was elected? Available-for-Sale and Held-to-Maturity Securities 9. If the fair value option is elected for any available-for-sale and held-to-maturity securities at the effective date: [FASB 159.28] a. For available-for-sale securities have the cumulative unrealized gains and losses at that date been included in the cumulative-effect adjustment? b. Has the amount of unrealized gains and losses reclassified from accumulated other comprehensive income (for available-for-sale securities) and the amount of unrealized gains and losses that was previously unrecognized (for held-to-maturity securities) been separately disclosed? [FASB 159.28] c. Have held-to-maturity and available-for-sale securities for which the fair value option has been elected been reported as trading securities under Statement 115? [FASB 159.29] Not-for-Profit Organizations 10. Has a not-for-profit organization applied the provisions of FASB 159 with the following modifications: [FASB 159.23] a. References to an income statement should be replaced with references to a statement of activities, statement of changes in net assets, or statement of operations. References to earnings should be replaced with references to changes in net assets, except as indicated in paragraph 23(b)?
Yes
No
604
Disclosure: FAIR VALUE MEASUREMENTS (12/08) b. Health care organizations subject to the AICPA Audit and Accounting Guide, Health Care Organizations, shall report unrealized gains and losses on items for which the fair value option has been elected within the performance indicator or as a part of discontinued operations, as appropriate? c. Consistent with the provisions of FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations, not-for-profit organizations may present such gains and losses either within or outside other intermediate measures of operations unless such gains or losses are part of discontinued operations? d. The disclosure requirements in paragraph 19 shall apply not only with respect to the effect on performance indicators or other intermediate measures of operations, if presented, but also with respect to the effect on the change in each of the net asset classes (unrestricted, temporarily restricted, and permanently restricted), as applicable? Early Adoption 11. Has an entity complied with all the following conditions if it elects to early adopt FASB 159: [FASB 159.30] a. The choice to adopt early was made after issuance FASB 159 but within 120 days of the beginning of the fiscal year of adoption? b. The entity adopted all of the requirements of FASB 157 at this Statement's early adoption date (the first day of the fiscal year of adoption) or earlier? c. At the time the entity chose to adopt this Statement early, the entity has not yet issued financial statements, including required notes to those financial statements, for any interim period of the fiscal year that included the early adoption date? d. The choices to apply or not apply the fair value option to eligible items existing at the early adoption date were retroactive to the early adoption date? e. For eligible items with an election date (as specified in paragraph 9) occurring after the early adoption date but before the date of the entity's choice to apply early, the election for those items was retroactive to their election date? f. All other requirements that would normally apply as
Yes
No
605
Disclosure: FAIR VALUE MEASUREMENTS (12/08) of the required effective date were applied as of the early adoption date? [NOTE: FASB Statement No. 157, Fair Value Measurements, is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Early adoption is permitted so long as financial statements for any period (interim or annual) of the fiscal year have not yet been issued.] On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of FASB 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. FSP FAS 157- 2 states that a measurement is recurring if it happens at least annually and defines nonfinancial assets and nonfinancial liabilities as all assets and liabilities other than those meeting the definition of a financial asset or financial liability in FASB 159. Paragraphs 9 and 10 of the FSP include examples of items to which the deferral would and would not apply. FASB 157 essentially applies to all fair value measurements required or permitted by GAAP (the few exceptions are discussed in paragraphs 2 and 3 of FASB 157 and include stock-based compensation (FASB 123(R)). Over 60 accounting pronouncements (see Appendix D of FASB 157 for a listing) require or permit fair value measurements, encompassing both financial and nonfinancial assets and liabilities. Examples include, derivative assets and liabilities (FASB 133), an entity's own debt (liability) elected to be carried at fair value through earnings (FASB 159), impairments of long-lived assets (FASB 144), and intangible assets in a business combination (FASB 141). Entities should answer all the questions in this section of the checklist if it has any fair value measurements within the scope of FASB 157. For entities that have adopted FASB 157, complete the items below. 1. For assets and liabilities that are measured at fair value on a recurring basis (e.g., trading securities) subsequent to initial recognition, has the entity disclosed the following information for each interim and annual period (expect as otherwise specified) separately for each major category of assets and liabilities: [FASB 157.32] a. The fair value measurements at the reporting date?
Yes
No
606
Disclosure: FAIR VALUE MEASUREMENTS (12/08) b. The level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3)? c. For fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) Total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities)? (2) Purchases, sales, issuances, and settlements (net)? (3) Transfers in and (or) out of Level 3 (e.g., transfers due to changes in the observability of significant inputs)? [NOTE: For derivative assets and liabilities, this reconciliation disclosure (i.e., item (c)) may be presented net.] d. The amount of the total gains or losses for the period in (c)(1) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities)? e. In annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period? 2. For assets and liabilities that are measured at fair value on a nonrecurring basis (e.g., impaired assets) in periods subsequent to initial recognition, has the entity disclosed the following information for each interim and annual period (except as otherwise specified) separately for each major category of assets and liabilities for each annual
Yes
No
607
Disclosure: FAIR VALUE MEASUREMENTS (12/08) period: [FASB 157.33] a. The fair value measurements recorded during the period and the reasons for the measurements? b. The level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3)? c. For fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs? d. In annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and (or) liabilities in prior periods? 3. Have the quantitative disclosures in items 1 and 2 (paragraphs 32 and 33 of FASB 157) above been presented in a tabular format? [FASB 157.34] Accounting: THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The choice to adopt early should be made after issuance of this Statement but within 120 days of the beginning of the fiscal year of adoption, provided the entity has not yet issued financial statements, including required notes to those financial statements, for any interim period of the fiscal year of adoption. For entities that have adopted FASB 159, complete the items below. A. The Fair Value Option 1. If the entity has chosen at specified election dates, to
Yes
No
Yes
No
608
Accounting: THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) measure eligible items at fair value (the "fair value option") (for not-for-profit-organization, the requirements related to earnings and others apply differently per paragraph 23 of FASB 159): [FASB 159.03 and 159.04] a. Are the unrealized gains and losses on such items reported in earnings at each subsequent reporting date? b. Are the upfront costs and fees related to such items recognized in earnings as incurred and not deferred? 2. Has the fair value option been: [FASB 159.05] a. Applied instrument by instrument, except as discussed in paragraph 12? b. Applied irrevocably (unless a new election date occurs, as discussed in paragraph 9)? c. Applied only to an entire instrument and not to only specified risks, specified cash flows, or portions of that instrument? B. Noneligible Items 1. Has the entity not elected the fair value option for the following financial assets and financial liabilities [FASB 159.08]? a. An investment in a subsidiary that the entity is required to consolidate? b. An interest in a variable interest entity that the entity is required to consolidate? c. Employers' and plans' obligations (or assets representing net overfunded positions) for pension benefits, other postretirement benefits (including health care and life insurance benefits), postemployment benefits, employee stock option and stock purchase plans, and other forms of deferred compensation arrangements, as defined in FASB Statements No. 35, Accounting and Reporting by Defined Benefit Pension Plans, No. 87, Employers' Accounting for Pensions, No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, No. 112, Employers' Accounting for Postemployment Benefits, No. 123 (revised December 2004), Share-Based Payment, No. 43, Accounting for Compensated Absences, No. 146, Accounting for Costs Associated with Exit or Disposal Activities, and
Yes
No
609
Accounting: THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, and APB Opinion No. 12, Omnibus Opinion 1967? d. Financial assets and financial liabilities recognized under leases as defined in FASB Statement No. 13, Accounting for Leases (This exception does not apply to a guarantee of a third-party lease obligation or a contingent obligation arising from a cancelled lease.)? e. Deposit liabilities, withdrawable on demand, of banks, savings and loan associations, credit unions, and other similar depository institutions? f. Financial instruments that are, in whole or in part, classified by the issuer as a component of shareholder's equity (including "temporary equity"). An example is a convertible debt security with a noncontingent beneficial conversion feature?
Yes
No
C. Election Dates 1. Has an entity chosen to elect the fair value option for an eligible item only on the date that one of the following occurs[FASB 159.09]: a. The entity first recognized the eligible item? b. The entity entered into an eligible firm commitment? c. Financial assets that have been reported at fair value with unrealized gains and losses included in earnings because of specialized accounting principles cease to qualify for that specialized accounting? d. The accounting treatment for an investment in another entity changes because: (1) The investment becomes subject to the equity method of accounting? (2) The investor ceases to consolidate a subsidiary or variable interest entity but retains an interest? e. An event that requires an eligible item to be measured at fair value at the time of the event but does not require fair value measurement at each reporting date after that, excluding the recognition of impairment under lower-of-cost-or market accounting or otherthan-temporary impairment? 2. Has the decision by an acquirer, parent, or primary beneficiary to apply the fair value option to eligible items
610
Accounting: THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) of an aquiree, subsidiary, or consolidated variable interest entity only been applied to the consolidated financial statements? [FASB 159.11] 3. Has the fair value option choices made by an acquired entity, subsidiary, or variable interest entity continued to be applied in separate financial statements of those entities if such financial statements are issued? [FASB 159.11] D. Instrument-by-Instrument Application 1. Has the entity applied the fair value option election on an instrument by instrument basis except in the following circumstances: [FASB 159.12]: a. If multiple advances are made to one borrower pursuant to a single contract (such as a line of credit or a construction loan) and the individual advances lose their identity and become part of a larger loan balance, the fair value option shall be applied only to the larger balance and not to each advance individually? b. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method of accounting, it shall be applied to all of the investor's financial interests in the same entity (equity and debt, including guarantees) that are eligible items? c. If the fair value option is applied to an eligible insurance or reinsurance contract, it shall be applied to all claims and obligations under the contract? d. If the fair value option is elected for an insurance contract (base contract) for which integrated or nonintegrated contract features or coverages (some of which are called riders) are issued either concurrently or subsequently, the fair value option also must be applied to those features or coverages. The fair value option cannot be elected for only the nonintegrated contract features or coverages, even though those features or coverages are accounted for separately under AICPA Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts?
Yes
No
611
Accounting: THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES (12/08) 2. If an entity has chosen to elect the fair value option, has the effect of the first remeasurement to fair value at the effective date reported as a cumulative-effect adjustment to the opening balance of retained earnings? [FASB 159.25] Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) FASB Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) was issued in September 2006. The recognition and related disclosure provisions of FASB 158 are effective as of the end of the fiscal year ending after December 15, 2006, for an employer with publicly traded equity securities and as of the end of the fiscal year ending after June 15, 2007, for all other entities. Retrospective application is prohibited. Application as of the end of an earlier fiscal year is permitted; however, early application shall be for all of an employer's benefit plans. The measurement date provisions of FASB 158 are effective for fiscal years ending after December 15, 2008, for all entities and shall not be applied retrospectively. Earlier application is permitted; however, early application shall be for all of an employer's benefit plans. The following section(s) of this checklist should be completed: In the year(s) of adoption of FASB 158 recognition and measurement provisions Section I
Yes
No
Yes
No
AND If FASB 158s recognition provisions have been adopted Section II
OR
If FASB 158s recognition provisions have not been adopted Section III
This section is only applicable in the year(s) of adoption of the recognition AND measurement provisions of FASB 158. The references in {brackets} to unrestricted net
612
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) assets and changes in net assets in the statement of activities apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented, refer to not-for-profit entities only. For postretirement benefits other than pension plan(s), have the following steps being applied? In the year of adoption of the recognition requirements in FASB 158: Step 1 1. Has the entity applied the provisions of FASB 106 for the fiscal year before considering the effects of FASB 158, based on the measurement date the entity used for the current year-end? [FASB 158. 16] Step 2 2. Has the entity fully recognized the funded status of the defined benefit pension plan as of the end of the fiscal year by adjusting the amounts recognized in the end-ofyear balance sheet (after applying Step 1 above) and recording the impact of gains or losses, prior service costs or credits, and transition assets or obligations, that have not yet been included in net periodic benefit cost as an adjustment to the ending balance of accumulated other comprehensive income (AOCI) {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented}? [FASB 158.16a; FASB 158.16b] The funded status is measured as the difference between the fair value of plan assets and the benefit obligation. Note that this adjustment is recorded directly in equity and is NOT included in comprehensive income for the year. Not-for-profit entities include this adjustment in their changes in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented, for the year. In the year of adoption of the measurement requirements in FASB 158 for entities that previously used a measurement date of up to three months prior to fiscal year end under FASB 106 (measurement requirements are effective for fiscal years ending after December 15, 2008; early adoption is permitted in certain circumstances):
Yes
No
613
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) Is the entity transitioning to a fiscal year-end measurement date? If yes, has the entity chosen either Approach 1 or Approach 2 below? Approach 1 3. Has the entity elected to remeasure plan assets and benefit obligations as of the beginning of the fiscal year that the measurement date provisions are applied? If so, has the entity used those new measurements to determine the effects of the measurement date change as of the beginning of the fiscal year that the measurement date provisions are applied [FASB 158.18] including the following: a. Has the entity recognized as a separate adjustment of the opening balance of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the net periodic benefit cost, net of tax, for the period between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied, exclusive of any curtailment or settlement gain or loss? (That is, the pretax amount recognized as an adjustment to retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} is the net periodic benefit cost that, without a change in measurement date, otherwise would have been recognized on a delayed basis during the first interim period for the fiscal year that the measurement date provisions are applied.) [FASB 158.18; FASB 158.18.a] b. If the entity has adopted the recognition provisions of FASB 158 in a prior fiscal year, has the entity recognized as a separate adjustment of the opening balance of AOCI {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the corresponding adjustments to the unrecognized amounts in AOCI {unrestricted net assets} resulting from including in the adjustment to opening retained
Yes
No
614
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) earnings {a change in unrestricted net assets, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} in a, above, any amortization of gain or loss, prior service costs or credits and transition asset or obligation? [FASB 158.16] c. Has the entity recognized in net income {the statement of activities} for the immediately preceding fiscal year-end before the adoption of FASB 158 any gain or loss arising from a curtailment or settlement between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied? This provision prohibits an entity from early application of the measurement date provisions when the entity has issued financial statements for the prior year without recognition of such a settlement or curtailment. [FASB 158.18; FASB 158.18.b] d. Has the entity recognized, as a separate adjustment of the opening balance of accumulated other comprehensive income {change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented}, net of tax, for the fiscal year that the measurement date provisions are applied other changes in the fair value of plan assets and the benefit obligations (for example, gains or losses) for the period between the measurement date that is used for the immediately preceding fiscal year-end and the beginning of the fiscal year that the measurement date provisions are applied? [FASB 158.18; FASB 158.18c] Approach 2 4. Has the entity elected to continue to use the measurements determined for the prior fiscal year-end reporting to estimate the effects of the change? a. Has the entity allocated proportionately between amounts to be recognized as an adjustment of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate
Yes
No
615
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) measure of operations, if one is presented} and net periodic benefit cost for the fiscal year that the measurement date provisions are applied the net periodic benefit cost for the period between the earlier measurement date and the end of the fiscal year that the measurement date provisions are applied, exclusive of any curtailment or settlement gain or loss? For example, a calendar-year employer that uses a September 30 measurement date and has no settlement or curtailment during the period would allocate as an adjustment of retained earnings {a change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} three-fifteenths of net periodic benefit cost determined for the period from September 30, 2007, to December 31, 2008. The remaining twelve-fifteenths would be recognized as net periodic benefit cost for the fiscal year that the measurement date provisions first are applied. [FASB 158.19; FASB 158.19a] b. If the entity has adopted the recognition provisions of FASB 158 in a prior fiscal year, has the entity recognized as a separate adjustment of AOCI {a separate change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} the corresponding adjustments to the unrecognized amounts in AOCI {unrestricted net assets} resulting from including in the adjustment to retained earnings {the change in unrestricted net assets in the statement of activities, apart from expenses, and outside a performance indicator or other intermediate measure of operations, if one is presented} in a, above, any amortization of gain or loss, prior service costs or credits and transition asset or obligation? [FASB 158.16] c. Has the entity recognized in net income {the statement of activities} for the immediately preceding fiscal year-end before the adoption of FASB 158 any gain or loss arising from a curtailment or settlement between the measurement date that is used for the immediately preceding fiscal year-end
Yes
No
616
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) and the beginning of the fiscal year that the measurement date provisions are applied? This provision prohibits an entity from early application of the measurement date provisions when the entity has issued financial statements for the prior year without recognition of such a settlement or curtailment (see (c) in Approach 1 above). [FASB 158.19; FASB 158.19b] d. Has the entity recognized as other comprehensive income {changes in unrestricted net assets, apart from expenses} for the fiscal year that the measurement date provisions are applied other changes in the fair value of plan assets and the benefit obligations (e.g., gains or losses) for the period between the earlier measurement date and the end of the fiscal year that the measurement date provisions are applied? [FASB 158.19; FASB 158.19c] e. If an entity elects to remeasure plan assets and benefit obligations or there is an event, such as a settlement or curtailment, that requires an intervening measurement during the period between the earlier measurement date and the beginning of the fiscal year that the change in measurement date occurs: Has the entity revised net periodic benefit cost for the remainder of that period by prorating the revised net periodic benefit cost for the period from the date of the intervening remeasurement to the end of the fiscal year that the measurement date provisions are applied? For enterprises that have adopted any of the provisions of FASB 158, the following section should be completed.
SECTION II POST-ADOPTION OF FASB 158'S RECOGNITION PROVISIONS
Yes
No
Entities that have adopted the recognition provisions of FASB 158, should complete the following section. The references in {brackets} to unrestricted net assets refer to not-for-profit entities only. 1. If the entity has deferred compensation contracts with individual employees that, taken together, are equivalent to a postretirement income plan, has FASB 87 been applied? [FASB 106.13] 2. If the entity has deferred compensation contracts with individual employees that, taken together, are equivalent
617
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) to a postretirement health or welfare benefit plan, has FASB 106 been applied? [FASB 106.6, .9, .13] 3. If the entity has other deferred compensation contracts, is compensation being accrued systematically over the period to the full eligibility date (i.e., the date at which an employee has rendered all the service necessary to have earned the right to receive all of the benefits expected to be received by that employee) resulting in an amount equal to the then present value of the future benefits expected to be paid? [FASB 106.13] 4. If a defined benefit plan(s) exists, have the following requirements with respect to assumptions been met: [FASB 106.29-42] a. The service cost component of postretirement benefit cost, any prior service cost, and the accumulated postretirement benefit obligation are measured using present value techniques and using actuarial assumptions that individually reflect the best estimate of each assumption, assuming the plan will continue in effect in the absence of evidence that it will not continue? [FASB 106.30] b. Assumed discount rates reflect the time value of money as of the measurement date in determining the present value of future cash outflows currently expected to be required to satisfy the postretirement benefit obligation? [FASB 106.31] c. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the existing assets that qualify as plan assets and contributions to the plan expected to be made during the period, including the income tax effects of such returns, if any? [FASB 106.32] d. The service cost component of net periodic postretirement benefit cost and the expected and accumulated postretirement benefit obligations reflect future compensation levels to the extent that the postretirement benefit formula defines the benefits wholly or partially as a function of future compensation levels? [FASB 106.33] e. For pay-related plans, assumed compensation levels reflect the best estimate of the actual future compensation levels of the individual employees involved, including future changes attributed to
Yes
No
618
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) general price levels, productivity, seniority, promotion, and other factors? [FASB 106.33] f. All assumptions that reflect expectations of the same future economic conditions, such as future rates of inflation, are consistent? [FASB 106.33]
Yes
No
g. Does measurement of an employer's postretirement health care obligation include the use of assumptions about factors that are unique to health care benefits and affect the amount and timing of future benefit payments for postretirement health care, such as consideration of historical per capita claims cost by age, health care cost trend rates (for plans that provide a benefit in kind), and medical coverage to be paid by governmental authorities and other providers of health care benefits? [FASB 106.34] h. Is the employer's share of the expected future postretirement health care cost (aggregate assumed net incurred claims cost) for a plan participant developed by reducing the assumed per capita claims cost by each of the following: [FASB 106.35] (1) At each age at which the plan participant is expected to receive benefits under the plan by (a) the effects of coverage by Medicare, including the effects of the Medicare Prescription Drug, Improvement and Modernization Act (Act), and other providers of health care benefits, and (b) the effects of the cost-sharing provisions of the plan (deductibles, co-payment provisions, outof-pocket limitations, caps on the limits of the employer-provided payments, and retiree contributions)? (2) The actuarial present value of the plan participants' future contributions if contributions are required to be paid by active plan participants toward their postretirement health care benefits? i. The assumed per capita claims cost by age represents the best estimate of the expected future cost of the benefits covered by the plan? [FASB 106.36] Past and present claims data for the plan are used in developing the current per capita claims cost to the extent that those data are considered to be indicative of the current cost of providing the benefits covered
619
j.
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) by the plan? [FASB 106.37] k. The current claims data are adjusted by the assumed health care cost trend rate? [FASB 106.37] l. In the absence of sufficiently reliable plan data about the current cost of the benefits covered by the plan, current per capita claims cost is based, entirely or in part, on the claims information of other employers adjusted to best reflect the terms of the employer's plan and the plan demographics, to the extent those costs are indicative of the current cost of providing the benefits covered by the plan? [FASB 106.38]
Yes
No
m. Current per capita claims cost derived from information from outside sources (e.g., insurance entities, actuarial firms, consulting firms) has been adjusted to best reflect the terms of the employer's plan and the plan demographics? [FASB 106.38] n. Both past and current health care cost trends are used in developing an employer's assumed health care cost trend rates? [FASB 106.39] o. Presently enacted changes in the law or amendments of the plans of other health care providers that take effect in future periods and that will affect the future level of their benefit coverages are considered in current-period measurements for benefits expected to be provided in those future periods? [FASB 106.40] (1) If the plan is affected by the Medicare Prescription Drug Improvement and Modernization Act: [FSP 106-2] (a) When initially recognized, have the effects on the APBO been accounted for as an actuarial gain? [FSP 106-2.14] (b) Has the subsidy been included in measuring the costs of benefits attributable to current service? [FSP 106-2.15] (c) If there has been a change in the estimate of the subsidy, has the change been reflected as an actuarial experience gain or loss? [FSP 106-2.16] (d) If a plan is amended:
620
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) (1) To cause a plan that was deemed not actuarially equivalent as of the enactment date of the Act to now provide actuarially equivalent benefits, has the direct effect of the plan amendment on the APBO (that is, the effect of only the change in prescription drug coverage) and the effect on the APBO from any resulting subsidy to which the employer is expected to be entitled as a result of the amendment been combined and: [FSP 106-2.17] (i) If the combined effect reduces APBO, was it deemed an actuarial experience gain? [FSP 106-2.17]
Yes
No
(ii) If the combined effect increases APBO, was it deemed prior service cost? [FSP 106-2.17] (2) To cause a plan that was deemed actuarially equivalent as of the enactment date to now not be considered actuarially equivalent, has the combined net effect on the APBO of (a) the subsequent plan amendment that reduces benefits under the plan and thus disqualifies the benefits as actuarially equivalent and (b) the elimination of the subsidy, been accounted for as prior service cost (credit) as of the date the amendment is adopted? [FSP 106-2.18] p. Future changes in laws concerning medical costs covered by governmental programs and future changes in the plans of other providers are not anticipated? [FASB 106.40] q. In the absence of historical information about the gross per capita cost of covered benefits, an alternative method of developing the assumed per capita claims cost is used that represents the best
621
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) estimate of the expected future cost of the benefits covered by the plan? [FASB 106.41] r. To the extent that assumed discount rates, compensation levels, and health care cost trend rates consider similar inflationary effects, are the assumptions about those effects consistent? [FASB 106.42]
Yes
No
5. For other postretirement plan benefit obligations and plan assets: a. Have plan assets been segregated and restricted and do they include amounts contributed by the employer (and plan participants if a contributory plan) and amounts earned from investing the contributions, less benefits, income taxes, and other expenses incurred? [FASB 106.63] b. Have the plan assets and benefit obligations been measured as of the date of the annual financial statements except in specific situations outlined in paragraph 72 of FASB 106? (NOTE: If the entity has only adopted the recognition and related disclosure provisions of FASB 158, but has not yet adopted its measurement date provisions (which are effective for fiscal years ending after December 15, 2008 for all entities) the entity may use a measurement date as of a date not more than three months prior to its fiscal year end, if it is used consistently from year to year, until the adoption of FASB 158's measurement date provisions.) [FASB 158.D2(n); FASB 106.72] 6. Does the accounting reflect the terms of the exchange transaction that takes place between an employer that provides postretirement benefits and the employees who render services in exchange for those benefits? Is the substantive plan, if different from the extant written plan, the basis for the accounting? [FASB 106.23] a. Except as provided in c(1) and (2) below, does the employer's cost-sharing policy, as evidenced by past practice or communication, constitute the cost-sharing provisions of the substantive plan if either of the following conditions exist: (1) The employer has a past practice of (a) maintaining a consistent level of cost sharing between the employer and its retirees through changes in deductibles, coinsurance provisions,
622
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) retiree contributions, or some combination of those changes or (b) consistently increasing or reducing the employer's share of the cost of the covered benefits through changes in retired or active plan participants' contributions toward their retiree health care benefits, deductibles, coinsurance provisions, out-or-pocket limitations, and so forth, in accordance with the employer's established cost-sharing policy? [FASB 106.24] (2) The employer has the ability, and has communicated to affected plan participants its intent, to institute different cost-sharing provisions at a specified time or when certain conditions exist (for example, when health care cost increases exceed a certain level)? [FASB 106.24] b. If the conditions in a (1) and (2) do not exist, is the extant written plan considered to be the substantive plan? [FASB 106.24] Do the following NOT constitute provisions of the substantive plan: [FASB 106.25]
Yes
No
c.
(1) An employer's past practice of maintaining a

consistent level of cost sharing with its retirees or consistently increasing or reducing its share of the cost of providing the covered benefits, if accompanied by identifiable offsetting changes in other benefits or compensation or if the employer incurred significant costs, such as work stoppages, to effect that cost-sharing policy? [FASB 106.25]
(2) An employer's communication of its intent to

institute cost-sharing provisions, that differ from the extant written plan or the past costsharing practice, if (a) the plan participants would be unwilling to accept the change without adverse consequences to the employer's operations or (b) other modifications of the plan, such as the level of benefit coverage, or providing offsetting changes in other benefits, such as pension benefits, would be required to gain plan participants' acceptance of the change to the cost-sharing arrangement? [FASB 106.25]
623
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) d. Do the service cost component of net periodic postretirement benefit cost and the expected and accumulated postretirement benefit obligation reflect future increases in service cost for which a present substantive commitment exists? [FASB 106.26]
Yes
No
7. If benefits are covered by annuity or other insurance contracts, does the accounting conform to the provisions of FASB 106? [FASB 106.67-.71] 8. If the entity has two or more defined benefit plans, hHave net periodic postretirement benefit cost, the accumulated postretirement benefit obligation, and plan assets been determined for each separately measured plan or aggregation of plans? [FASB 106.75-.76] 9. If the entity participates in a multiemployer plan(s): a. Has the required contribution for the period been recognized as net postretirement benefit cost? [FASB 106.81] Has a liability been recognized for any unpaid contributions required for the period? [FASB 106.81] If the withdrawal from a multiemployer plan under circumstances that would give rise to an obligation is probable or reasonably possible, has the entity complied with the provisions of FASB 5? [FASB 106.83] If it is probable or reasonably possible that an employer's contribution to the fund would be increased during the remainder of the contract period to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage (a "maintenance of benefits" clause) has the employer applied the provisions of FASB 5? [FASB 106.83]
b.
c.
d.
10. For employers with multiple-employer plans, has the employer's accounting been based on its respective interest in the plan? [FASB 106.84] 11. Have non-U.S. plans been accounted for in conformity with FASB 106? [FASB 106.85] 12. See B-50, BUSINESS COMBINATIONS, section G, question 1j for a question regarding FASB 106.86-88. 13. In the initial application of FASB 106 for a defined
624
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) benefit plan(s), was the transition asset or obligation determined in accordance with FASB 106? [FASB 106.108-.113] 14. If the transition obligation was not immediately recognized at transition, has the transition net asset or obligation included in accumulated other comprehensive income {unrestricted net assets} been amortized in accordance with FASB 106 in determining net periodic OPEB cost? [FASB 158.D2(e); FASB 106.46, .112-.113] 15. Does the gain or loss component of net periodic postretirement benefit cost consist of (a) the difference between the actual return on plan assets and the expected return on plan assets, (b) any gain or loss immediately recognized or the amortization of the net gain or loss included in accumulated other comprehensive income (if any is required pursuant to paragraph 59 of FASB 106) {unrestricted net assets}, and (c) any amount immediately recognized as a gain or loss pursuant to paragraph 61 of FASB 106? [FASB 158.D2(j)-(l); FASB 106.58-.62] 16. Has the prior service cost or credit included in accumulated other comprehensive income {unrestricted net assets} been amortized in accordance with FASB 106 in determining net periodic postretirement benefit cost? [FASB 158.D2(e)-(h); FASB 106.46, .52-.55] 17. Regarding the recognition of other postretirement benefit assets and liabilities: a. Has a liability been recognized that equals the unfunded accumulated postretirement benefit obligation if the accumulated postretirement benefit obligation exceeds the fair value of plan assets? [FASB 158.D2(d); FASB 106.44A] Has an asset been recognized that equals the overfunded accumulated postretirement benefit obligation if the fair value of plan assets exceeds the accumulated postretirement benefit obligation? [FASB 158.D2(d); FASB 106.44A]
Yes
No
b.
18. If the entity has had a settlement: [FASB 158.D2(q)-(r); FASB 106.90-.95, .100] a. Has the amount of the maximum gain or loss included any net gain or loss included in accumulated other comprehensive income {unrestricted net assets} plus any transition asset
625
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) remaining in accumulated other comprehensive income {unrestricted net assets}? [FASB 158.D2(q); FASB 106.92] b. Has the maximum gain or loss included the gain or loss resulting from remeasurement of plan assets and the accumulated postretirement benefit obligation (APBO) at the time of settlement? [FASB 158.D2(q); FASB 106.92] If the entire APBO has been settled and the maximum amount to be recognized is a gain, has the gain been first reduced by any transition obligation remaining in accumulated other comprehensive income {unrestricted net assets} and any excess been recognized in income? [FASB 158.D2(r); FASB 106.93] If the entire APBO has been settled and the maximum amount to be recognized is a loss, has the loss been recognized in income? [FASB 106.93] If only part of the APBO has been settled, has the excess of the pro rata portion (equal to the percentage reduction in the APBO) of the maximum settlement gain over any remaining transition obligation, or a pro rata portion of the maximum settlement loss, been recognized in income? [FASB 158.D2(r); FASB 106.93] If a participating insurance contract purchase constitutes the settlement, has the maximum settlement gain been reduced by the cost of the participation right? [FASB 106.94] Has the accounting policy adopted for recognition of settlement gains and losses when the costs for the year are less than or equal to the sum of the service cost and interest cost components of net postretirement benefit cost for the year been consistently applied? [FASB 106.95]
Yes
No
c.
d.
e.
f.
g.
If the gain or loss on the settlement is directly related to disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)] 19. If the entity had a curtailment: [FASB 106.96-.100] a. Has the prior service cost included in accumulated other comprehensive income {unrestricted net
626
h.
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) assets}, associated with years of service no longer expected to be rendered as a result of the curtailment been treated as a loss? [FASB 158.D2(s); FASB 106.97] (1) Has the prior service cost for this purpose included the cost of retroactive amendments and any remaining transition obligation remaining in accumulated other comprehensive income {unrestricted net assets}? [FASB 158.D2(s); FASB 106.97] b. Has the accumulated postretirement benefit obligation (APBO) been increased (loss) or decreased (gain) by the effects of the curtailment? [FASB 106.98] (1) Has any remaining transition asset that existed at initial application of FASB 106 included in accumulated other comprehensive income {unrestricted net assets} been treated as a net gain for this purpose and combined with the net gain or loss remaining in accumulated other comprehensive income {unrestricted net assets} arising after the transition of FASB 106? [FASB 158.D2(t); FASB 106.98] (2) Has the increase (loss) in the APBO first been offset against any gain as measured in b(1) above, and has any excess loss been treated as a curtailment loss? [FASB 158.D2(t); FASB 106.98(b)] (3) Has the decrease (gain) in the APBO first been offset against any loss as measured in b(1) above, and has any excess gain been treated as a curtailment gain? [FASB 158.D2(t); FASB 106.98(a)] c. Has the net loss or gain calculated in b(2) or b(3) been combined with the prior service cost loss? [FASB 106.97, .99] If the total determined in c, above, is a net loss, has it been recognized when it is probable that a curtailment will occur and the net effect is reasonably estimable? [FASB 106.99] If the total determined in c, above, is a net gain, has it been recognized when the related employees terminated or the plan suspension or amendment was
Yes
No
d.
e.
627
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) adopted? [FASB 106.99] f. If the gain or loss on the curtailment is directly related to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)]
Yes
No
20. If the entity provided benefits to employees in connection with their termination of employment (special termination benefits or contractual termination benefits): [FASB 106.101-.102] a. If special termination benefits were offered, has a liability and a loss been recognized when the employees accepted the offer and the amount could be reasonably estimated? [FASB 106.101] (1) Was the liability and the loss for the special termination benefits recognized as the difference between (a) the APBO for those employees, assuming that those employees (active plan participants) not yet fully eligible for benefits would terminate at their full eligibility date and that fully eligible plan participants would retire immediately, without considering any special termination benefits and (b) the accumulated postretirement benefit obligation as measured in (a) adjusted to reflect the special termination benefits? [FASB 106.102] b. If contractual termination benefits were provided, was a liability and a loss recognized when it was probable that employees would be entitled to the benefits and the amount could be reasonably estimated? [FASB 106.101] Has the required contribution for the period been recognized as net postretirement benefit cost? [FASB 106.105] If the plan calls for contributions after an individual retires or terminates, has a portion of the cost been accrued for employee service during the current period? [FASB 106.105] If the substance of a plan is to provide a defined benefit, does the accounting conform to the requirements for defined benefit plans? [FASB
628
21. If the entity has a defined contribution plan(s): a.
b.
c.
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) 106.107] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements This Issue addresses whether an entity should record a liability for the postretirement benefit associated with a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Deferred Compensation Contracts. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements This Issue addresses whether the postretirement benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in accordance with either FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Deferred Compensation Contracts. 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit (ATZ) Early Retirement Arrangements) This Issue addresses (1) how to account for the bonus feature and additional contributions into the German government pension scheme under a Type II arrangement and (2) how to account for the government subsidy under Type I and Type II ATZ arrangements. 03-4, Determining the Classification and Benefit Attribution Method for a "Cash Balance" Pension Plan This Issue addresses (1) whether, for purposes of applying FASB 87, cash balance plans should be considered defined benefit plans or defined contribution plans and (2) if that cash balance plan is determined to be a defined benefit plan, the nature of the benefit promise and the appropriate benefit attribution approach based on that promise. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities This Issue addresses how an employer should account for the separation of the substitutional portion of the benefit obligation of an EPF from the corporate portion and the transfer of the substitutional portion and related assets to the Japanese
Yes
No
629
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) government. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in Anticipation of a Business Combination This Issue addresses whether a liability for the contractual termination benefits and the curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination should be recognized when (1) it is probable that the business combination will be consummated or (2) the business combination is consummated. 93-3, Plan Assets Under FASB Statement No. 106 This Issue addresses whether a trust established to pay postretirement benefits must be determined to be bankruptcyproof in order for the assets in the trust to qualify as plan assets under FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. 92-13, Accounting for Estimated Payments in Connection with the Coal Industry Retiree Health Benefit Act of 1992 This Issue addresses how enterprises should account for the payments that are required by the Coal Industry Retiree Health Benefit Act of 1992. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises This Issue addresses what criteria or evidence is needed for a rate-regulated enterprise to satisfy the requirements of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, to recognize a regulatory asset for FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, costs. 91-7, Accounting for Pension Benefits Paid by Employers after Insurance Companies Fail to Provide Annuity Benefits This Issue addresses how an employer should account for the cost of making up a deficiency in annuity payments to the retirees due to an insurance company becoming insolvent or unable to make the payments. 90-3, Accounting for Employers' Obligations for Future Contributions to a Multiemployer Pension Plan This Issue addresses whether an employer that participates in a multiemployer pension plan must record a liability for the total future payments for prior service costs pursuant to an agreement at the date the employer enters the plan or improves benefits under the plan. 88-23, Lump-Sum Payments under Union Contracts This
Yes
No
630
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) Issue relates to a lump-sum cash payment or payments in lieu of all or a portion of an increase in a union members base wage rate and whether the lump-sum payment or payments should be (1) charged to expense immediately or (2) amortized over all or some portion of the contract period. 88-1, Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan This Issue addresses whether the vested benefit obligation is the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately or the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement. 86-27, Measurement of Excess Contributions to a Defined Contribution Plan or Employee Stock Ownership Plan This Issue addresses how an employer accounts for excess contributions not allocated to individual participants' accounts in defined contribution plans or employee stock ownership plans. D-36, Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Postretirement Benefit Plans Other Than Pensions This Issue provides guidance for selecting discount rates. D-27, Accounting for the Transfer of Excess Pension Assets to a Retiree Health Care Benefits Account This Issue states that the transfer of excess pension assets to a retiree health care benefit account should be recognized as a negative contribution to (withdrawal of funds from) the pension plan and a positive contribution to the retiree health care plan. No gain or loss arises from the transfer of the excess pension assets.
SECTION III PRE-ADOPTION OF FASB 158's RECOGNITION PROVISIONS
Yes
No
Entities that have NOT adopted the recognition provisions of FASB 158, should complete the following section. The references in {brackets} to the statement of activities refer to not-for-profit entities only. 1. If the entity has deferred compensation contracts with individual employees that, taken together, are equivalent to a postretirement income plan, has FASB 87 been applied? [FASB 106.13] 2. If the entity has deferred compensation contracts with individual employees that, taken together, are equivalent
631
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) to a postretirement health or welfare benefit plan, has FASB 106 been applied? [FASB 106.6, .9, .13] 3. If the entity has other deferred compensation contracts, is compensation being accrued systematically over the period to the full eligibility date (i.e., the date at which an employee has rendered all the service necessary to have earned the right to receive all of the benefits expected to be received by that employee) resulting in an amount equal to the then present value of the future benefits expected to be paid? [FASB 106.13] 4. If a defined benefit plan(s) exists, have the following requirements with respect to assumptions been met: [FASB 106.29-42] a. The service cost component of postretirement benefit cost, any prior service cost, and the accumulated postretirement benefit obligation are measured using present value techniques and using actuarial assumptions that individually reflect the best estimate of each assumption, assuming the plan will continue in effect in the absence of evidence that it will not continue? [FASB 106.30] b. Assumed discount rates reflect the time value of money as of the measurement date in determining the present value of future cash outflows currently expected to be required to satisfy the postretirement benefit obligation? [FASB 106.31] c. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the existing assets that qualify as plan assets and contributions to the plan expected to be made during the period, including the income tax effects of such returns, if any? [FASB 106.32] d. The service cost component of net periodic postretirement benefit cost and the expected and accumulated postretirement benefit obligations reflect future compensation levels to the extent that the postretirement benefit formula defines the benefits wholly or partially as a function of future compensation levels? [FASB 106.33] e. For pay-related plans, assumed compensation levels reflect the best estimate of the actual future compensation levels of the individual employees involved, including future changes attributed to
Yes
No
632
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) general price levels, productivity, seniority, promotion, and other factors? [FASB 106.33] f. All assumptions that reflect expectations of the same future economic conditions, such as future rates of inflation, are consistent? [FASB 106.33]
Yes
No
g. Measurement of an employer's postretirement health care obligation includes the use of assumptions about factors that are unique to health care benefits and affect the amount and timing of future benefit payments for postretirement health care, such as consideration of historical per capita claims cost by age, health care cost trend rates (for plans that provide a benefit in kind), and medical coverage to be paid by governmental authorities and other providers of health care benefits? [FASB 106.34] h. The employer's share of the expected future postretirement health care cost (aggregate assumed net incurred claims cost) for a plan participant is developed by reducing the assumed per capita claims cost by each of the following: [FASB 106.35] (1) At each age at which the plan participant is expected to receive benefits under the plan by (a) the effects of coverage by Medicare, including the effects of the Medicare Prescription Drug, Improvement and Modernization Act (Act), and other providers of health care benefits, and (b) the effects of the cost-sharing provisions of the plan (deductibles, co-payment provisions, outof-pocket limitations, caps on the limits of the employer-provided payments, and retiree contributions)? (2) The actuarial present value of the plan participants' future contributions if contributions are required to be paid by active plan participants toward their postretirement health care benefits? i. The assumed per capita claims cost by age represents the best estimate of the expected future cost of the benefits covered by the plan? [FASB 106.36] Past and present claims data for the plan are used in developing the current per capita claims cost to the extent that those data are considered to be indicative of the current cost of providing the benefits covered
633
j.
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) by the plan? [FASB 106.37] k. The current claims data are adjusted by the assumed health care cost trend rate? [FASB 106.37] l. In the absence of sufficiently reliable plan data about the current cost of the benefits covered by the plan, current per capita claims cost is based, entirely or in part, on the claims information of other employers adjusted to best reflect the terms of the employer's plan and the plan demographics, to the extent those costs are indicative of the current cost of providing the benefits covered by the plan? [FASB 106.38]
Yes
No
m. Current per capita claims cost derived from information from outside sources (e.g., insurance entities, actuarial firms, consulting firms) has been adjusted to best reflect the terms of the employer's plan and the plan demographics? [FASB 106.38] n. Both past and current health care cost trends are used in developing an employer's assumed health care cost trend rates? [FASB 106.39] o. Presently enacted changes in the law or amendments of the plans of other health care providers that take effect in future periods and that will affect the future level of their benefit coverages are considered in current-period measurements for benefits expected to be provided in those future periods? [FASB 106.40] (1) If the plan is affected by the Medicare Prescription Drug Improvement and Modernization Act: [FSP 106-2]: (a) When initially recognized, have the effects on the APBO been accounted for as an actuarial gain? [FSP 106-2.14] (b) Has the subsidy been included in measuring the costs of benefits attributable to current service? [FSP 106-2.15] (c) If there has been a change in the estimate of the subsidy, has the change been reflected as an actuarial experience gain or loss? [FSP 106-2.16] (d) If a plan is amended: (1) To cause a plan that was deemed not actuarially equivalent as of the
634
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) enactment date of the Act to now provide actuarially equivalent benefits, has the direct effect of the plan amendment on the APBO (that is, the effect of only the change in prescription drug coverage) and the effect on the APBO from any resulting subsidy to which the employer is expected to be entitled as a result of the amendment been combined and: [FSP 106-2.17] (a) If the combined effect reduces APBO, was it deemed an actuarial experience gain? [FSP 106-2.17] (b) If the combined effect increases APBO, was it deemed prior service cost? [FSP 106-2.17] (2) To cause a plan that was deemed actuarially equivalent as of the enactment date to now not be considered actuarially equivalent, has the combined net effect on the APBO of (a) the subsequent plan amendment that reduces benefits under the plan and thus disqualifies the benefits as actuarially equivalent and (b) the elimination of the subsidy, been accounted for as prior service cost (credit) as of the date the amendment is adopted? [FSP 106-2.18] p. Future changes in laws concerning medical costs covered by governmental programs and future changes in the plans of other providers are not anticipated? [FASB 106.40] q. In the absence of historical information about the gross per capita cost of covered benefits, an alternative method of developing the assumed per capita claims cost is used that represents the best estimate of the expected future cost of the benefits covered by the plan? [FASB 106.41] r. To the extent that assumed discount rates, compensation levels, and health care cost trend rates consider similar inflationary effects, are the assumptions about those effects consistent? [FASB
Yes
No
635
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) 106.42] 5. For other postretirement plan benefit obligations and plan assets: a. Have plan assets been segregated and restricted and do they include amounts contributed by the employer (and plan participants if a contributory plan) and amounts earned from investing the contributions, less benefits, income taxes, and other expenses incurred? [FASB 106.63] b. Have the plan assets and benefit obligations been measured as of the date of the annual financial statements, or if used consistently from year to year, as of a date not more than three months prior to that date? [FASB 106.72] 6. Does the accounting reflect the terms of the exchange transaction that takes place between an employer that provides postretirement benefits and the employees who render services in exchange for those benefits? Is the substantive plan, if different from the extant written plan, the basis for the accounting? [FASB 106.23] a. Except as provided in c(1) and (2) below, does the employer's cost-sharing policy, as evidenced by past practice or communication, constitute the cost-sharing provisions of the substantive plan if either of the following conditions exist: [FASB 106.24] (1) The employer has a past practice of (a) maintaining a consistent level of cost sharing between the employer and its retirees through changes in deductibles, coinsurance provisions, retiree contributions, or some combination of those changes or (b) consistently increasing or reducing the employer's share of the cost of the covered benefits through changes in retired or active plan participants' contributions toward their retiree health care benefits, deductibles, coinsurance provisions, out-or-pocket limitations, and so forth, in accordance with the employer's established cost-sharing policy? [FASB 106.24] (2) The employer has the ability, and has communicated to affected plan participants its intent, to institute different cost-sharing provisions at a specified time or when certain
Yes
No
636
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) conditions exist (for example, when health care cost increases exceed a certain level)? [FASB 106.24] b. If the conditions in a.(1) and (2) do not exist, is the extant written plan considered to be the substantive plan? [FASB 106.24] c. Do the following NOT constitute provisions of the substantive plan: [FASB 106.25] (1) An employer's past practice of maintaining a consistent level of cost sharing with its retirees or consistently increasing or reducing its share of the cost of providing the covered benefits, if accompanied by identifiable offsetting changes in other benefits or compensation or if the employer incurred significant costs, such as work stoppages, to effect that cost-sharing policy? [FASB 106.25] (2) An employer's communication of its intent to institute cost-sharing provisions, which differs from the extant written plan or the past costsharing practice, if (a) the plan participants would be unwilling to accept the change without adverse consequences to the employer's operations or (b) other modifications of the plan, such as the level of benefit coverage, of providing offsetting changes in other benefits, such as pension benefits, would be required to gain plan participants' acceptance of the change to the cost-sharing arrangement? [FASB 106.25] d. Do the service cost component of net periodic postretirement benefit cost and the expected and accumulated postretirement benefit obligation reflect future increases in service cost for which a present substantive commitment exists? [FASB 106.26] 7. If benefits are covered by annuity or other insurance contracts, does the accounting conform to the provisions of FASB 106? [FASB 106.67-.71] 8. If the entity has two or more defined benefit plans, have net periodic postretirement benefit cost, the accumulated postretirement benefit obligation, and plan assets been determined for each separately measured plan or aggregation of plans? [FASB 106.75-.76]
Yes
No
637
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) 9. If the entity participates in a multiemployer plan(s): a. Has the required contribution for the period been recognized as net postretirement benefit cost? [FASB 106.81] b. Has a liability been recognized for any unpaid contributions required for the period? [FASB 106.81] c. If the withdrawal from a multiemployer plan under circumstances that would give rise to an obligation is probable or reasonably possible, has the entity complied with the provisions of FASB 5? [FASB 106.83] d. If it is probable or reasonably possible that an employer's contribution to the fund would be increased during the remainder of the contract period to make up a shortfall in the funds necessary to maintain the negotiated level of benefit coverage (a "maintenance of benefits" clause) has the employer applied the provisions of FASB 5? [FASB 106.83] 10. For employers with multiple-employer plans, has the employer's accounting been based on its respective interest in the plan? [FASB 106.84] 11. Have non-U.S. plans been accounted for in conformity with FASB 106? [FASB 106.85] 12. See B-50, Business Combinations, Section G, question 1j for a question regarding FASB 106.86-88. 13. In the initial application of FASB 106 for a defined benefit plan(s), was the unrecognized transition asset or obligation determined in accordance with FASB 106? [FASB 106.108-.113] 14. If the transition obligation was not immediately recognized at transition, has the unrecognized transition net asset or obligation been amortized in accordance with FASB 106 in determining net periodic OPEB cost? [FASB 106.46, .112-.113] 15. Does the gain or loss component of net periodic postretirement benefit cost consist of (a) the difference between the actual return on plan assets and the expected return on plan assets, (b) any gain or loss immediately recognized or the amortization of the unrecognized net gain or loss from previous periods (if any is required pursuant to paragraph 59 of FASB 106), and (c) any
Yes
No
638
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) amount immediately recognized as a gain or loss pursuant to paragraph 61 of FASB 106? [FASB 106.58-.62] 16. Has the unrecognized prior service cost or credit been amortized in accordance with FASB 106 in determining net periodic postretirement benefit cost? [FASB 106.46, .52-.55] 17. If the entity has had a settlement: [FASB 106.90-.95, .100] a. Has the amount of the maximum gain or loss included any unrecognized net gain or loss plus any remaining unrecognized transition asset? [FASB 106.92] b. Has the maximum gain or loss included the gain or loss resulting from remeasurement of plan assets and the accumulated postretirement benefit obligation (APBO) at the time of settlement? [FASB 106.92] c. If the entire APBO has been settled and the maximum amount to be recognized is a gain, has the gain been first reduced by any remaining unrecognized transition obligation and any excess been recognized in income? [FASB 106.93] d. If the entire APBO has been settled and the maximum amount to be recognized is a loss, has the loss been recognized in income? [FASB 106.93] e. If only part of the APBO has been settled, has the excess of the pro rata portion (equal to the percentage reduction in the APBO) of the maximum settlement gain over any remaining unrecognized transition obligation, or a pro rata portion of the maximum settlement loss, been recognized in income? [FASB 106.93] f. If a participating insurance contract purchase constitutes the settlement, has the maximum settlement gain been reduced by the cost of the participation right? [FASB 106.94]
Yes
No
g. Has the accounting policy adopted for recognition of settlement gains and losses when the costs for the year are less than or equal to the sum of the service cost and interest cost components of net postretirement benefit cost for the year been consistently applied? [FASB 106.95] h. If the gain or loss on the settlement is directly related
639
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) to disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)] 18. If the entity had a curtailment: [FASB 106.96-.100] a. Has the unrecognized prior service cost included the cost of retroactive amendments and any remaining unrecognized transition obligation? [FASB 106.97] (1) Has the unrecognized prior service cost for this purpose included the cost of retroactive amendments and any remaining unrecognized net obligation? [FASB 106.97] b. Has the accumulated postretirement benefit obligation (APBO) been increased (loss) or decreased (gain) by the effects of the curtailment? [FASB 106.98] (1) Has any remaining unrecognized transition asset that existed at initial application of FASB 106 been treated as an unrecognized net gain for this purpose and combined with the unrecognized net gain or loss arising after the transition of FASB 106? [FASB 106.97] (2) Has the increase (loss) in the APBO first been offset against any unrecognized gain as measured in b(1) above, and has any excess loss been treated as a curtailment loss? [FASB 106.98(b)] (3) Has the decrease (gain) in the APBO first been offset against any unrecognized loss as measured in b(1), above, and has any excess loss been treated as a curtailment gain? [FASB 106.98(b)] c. Has the net loss or gain calculated in b(2) or b(3) been combined with the prior service cost loss determined in a? [FASB 106.97, .99] d. If the total determined in c, above, is a net loss, has it been recognized when it is probable that a curtailment will occur and the net effect is reasonably estimable? [FASB 106.99] e. If the total determined in c, above, is a net gain, has it been recognized when the related employees terminated or the plan suspension or amendment was adopted? [FASB 106.99] f. If the gain or loss on the curtailment is directly related
Yes
No
640
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) to the disposal of a component of an entity, is the amount included in determining the gain or loss associated with that event? [FASB 144.44(c)] 19. If the entity is adopting the measurement date provisions of FASB 158 in the next fiscal year and had a curtailment or settlement between the measurement date used in the current year and the beginning of the next fiscal year: Has the entity recognized in net income {statement of activities} for the current year (e.g., 2007) any gain or loss arising from a curtailment or settlement between the measurement date that is used in the current year (e.g., September 30, 2007) and the beginning of the fiscal year that the measurement date provisions are applied (January 1, 2008, for a calendar-year entity)? [FASB 158.18 b, .19 b]. 20. If the entity provided benefits to employees in connection with their termination of employment (special termination benefits or contractual termination benefits): [FASB 106.101-.102] a. If special termination benefits were offered, has a liability and a loss been recognized when the employees accepted the offer and the amount could be reasonably estimated? [FASB 106.101] (1) Was the liability and the loss for the special termination benefits recognized as the difference between (a) the APBO for those employees, assuming that those employees (active plan participants) not yet fully eligible for benefits would terminate at their full eligibility date and that fully eligible plan participants would retire immediately, without considering any special termination benefits and (b) the accumulated postretirement benefit obligation as measured in (a) adjusted to reflect the special termination benefits? [FASB 106.102] b. If contractual termination benefits were provided, was a liability and a loss recognized when it was probable that employees would be entitled to the benefits and the amount could be reasonably estimated? [FASB 106.101] 21. If the entity has a defined contribution plan(s), a. Has the required contribution for the period been recognized as net postretirement benefit cost? [FASB
Yes
No
641
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) 106.105] b. If the plan calls for contributions after an individual retires or terminates, has a portion of the cost been accrued for employee service during the current period? [FASB 106.105] c. If the substance of a plan is to provide a defined benefit, does the accounting conform to the requirements for defined benefit plans? [FASB 106.107] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements This Issue addresses whether an entity should record a liability for the postretirement benefit associated with a collateral assignment split-dollar life insurance arrangement in accordance with either FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Deferred Compensation Contracts. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements This Issue addresses whether the postretirement benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in accordance with either FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Deferred Compensation Contracts. 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in Altersteilzeit (ATZ) Early Retirement Arrangements) This Issue addresses (1) how to account for the bonus feature and additional contributions into the German government pension scheme under a Type II arrangement and (2) how to account for the government subsidy under Type I and Type II ATZ arrangements. 03-4, Determining the Classification and Benefit Attribution Method for a "Cash Balance" Pension Plan This Issue addresses (1) whether, for purposes of applying FASB 87, cash balance plans should be considered defined benefit plans or defined contribution plans and (2) if that cash balance plan is determined to be a defined benefit plan, the nature of the benefit promise and the appropriate benefit attribution
Yes
No
642
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) approach based on that promise. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities This Issue addresses how an employer should account for the separation of the substitutional portion of the benefit obligation of an EPF from the corporate portion and the transfer of the substitutional portion and related assets to the Japanese government. 96-5, Recognition of Liabilities for Contractual Termination Benefits or Changing Benefit Plan Assumptions in Anticipation of a Business Combination This Issue addresses whether a liability for the contractual termination benefits and the curtailment losses under employee benefit plans that will be triggered by the consummation of the business combination should be recognized when (1) it is probable that the business combination will be consummated or (2) the business combination is consummated. 93-3, Plan Assets Under FASB Statement No. 106 This Issue addresses whether a trust established to pay postretirement benefits must be determined to be bankruptcyproof in order for the assets in the trust to qualify as plan assets under FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. 92-13, Accounting for Estimated Payments in Connection with the Coal Industry Retiree Health Benefit Act of 1992 This Issue addresses how enterprises should account for the payments that are required by the Coal Industry Retiree Health Benefit Act of 1992. 92-12, Accounting for OPEB Costs by Rate-Regulated Enterprises This Issue addresses what criteria or evidence is needed for a rate-regulated enterprise to satisfy the requirements of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, to recognize a regulatory asset for FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, costs. 91-7, Accounting for Pension Benefits Paid by Employers after Insurance Companies Fail to Provide Annuity Benefits This Issue addresses how an employer should account for the cost of making up a deficiency in annuity payments to the retirees due to an insurance company becoming insolvent or unable to make the payments.
Yes
No
643
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) 90-3, Accounting for Employers' Obligations for Future Contributions to a Multiemployer Pension Plan This Issue addresses whether an employer that participates in a multiemployer pension plan must record a liability for the total future payments for prior service costs pursuant to an agreement at the date the employer enters the plan or improves benefits under the plan. 88-23, Lump-Sum Payments under Union Contracts This Issue relates to a lump-sum cash payment or payments in lieu of all or a portion of an increase in a union members base wage rate and whether the lump-sum payment or payments should be (1) charged to expense immediately or (2) amortized over all or some portion of the contract period. 88-1, Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan This Issue addresses whether the vested benefit obligation is the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately or the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement. 86-27, Measurement of Excess Contributions to a Defined Contribution Plan or Employee Stock Ownership Plan This Issue addresses how an employer accounts for excess contributions not allocated to individual participants' accounts in defined contribution plans or employee stock ownership plans. D-106, Clarification of Q&A No. 37 of FASB Special Report, A Guide to Implementation of Statement 87 on Employers' Accounting for Pensions This Issue revised the answer to Q&A 37, which addresses how an employer should determine whether an additional minimum liability is required if it has a measurement date earlier than its financial report date. D-36, Selection of Discount Rates Used for Measuring Defined Benefit Pension Obligations and Obligations of Postretirement Benefit Plans Other Than Pensions This Issue provides guidance for selecting discount rates. D-27, Accounting for the Transfer of Excess Pension Assets to a Retiree Health Care Benefits Account This Issue states that the transfer of excess pension assets to a retiree health care benefit account should be recognized as a negative contribution to (withdrawal of funds from) the
Yes
No
644
Accounting: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (12/08) pension plan and a positive contribution to the retiree health care plan. No gain or loss arises from the transfer of the excess pension assets.
Yes
No
Accounting: I08 IMPAIRMENTS (12/08) IMPAIRMENT OF A LONG-LIVED ASSET TO BE HELD AND USED (12/08) [NOTE: Entities registered with the SEC or that are contemplating registering with the SEC should ensure compliance with the provisions of SAB Topic 5-CC.] I. RECOGNITION AND MEASUREMENT OF AN IMPAIRMENT LOSS Impairment is the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value. An impairment loss is recognized only if the carrying amount of the long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the cash flows (undiscounted and without interest charges) expected to result from the use and eventual disposition of the asset (asset group). [FASB 144.07] A. When to Test a Long-Lived Asset for Recoverability 1. If any of the factors set forth below are present or if other events or changes in circumstances indicate that the carrying amount of an asset (or an asset group see FASB 144.10-12 for definition of an asset group) that an entity expects to hold and use may not be recoverable, has the entity estimated the future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition? [FASB 144.08] a. A significant decrease in the market price of a longlived asset (asset group) b. A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-
Yes
No
645
Accounting: I08 IMPAIRMENTS (12/08) lived asset (asset group), including an adverse action or assessment by a regulator d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group) e. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a longlived asset (asset group) f. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. [FASB 144, footnote 6]
Yes
No
2. If the long-lived asset was tested for recoverability, was a review of the depreciation estimates and method, as required by APB 20, Accounting Changes, or the amortization period as required by FASB 142, Goodwill and Other Intangible Assets, performed? [FASB 144.09] B. Grouping Long-Lived Assets to Be Held and Used 1. For the purpose of recognition and measurement of an impairment loss, are long-lived assets grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities? [FASB 144.10] 2. In those limited circumstances in which a long-lived asset did not have identifiable cash flows that are largely independent of the cash flows of other assets and liabilities, were all assets and liabilities of the entity included in the determination of cash flows? [FASB 144.11] 3. If the asset group being tested for impairment was a reporting unit or included an entire reporting unit, was goodwill included in the asset group being tested for impairment? [Reporting unit is defined in FASB 142 as the same level as or one level below an operating segment. Goodwill should not be included in a lower-level asset group that includes only part of a reporting unit.] [FASB 144.12] 4. If the asset group being tested for impairment include any assets (such as accounts receivable and inventory) and
646
Accounting: I08 IMPAIRMENTS (12/08) liabilities (such as accounts payable, long-term debt, and asset retirement obligations) that are not covered by FASB 144, were the assets not covered by this Statement adjusted in accordance with the appropriate applicable guidance prior to testing the asset group for recoverability? [FASB 144.13] 5. If an impairment loss was recognized for an asset group, was the loss allocated to the long-lived assets on a pro rata basis using the relative carrying amounts of those assets (unless the fair value of an individual asset has been determined without undue costs and effort, in which case the allocation of the impairment should not reduce the carrying amount of the asset below its fair value)? [FASB 144.14] C. New Cost Basis 1. If an impairment loss is recognized, was the adjusted carrying amount of the long-lived asset considered the new cost basis such that the new cost basis will be depreciated over the remaining useful life of the asset and restoration of a previously recognized impairment loss was not recognized? [FASB 144.15] 2. For a long-lived asset acquired via foreclosure, has the valuation allowance for any loans collateralized by such long-lived assets not been carried over as a separate element of the cost basis subsequent to the foreclosure? [FSP 144-1] D. Estimates of Future Cash Flows Used to Test a Long-Lived Asset for Recoverability 1. Do the estimates of future cash flows (undiscounted and without interest charges) used to the test the recoverability of long-lived assets include only the future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposal of the asset (asset group)? [Estimates should exclude interest charges that will be recognized as an expense when incurred.] [FASB 144.16] 2. Were the assumptions used in developing the cash flow (undiscounted and without interest charges) estimates reasonable in relation to the assumptions used by the entity in developing other information for comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information communicated to others? [FASB 144.17]
Yes
No
647
Accounting: I08 IMPAIRMENTS (12/08) 3. If alternative courses of action for recovering the carrying amount of the long-lived asset (asset group) were considered, were the considerations included in determining the final cash flow analysis? [FASB 144.17] 4. If a range was estimated for the amount of the possible future cash flows (undiscounted and without interest charges) associated with the likely course of action was the likelihood of those possible outcomes considered? [A probability-weighted approach may be useful in considering the likelihood of possible outcomes.] [FASB 144.17] 5. Is the remaining useful life of an asset group based on the remaining useful life of the primary asset of the group? [For purposes of FASB 144, the primary asset is the principal long-lived tangible asset being depreciated or intangible asset being amortized that is the most significant component asset from which the asset group derives its cash-flow-generating capacity. The primary asset of an asset group therefore cannot be land or an intangible asset not being amortized. Factors that an entity should consider in determining whether a long-lived asset is the primary asset of an asset group include the following: (a) whether other assets of the group would have been acquired by the entity without the asset, (b) the level of the investment that would be required to replace the asset, and (c) the remaining useful life of the asset relative to other assets of the group.] [FASB 144.18, footnote 10] 6. If the primary asset is not the asset of the group with the longest remaining useful life, do the estimates of future cash flows for the group assume the sale of the group at the end of the remaining useful life of the primary asset? [FASB 144.18] 7. Is the estimate of future cash flows used to test the recoverability of the long-lived asset (asset group) that is in use, including long-lived assets (asset groups) for which development is substantially complete, based on the existing service potential of the asset (asset group) at the date it was tested? [FASB 144.19] 8. Do the estimates of future cash flows include cash flows (undiscounted and without interest charges) associated with future expenditures necessary to maintain the existing service potential of a long-lived asset (asset group) including those that replace the service potential of
Yes
No
648
Accounting: I08 IMPAIRMENTS (12/08) component parts of a long-lived asset and component assets other than the primary asset of an asset group? [FASB 144.19] 9. Do the estimates of future cash flows (undiscounted and without interest charges) used to test the recoverability of the long-lived assets (asset groups), which are in use and for which development is substantially complete, exclude cash flows associated with future capital expenditures that would increase its service potential? [FASB 144.19] 10. For long-lived assets (asset groups) under development that are not substantially complete, do the estimates of future cash flows used to test the recoverability of the long-lived asset (asset group) include cash flows associated with all future expenditures necessary to develop the long-lived asset (asset group), including interest payments that will be capitalized as part of the cost of the asset (asset group)? [FASB 144.20] 11. If a long-lived asset that is under development is part of an asset group that is in use, do the estimates of future cash flows used to test the recoverability of that group include the cash flows associated with future expenditures necessary to maintain the existing service potential of the group as well as the cash flows associated with all future expenditures necessary to substantially complete the asset that is under development? [FASB 144.21] E. Fair Value The fair value of an asset (liability) is the amount at which that asset (liability) could be bought (incurred) or sold (settled) in a current transaction between willing parties (i.e., other than in a forced liquidation sale). Quoted market prices in active markets are the best evidence of fair value and should be used as the basis for the measurement, if available. When a quoted market price is not available, the estimate of fair value should be based on the best information available, including prices for similar assets (groups) and the results of using other valuation techniques. [FASB 144.22] 1. If a present value technique is used, are estimates of future cash flows consistent with the objective of measuring fair value? [Assumptions that marketplace participants would use in their estimates of fair value should be incorporated whenever that information is available without undue cost and effort. Otherwise, the entity may use its own assumptions. See FASB Concepts Statement 7, Using
Yes
No
649
Accounting: I08 IMPAIRMENTS (12/08) Cash Flow Information and Present Value in Accounting Measurements, for further guidance.] [FASB 144.24] E. Fair Value For entities that have adopted FASB 157 FASB 157 amends FASB 144 to remove paragraphs 22 and 24 (as well as a portion of paragraph 23) and related footnotes 12 and 14. Once adopted, entities should follow the guidance in FASB 157 in determining fair value, including the guidance in Appendix B of FASB 157 on the use of present value techniques. Paragraph 23 as amended indicates the following: "For long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value. (Example 4 of Appendix A [of FASB 144] illustrates the use of that technique)." 1. Has the entity appropriately considered the guidance in paragraph 23 and Appendix A of FASB 144 as well as the guidance in FASB 157 (including Appendix B on the use of present value techniques) in determining fair value? Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 04-3, Mining Assets: Impairment and Business Combinations This Issue discusses questions as to whether an entity should include value beyond proven and probable reserves (VBPP) and the effects of anticipated fluctuations in the future market price of minerals when (a) allocating the purchase price of a business combination and (b) testing a mining asset for impairment. The issues pertaining to impairment include (1) whether an entity should consider the future cash flows associated with VBPP in the cash flow analysis used to test mining assets for impairment under FASB 144; and (2) whether an entity should consider the effects of anticipated fluctuations in the future market price of minerals in the cash flow analysis used to test mining assets for impairment under FASB 144 01-5, Application of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That Will Be Disposed Of This Issue discusses (1) whether an entity should include the accumulated foreign currency translation adjustments (CTA) as part of the carrying amount of its investment when evaluating impairment for an equity method investment or for a consolidated investment in a foreign entity if the entity has a plan to dispose of the investment that will cause the CTA to be reclassified to earnings and 2) whether an entity that has
Yes
No
650
Accounting: I08 IMPAIRMENTS (12/08) committed to a plan to dispose of a net investment in a foreign operation (either an equity method investment or a consolidated subsidiary) should include the portion of the CTA that represents a gain or loss from an effective hedge of the net investment in that foreign operation as part of the carrying amount of the investment when evaluating that investment for impairment. 00-26, Recognition by a Seller of Losses on Firmly Committed Executory Contracts This Issue discusses (1) when a seller, or service provider, under a firmly committed executory contract that requires the seller to deliver goods or services to the counterparty in the future for specified consideration should recognize a loss under the contract; and (2) if a loss should be recorded, how the loss should be measured. 99-14, Recognition by a Purchaser of Losses on Firmly Committed Executory Contracts This Issue discusses when, if ever, a purchaser under a firmly committed executory contract should recognize an impairment of its remaining contractual right asset under the contract and how that impairment loss should be measured if the purchaser will continue to use the asset or service to be received under the contract. 95-23, The Treatment of Certain Site Restoration/Environmental Exit Costs When Testing a LongLived Asset for Impairment This Issue discusses whether the cash flows associated with environmental exit costs that may be incurred if a long-lived asset is sold, is abandoned, or ceases operations should be included in the undiscounted expected future cash flows used to test a long-lived asset for recoverability under FASB 144. IMPAIRMENT OF A LOAN (12/08) I. GENERAL FASB 5, Accounting for Contingencies, provides the basic guidance for recognition of impairment losses for all receivables (except those receivables specifically addressed by other accounting literature, such as debt securities). FASB 5 provides that "If the conditions [of paragraph 8 of FASB 5] are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable" (Appendix A, paragraph 22). Paragraph 8 of FASB 5 notes the following: "An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
Yes
No
651
Accounting: I08 IMPAIRMENTS (12/08) a. Information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss. b. The amount of loss can be reasonably estimated. FASB 114, Accounting by Creditors for Impairment of a Loan, as amended by FASB 118, Accounting by Creditors for Impairment of a Loan Income Recognition and Disclosures, amends FASB 5 to clarify that a creditor should evaluate the collectibility of both contractual interest and contractual principal of all receivables when assessing the need for a loss accrual. FASB 114 applies to all creditors. It addresses the accounting by creditors for impairment of a loan by specifying how allowances for credit losses related to certain loans should be determined. FASB 114 also addresses the accounting by creditors for all loans that are restructured in a troubled debt restructuring involving a modification of terms of a receivable, except restructuring of loans excluded from the scope of FASB 114 (items b-d below), including those involving a receipt of assets in partial satisfaction of a receivable (i.e., FASB 114 amends FASB 15 for such restructurings). A loan, as defined by FASB 114, is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset on the creditor's statement of financial position. Examples include, but are not limited to, accounts receivable (with terms exceeding one year) and notes receivable. FASB 114 applies to all loans that are identified for evaluation, uncollateralized as well as collateralized, except [FASB 114.06]: a. Large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. Those loans may include but are not limited to credit card, residential mortgage, and consumer installment loans. b. Loans that are measured at fair value or at the lowerof-cost or fair value, for example, in accordance with FASB 65, Accounting for Certain Mortgage Banking Activities, or other specialized industry practice. c. Leases as defined in FASB 13, Accounting for Leases. d. Debt securities as defined in FASB 115, Accounting
Yes
No
652
Accounting: I08 IMPAIRMENTS (12/08) for Certain Investments in Debt and Equity Securities. SAB 102, Financial Reporting Release 28 Accounting For Loan Losses By Registrants Engaged In Lending Activities (SAB 102/SAB Topic 6L), provides additional guidance for analysis and internal documentation for impairment of loans in accordance with FASB 5 and FASB 114. A. Recognition of Impairment 1. Has the entity recognized that a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement? [FASB 114.08] As used in FASB 114, as amended, and in FASB 5, as amended, all amounts due according to "the contractual terms" means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement. The term "probable" as it is used in FASB 114 is consistent with its use in FASB 5. [FASB 114.08, .10] FASB 5 requires recognition of a loss when (a) information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired at the date of the financial statements and (b) the amount of the loss can reasonably estimated. [FASB 5.08a-b] For a loan that has been restructured in a troubled debt restructuring, "the contractual terms of the loan agreement" refers to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. [FASB 114.08 (as amended by FASB 118.06)] 2. If the terms of a loan are subsequently modified in a troubled debt restructuring, has the entity applied the provisions of FASB 114 to that loan when it is restructured? [FASB 114.09]
Yes
No
653
Accounting: I08 IMPAIRMENTS (12/08) B. Measurement of Impairment Under FASB 114 1. When a loan is "impaired," as defined in paragraph 8 of FASB 114, has the entity measured impairment based on one of the following methods: [FASB 114.13] a. The present value of expected future cash flows discounted at the loan's effective interest rate? (See question 5 below.) b. The loan's observable market price? c. The fair value of the collateral if the loan is collateral dependent? [A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral.] Some impaired loans have risk characteristics that are unique to an individual borrower, and the creditor will apply measurement methods on a loan-by-loan basis. However, some impaired loans may have risk characteristics in common with other impaired loans. A creditor may aggregate those loans and may use historical statistics, such as average recovery period and average amount recovered, along with a composite effective interest rate as a means of measuring impairment of a loan. [FASB 114.12 (as amended by FASB 118)] 2. Has the entity measured impairment based on the fair value of the collateral when it determines that foreclosure is probable? [FASB 114.13] 3. Has the entity considered estimated costs to sell, on a discounted basis, in the measure of impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan? [FASB 114.13] 4. If the present value of expected future cash flows (or, alternatively, the observable market price of the loan or the fair value of the collateral) is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), has the entity recognized an impairment by creating a valuation allowance with a corresponding charge to bad-debt expense or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to bad-debt expense? [FASB 114.13 (as amended by FASB 118)] 5. If an entity bases its measure of loan impairment on a present value amount, is the calculated present value amount based on an estimate of the expected future cash
Yes
No
654
Accounting: I08 IMPAIRMENTS (12/08) flows of the impaired loan, discounted at the loan's effective interest rate, which is the rate of return implicit in the loan (i.e., the contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or acquisition of the loan)? [FASB 114.14 (as amended by FASB 118)] 6. Is the effective interest rate for a loan restructured in a troubled debt restructuring based on the original contractual rate, not the rate specified in the restructuring agreement? [FASB 114.14] 7. If the loan's contractual interest rate varies based on subsequent changes in an independent factor, such as an index or rate (e.g., the prime rate, the London interbank offered rate, or the U.S. Treasury bill weekly average), is that loan's effective interest rate calculated based on the factor as it changes over the life of the loan or fixed at the rate in effect at the date the loan meets the impairment criterion? [FASB 114.14] 8. Is the entity's choice of rates applied consistently for all loans whose contractual interest rate varies based on subsequent changes in an independent factor (see question B7 above)? [FASB 114.14] 9. Has the entity not made projections of changes in the independent factor for purposes of determining the effective interest rate or estimating expected future cash flows (see questions B7 and B8)? [FASB 114.14] 10. If an entity has based its measure of loan impairment on a present value calculation, are the estimates of expected future cash flows the entity's best estimate based on reasonable and supportable assumptions and projections? [FASB 114.15 (as amended by FASB 118)] 11. Has all available evidence, including estimated costs to sell, been considered in developing the estimate of expected future cash flows (see question B10)? [The weight given to the evidence should be commensurate with the extent to which the evidence can be verified objectively. If a creditor estimates a range for either the amount or timing of possible cash flows, the likelihood of the possible outcomes shall be considered in determining the best estimate of expected future cash flows.] [FASB 114.15] 12. Subsequent to the initial measurement of impairment, if there was a significant change (increase or decrease) in the amount or timing of an impaired loan's expected future
Yes
No
655
Accounting: I08 IMPAIRMENTS (12/08) cash flows, or if actual cash flows are significantly different from the cash flows previously projected, has the entity recalculated the impairment and adjusted the valuation allowance (see questions B1 B11)? [FASB 114.16] 13. If an entity has measured impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan, has an adjustment to the valuation allowance been made if there was a significant change (increase or decrease) in either of those bases? [FASB 114.16] 14. Does the net carrying amount of the loan not exceed the recorded investment in the loan? [FASB 114.16] [NOTE: In complying with the requirements of FASB 5 and FASB 114 with respect to determining its allowance for loan losses and provision for loan losses, an SEC registrant should consider the SEC Staff's views on the elements necessary for a systematic methodology contained in SAB 102 (Topic 6L).] C. Measurement of Impairment Under FASB 5 1. If the entity concludes that an individual loan specifically identified for evaluation under FASB 114 is not impaired, has that loan been included in the assessment of the allowance for loan losses under FASB 5 if specific characteristics of the loan indicate that it is probable that there would be an incurred loss in a group of loans with those characteristics? [EITF Exhibit Topic D-80A, Exhibit D-80 Diagram] 2. If the entity concludes that an individual loan specifically identified for evaluation under FASB 114 is impaired, has the entity not established an allowance under FASB 5 for that loan in addition to the one measured under FASB 114? [EITF Exhibit Topic D-80A] 3. For loans not specifically evaluated for impairment under FASB 114, has impairment been measured under FASB 5? D. Income Recognition [NOTE: FASB 114, as amended by FASB 118, does not address how a creditor should recognize, measure, or display interest income on an impaired loan. Some accounting methods for recognizing income may result in a recorded investment in an impaired loan that is less than
Yes
No
656
Accounting: I08 IMPAIRMENTS (12/08) the present value of expected future cash flows (or, alternatively, the observable market price of the loan or the fair value of the collateral). In that case, while the loan would meet the definition of an impaired loan, no additional impairment would be recognized. Those accounting methods include recognition of interest income using a cost-recovery method, a cash-basis method, or some combination of those methods. The recorded investment in an impaired loan also may be less than the present value of expected future cash flows (or, alternatively, the observable market price of the loan or the fair value of the collateral) because the creditor has charged off part of the loan.] [FASB 114.17 (as amended by FASB 118)] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 98-13, Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans to and Investments in Other Securities of the Investee The Issue addresses when an investor is required to account for a common stock investment using the equity method, how the equity method loss pickup from the application of APB Opinion 18 (when the carrying amount of the common stock has been reduced to zero) interacts with the applicable literature relating to investments in the other securities of the investee (either FASB 114 or FASB 115). 96-22, Applicability of the Disclosures Required by FASB Statement No. 114 When a Loan is Restructured in a Troubled Debt Restructuring into Two (or More) Loans The EITF discusses two issues including (a) when a loan is restructured in a troubled debt restructuring into two (or more) loans, whether the restructured loans should be considered separately or collectively when assessing the applicability of the disclosures about impaired loans that are required by FASB 114, as amended, in years after the restructuring and b) If the restructured loans are considered collectively, whether the disclosures are applicable when the creditor has conditionally forgiven Loan B and has retained a continued interest in that loan. (Loan B represents the remaining contractual cash flows of the original loan that are not expected to be collected and would not meet the criteria for exclusion from the disclosures of FASB 114.) D-80, Application of FASB Statements No. 5 and No. 114 to a Loan Portfolio This Issue contains a FASB Viewpoints article entitled, "Application of FASB Statements 5 and 114 to a Loan Portfolio." The article contains questions and FASB
Yes
No
657
Accounting: I08 IMPAIRMENTS (12/08) Staff responses on the application of FASB 5 and FASB 114 with respect to an allowance for loan losses associated with a loan portfolio. Has the entity complied with the following Statements issued by AICPA, when applicable? AICPA SOP 03-3 Accounting for Certain Loans or Debt Securities Acquired in a Transfer This SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.
Yes
No
Disclosure: I08 IMPAIRMENTS (12/08) IMPAIRMENT OF LONG-LIVED ASSETS TO BE HELD AND USED (12/08) 1. Was any impairment of a long-lived asset (asset group) to be held and used included in income from continuing operations before income taxes in the income statement of a business enterprise and in income from continuing operations in the statement of activities of a not-for-profit organization? If a subtotal such as "income from operations" is presented, was the amount of that loss reflected in such subtotal? [FASB 144.25] 2. Has the following information been disclosed in the notes to the financial statements that include the period in which the impairment loss was recognized: [FASB 144.26] a. A description of the impaired long-lived asset (asset group) and the facts and circumstances leading to the impairment? b. If not separately presented on the face of the statement, the amount of impairment loss and the caption in the income statement or the statement of activities that includes that loss? c. The method or methods for determining fair value (whether based on a quoted market price, prices for similar assets, or another valuation technique)? d. If applicable, the segment in which the impaired longlived asset (asset group) is reported under FASB 131, Disclosures about Segments of an Enterprise and
Yes
No
658
Disclosure: I08 IMPAIRMENTS (12/08) Related Information? IMPAIRMENT OF A LOAN (12/08) 1. Has the entity disclosed, either in the body of the financial statements or in the accompanying notes, the following information about loans that meet the definition of an impaired loan: [FASB 114.20 (as amended by FASB 118)] a. As of the date of each statement of financial position presented, the total recorded investment in the impaired loans at the end of each period and (1) the amount of that recorded investment for which there is a related allowance for credit losses determined in accordance with FASB 114, as amended, and the amount of that allowance and (2) the amount of that recorded investment for which there is no related allowance for credit losses determined in accordance with FASB 114, as amended? b. The entity's policy for recognizing interest income on impaired loans, including how cash receipts are recorded? c. For each period for which results of operations are presented, the average recorded investment in the impaired loans during each period, the related amount of interest income recognized during the time within that period that the loans were impaired, and, unless not practicable, the amount of interest income recognized using a cash-basis method of accounting during the time within that period that the loans were impaired? 2. For each period for which results of operations are presented, has the entity disclosed the activity in the total allowance for credit losses related to loans, including the balance in the allowance at the beginning and end of each period, additions charged to operations, direct writedowns charged against the allowance, and recoveries of amounts previously charged off? The total allowance for credit losses related to loans includes those amounts that have been determined in accordance with FASB 5, Accounting for Contingencies, and with FASB 114, as amended. [FASB 114.20 (as amended by FASB 118)] [NOTE: Information about an impaired loan that has been restructured in a troubled debt restructuring involving a modification of terms need not be included in the disclosures required by FASB 114, paragraphs 20(a) and
Yes
No
659
Disclosure: I08 IMPAIRMENTS (12/08) 20(c) in years after the restructuring if (1) the restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of the restructuring for a new loan with comparable risk, and (2) the loan is not impaired based on the terms specified by the restructuring agreement. That exception shall be applied consistently for paragraphs 20(a) and 20(c) to all loans restructured in a troubled debt restructuring that meet the criteria in (1) and (2).] [FASB 114.20 (as amended by FASB 118)] Has the entity complied with the following disclosure requirements, when applicable? FASB Staff Position SOP 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit Risk, as it relates to Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. This FSP clarifies what disclosures or other accounting considerations apply for entities that originate, hold, guarantee, service, or invest in loan products whose terms may give rise to a concentration of credit risk. It also clarifies in what circumstances, if any, the terms of loan products give rise to a concentration of credit risk as that term is used in FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments. AICPA Statement of Position 01-6 Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. This SOP requires consistent disclosures for lending and financing activities regardless of the type of entity engaging in those activities.
Yes
No
Accounting: DEBT AND EQUITY SECURITIES (12/08) [NOTE: At the time this checklist was issued, the FASB was discussing comments received on proposed FASB Staff Position (FSP) EITF 99-20-a, which would amend EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether other-thantemporary impairments of available-for-sale or held-tomaturity debt securities have occurred. If finalized, this FSP would be effective for interim (including the fourth quarter for an SEC registrant) and annual
Yes
No
660
Accounting: DEBT AND EQUITY SECURITIES (12/08) reporting periods ending after December 15, 2008. This section does not reflect these proposed changes. See the FASBs website for the status and disclosure requirements of this FSP.] [NOTE: At the time this checklist was issued, the FASB was discussing comments received on proposed FASB Staff Position (FSP) FAS 107-a, which would amend the disclosure requirements in FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to increase the comparability of information about certain financial assets that have related economic characteristics but have different reporting measurement attributes. If finalized, this FSP would be effective for interim and annual reporting periods ending after December 15, 2008. This section does not reflect these proposed changes. See the FASBs website for the status and disclosure requirements of this FSP.] [NOTE: FASB 115 is applicable to all debt securities and to all marketable equity securities held by an entity. The Statement does not apply to equity securities that, absent the election of the fair value option under FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, would be required to be accounted for under the equity method, investments in consolidated subsidiaries, nor to entities whose specialized accounting practices include accounting for all debt and equity securities at market or fair value with changes in value recognized in earnings or the change in net assets.] 1. For Entities that have adopted FASB 157 [NOTE: FASB 157 amends paragraph 3(a) and related footnote 2 of FASB 115 to indicate that restricted stock (for which the underlying equity security has a readily determinable price) is within the scope of FASB 115 "if the restriction terminates within one year." Footnote 2 indicates, "The fair value of restricted stock shall be measured based on the quoted price of an otherwise identical unrestricted security of the same issuer, adjusted for the effect of the restriction, in accordance with the provisions of FASB Statement No. 157, Fair Value Measurements.] Has the entity appropriately incorporated the effect of any restrictions that terminate within one year in the fair value of restricted stock within the scope of FASB 115? [FASB 115.3(a) as amended by FASB 157.E15(a), FASB 157.6] For entities that have elected the fair value option for available-for-sale securities pursuant to FASB 159:
Yes
No
661
Accounting: DEBT AND EQUITY SECURITIES (12/08) [NOTE: FASB 159 requires that if an entity elects the fair value option for available-for-sale or held-to-maturity securities, those securities shall be reported as trading securities under FASB 115.] A. General 1. At acquisition, did the entity classify all debt and marketable equity securities into one of the following categories: [FASB 115.06] a. Held-to-Maturity? b. Available-for-Sale? c. Trading? 2. Is the appropriateness of the classification reassessed at each reporting date? [FASB 115.06] B. Held-To-Maturity Securities (for Debt Securities Only) 1. Are debt securities classified as held-to-maturity carried at amortized cost? [FASB 115.07] 2. Does the entity have the positive intent and ability to hold these securities to maturity? [FASB 115.07] 3. Has the entity not classified any of the following as heldto-maturity: a. Securities that can be contractually prepaid or otherwise settled in such a way that the holder of the security would not recover substantially all of its recorded investment? [FASB 115.07 as amended by FASB 140.362] b. Convertible debt securities? [FASB 115 Q&A, #18] c. Mortgage-backed interest-only certificates? [FASB 115 Q&A, #22] 4. Does the held-to-maturity category exclude all debt securities that the entity intends to sell or anticipates that the security would be available to be sold in response to: [FASB 115.09] a. Changes in market interest rates and related changes in the security's prepayment risk? b. Needs for liquidity (e.g., due to withdrawal of deposits, increased demand for loans, surrender of insurance policies, or payment of insurance claims)? c. Changes in the availability of and the yield on
Yes
No
662
Accounting: DEBT AND EQUITY SECURITIES (12/08) alternative investments? d. Changes in funding sources and terms? e. Changes in foreign currency risk? f. Have securities not been classified as held-tomaturity, if the entity has a documented policy to initially classify all debt securities as held-to-maturity, but then automatically transfers every security to available-for-sale when it reached a predetermined point before maturity? [FASB 115 Q&A, #15]
Yes
No
5. The sale or transfer of a held-to-maturity security, due to one of the following changes in circumstances, is not considered to be inconsistent with its original classification. Have the entity's sales or transfers of securities classified as held-to-maturity, if any, only been in response to the following: [FASB 115.08] [NOTE: It is not appropriate to analogize to the exceptions specified below for situations that are similar, but not the same.] [FASB 115 Q&A, #31] a. Evidence of a significant deterioration in the issuer's creditworthiness? [FASB 115.08 and FASB 115 Q&A, #23] b. A change in the tax law that eliminates or reduces the tax-exempt status of interest on the debt security (but not a change in tax law that revises the marginal tax rates applicable to interest income)? c. A major business combination or major disposition (such as sale of a component of an entity [FASB 144.C13 and FASB 115 Q&A, #24 and #25]) that necessitates the sale or transfer of held-to-maturity securities to maintain the enterprise's existing interest rate risk position or credit risk policy? Sales in anticipation of or otherwise prior to a major business combination or major disposition does not qualify for the exception. [FASB 115 Q&A, #26] d. A change in statutory or regulatory requirements (applicable to all institutions supervised by the regulator and not just the entity [FASB 115 Q&A, # 28]) significantly modifying either what constitutes a permissible investment or the maximum level of investments in certain kinds of securities, thereby causing an enterprise to dispose of a held-to-majority security? e. A significant increase by the regulator in the
663
Accounting: DEBT AND EQUITY SECURITIES (12/08) industry's capital requirements that causes the enterprise to downsize by selling held-to-maturity securities? f. A significant increase in the risk weights of debt securities used for regulatory risk-based capital purposes?
Yes
No
g. Other events that are isolated, nonrecurring, and unusual for the reporting entity that could not have been reasonably anticipated? [NOTE: Other than extremely remote "disaster scenarios," very few events would meet all four of these conditions.] [FASB 115.08 and FASB 115 Q&A, #32] 6. Sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification and disclosure requirements of securities under FASB 115: [NOTE: Sale of a held-tomaturity security that meets either of the two conditions does not call into question the entity's intent to hold securities to maturity.] [FASB 115.11] a. Has the sale of a security occurred near enough to its maturity date (or call date if exercise is probable) that interest rate risk is substantially eliminated as a pricing factor? [That is, the date of sale is so near the maturity or call date (e.g., within three months) that changes in market interest rates would not have a significant effect on the security's fair value.] b. Has the sale of a security occurred after the enterprise has collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayment on the debt security or to scheduled payments on a debt security payable in equal installments (both principal and interest) over its term? (For variable-rate securities, the scheduled payments need not be equal.) However, it is not appropriate to apply this limited practical exception by analogy to a debt security that has a contractual payment schedule of level principal payments plus interest that accrues based on the declining outstanding principal balance [FASB 115 Q&A, #33]. 7. If a sale or transfer of a security classified as held-tomaturity occurs for a reason other than those specified in paragraphs 8 and 11 of FASB 115 (as listed above) and the continuing assertions about all other debt securities
664
Accounting: DEBT AND EQUITY SECURITIES (12/08) classified in the held-to-maturity category are called into question, have all remaining held-to-maturity securities been reclassified to available-for-sale? [FASB 115 Q&A, #12, #13, #29 and #30] [NOTE: For companies registered with the SEC, the SEC staff indicated that the taint period for sales that do not meet the criteria of paragraph 8 or 11 of FASB 115 would be two years. The SEC staff is expected to challenge the re-establishment of a held-to-maturity classification which is made within two years of the sale or transfer of held-tomaturity securities.] C. Trading and Available-For-Sale Securities 1. Are investments in debt securities that are not classified as held-to-maturity and equity securities that have readily determinable fair values classified as either trading securities or available-for-sale securities? [FASB 115.12] 2. Are securities that are bought and held principally for the purpose of selling them in the near term classified as trading securities? [FASB 115.12 as amended by FASB 134.05 and FASB 115 Q&A, #34] (Classification of a security as trading is not precluded simply because the enterprise does not intend to sell it in the near term provided that the classification of the security as trading occurs at acquisition.) [FASB 115 Q&A, #35] 3. Are mortgage-backed securities that are held for sale in conjunction with mortgage banking activities classified based on the entity's ability and intent to sell or hold those investments? [FASB 134.2] 4. Are securities not classified as held-to-maturity securities or trading securities classified as available-for-sale securities? 5. If an enterprise decides to sell a security that has been classified as available-for-sale, has the entity not transferred the security to trading? [FASB 115 Q&A, #36] 6. Is the initial carrying amount under FASB 115 of a previously nonmarketable equity security that becomes marketable (that is, due to a change in circumstances, it now has a fair value that is readily determinable) the cost basis of the nonmarketable security (reduced by any otherthan-temporary impairment that has been recognized)? To the extent that a change in marketability provides evidence that an other-than-temporary impairment has
Yes
No
665
Accounting: DEBT AND EQUITY SECURITIES (12/08) occurred, a write-down should be recorded prior to applying FASB 115, and the loss should be classified in a manner consistent with other write-downs of similar investments. (This presumes that the nonmarketable security had not been accounted for under the equity method.) [FASB 115 Q&A, # 37] D. Reporting Changes in Fair Value 1. Are unrealized holding gains and losses for trading securities included in earnings? [FASB 115.13] 2. Are unrealized holding gains and losses (except those losses determined to be other than temporary) for available-for-sale securities (including those classified as current assets) excluded from earnings and included in other comprehensive income except for amounts related to unrealized holding gains and losses of available-for-sale securities designated as being hedged in a fair value hedge which shall be recognized in earnings during the period of the hedge? [FASB 115.13; 133.534(b)(2)] 3. Is interest and dividend income, including amortization of premium and discount arising at acquisition for all three categories of investments in securities included in earnings? [FASB 115.14] 4. Are realized gains and losses for securities classified as either available-for-sale or held-to-maturity reported in earnings? [FASB 115.14] 5. Are gains and losses from regular way security sales or disposals recognized as of the trade date? 6. Are stock dividends or stock splits received by an entity accounted for by reallocating the cost of the shares previously held with no effect on income? [ARB 43, Ch. 7B.09] 7. Did the entity use the quoted market price, if available, in the determination of fair value? [FASB 115 Q&A, #58] 7a. For entities that have adopted Statement 157 [NOTE: FASB 157 amends FASB 115 paragraph 137, removing the fair value guidance in FASB 115.] FASB 157 defines fair value and establishes a framework for measuring fair value. FASB 157 emphasizes that fair value should be measured based on the assumptions that market participants would use in pricing the asset, and establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent
Yes
No
666
Accounting: DEBT AND EQUITY SECURITIES (12/08) of the reporting entity (observable inputs) and (2) the reporting entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accordingly, under FASB 157, quoted prices in active markets for identical assets still will be the best indicator of fair value. If the market for an asset is not active, an entity should refer to the guidance in FSP FAS 157-3. Has the entity appropriately considered the guidance in FASB 157 in determining fair value? [FASB 157] 8. If a quoted market price is not available, has the estimate of fair value been based on the best information available in the circumstances? That is, the estimate of fair value should consider prices for similar assets and the results of valuation techniques to the extent available in the circumstances. [FASB 115 Q&A, #59] 8a. For entities that have adopted Statement 157 See Question 7a above. [FASB 157] E. Transfers Between Categories of Investments 1. Are transfers of securities between categories of investments accounted for at fair value? [FASB 115.15] 2. At the date of the transfer, have securities' unrealized holding gains or losses been accounted for as follows: [FASB 115.15] a. For securities transferred from the trading category, has no adjustment been made to the unrealized holding gain or loss previously recognized in earnings (however, see question 4 below)? b. For securities transferred into the trading category, has the portion of the unrealized holding gain or loss at the date of transfer that has not previously been recognized in earnings been recognized in earnings immediately (however, see question 4 below)? [as amended by FASB 133.534I] [NOTE: Gains and losses that have accumulated prior to the time of transfer should be classified in a manner consistent with the classification of realized gains and losses for the category from which the security is being transferred, not the category into which the security is being transferred.] [FASB 115 Q&A, #44]
Yes
No
667
Accounting: DEBT AND EQUITY SECURITIES (12/08) c. For a debt security transferred into the available-forsale category from the held-to-maturity category, has the unrealized holding gain or loss at the date of the transfer been reported in other comprehensive income (however, see question 3 below)? d. For a debt security transferred into the held-tomaturity category from the available-for-sale category, has the unrealized holding gain or loss at the date of the transfer continued to be reported in a separate component of shareholders' equity (such as accumulated other comprehensive income) and is the unrealized holding gain or loss being amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount? [NOTE: The amortization of an unrealized holding gain or loss reported in equity will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity security.] [FASB 115.15(d) and FASB 115 Q&A, No. 43] 3. Are transfers from held-to-maturity rare, except for transfers due to the changes in circumstances identified in subparagraphs 8(a)-(f) of FASB 115? [FASB 115.15] 4. Are transfers into or from the trading category rare? [FASB 115.15] F. Impairment of Securities 1. In each reporting period, has the entity assessed for each of its debt and equity securities that are within the scope of FASB 115 (including all equity securities held by insurance companies and bifurcated host instruments that are subject to FASB 115) whether that security is impaired? (An assessment also must be performed for all debt and equity securities that are within the scope of FASB 124 that are held by an investor that reports a "performance indicator" as defined in the AICPA Accounting and Audit Guide, Health Care Organizations.) An impairment exists if the fair value of the investment is less than its cost. (Note that cost includes adjustments made to the cost basis of an investment for accretion, amortization, previous otherthan-temporary impairments, and hedging.) [FSP 1151/124-1, 4,7] 2. If an entity holds an equity security not subject to the scope of FASB 115 and FASB 124 and not accounted for
Yes
No
668
Accounting: DEBT AND EQUITY SECURITIES (12/08) under the equity method pursuant to Opinion 18 and related interpretations ("cost-method investments"), has the entity performed an impairment assessment for the cost method investment for that reporting period if: a. The entity has estimated the fair value of the cost method investment for that period, OR b. An event or change in circumstances has occurred in the reporting period that may have a significant adverse effect on the fair value of the cost method investment (i.e., an impairment indicator exists). In such circumstances the entity must estimate the fair value of the cost method investment and perform an impairment analysis OR c. In a prior reporting period, the cost method investment, although impaired, was determined not to be other than temporarily impaired, however that investment has not subsequently experienced a recovery in its fair value up to (or beyond) its cost, and no other than temporary impairment has been recognized by the entity. [FSP 115-1/124-1,10-12] 3. For each security for which an impairment assessment has been performed, has that impairment assessment been made at the individual security level? (Individual security level means the level and method of aggregation used by the reporting entity to measure realized and unrealized gains and losses on its debt and equity securities. For example, equity securities of an issuer bearing the same CUSIP number that were purchased in separate trade lots may be aggregated by a reporting entity on an average cost basis if that corresponds to the basis used to measure realized and unrealized gains and losses for the securities of the issuer.) [FSP 115-1/124-1,10-12] 4. For individual securities that are assessed for impairment and are determined to be impaired (i.e., the fair value of the investment is less than its cost), has the entity determined whether the decline in fair value below the amortized cost basis (impairment) is other than temporary? [FASB 115.16] a. Have public companies considered the guidance in SEC Staff Accounting Bulletin Topic 5M, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, which provides guidance on interpreting the phrase "other-than-temporary impairment," in performing an impairment analysis as
Yes
No
669
Accounting: DEBT AND EQUITY SECURITIES (12/08) required by paragraph 16 of FASB 115? Specifically has the entity considered the following factors which, individually or in combination, indicate that a decline is other-than-temporary and that a write-down of the carrying value is required: (1) The length of the time and the extent to which the market value has been less than cost; (2) The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or (3) The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value? b. If the entity's securities include retained beneficial interests in securitization transactions that are accounted for as sales under FASB 140 or purchased beneficial interests in securitized financial assets that meet all of the following conditions listed in 4b(1).4b(5). Below has the entity applied the guidance in EITF 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, to determine if an other-than-temporary impairment exists? [EITF 99-20.05 and .12(b)] (1) Are either debt securities under FASB 115 or required to be accounted for like debt securities under FASB 115 pursuant to paragraph 14 of FASB 140, as applicable? (2) Involve securitized financial assets that have contractual cash flows (for example, loans, receivables, debt securities, and guaranteed lease residuals, among other items)? [NOTE: The consensus in Issue 99-20 does not apply to securitized financial assets that do not involve contractual cash flows (for example, common stock equity securities, among other items). The Task Force observed that the guidance in Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured
Yes
No
670
Accounting: DEBT AND EQUITY SECURITIES (12/08) Notes, may be applied to those beneficial interests involving securitized financial assets that do not involve contractual cash flows. Issue 96-12 addresses how an investor in a structured note should estimate the cash flows that will be received and how the changes in those cash flow estimates should be recognized and measured in interest income.] (3) Do not result in consolidation of the entity issuing the beneficial interest by the holder of the beneficial interests? (4) Are not within the scope of Practice Bulletin 6 (as amended by FASB 114 and 115)? (Also note that AICPA SOP 03-3 superseded Practice Bulletin 6 and applies to all loans purchased in fiscal years beginning after December 15, 2004. SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.) (5) Are not beneficial interests in securitized financial assets that (1) are of high credit quality (for example, guaranteed by the U.S. government, its agencies, or other creditworthy guarantors, and loans or securities sufficiently collateralized to ensure that the possibility of credit loss is remote) and (2) cannot contractually be prepaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investment? Interest income on such beneficial interests should be recognized in accordance with the provisions of FASB 91, and determining whether an other-than-temporary impairment of such beneficial interests exists should be based on SAB Topic 5-M, SAS 92, and the Statement 115 Special Report? c. Has the entity consulted other pertinent guidance (e.g., paragraph 16 of FASB 115, or paragraph 6 of Opinion 18) in assessing whether the impairment is other than temporary? [FSP FAS 115/124-1.13] 5. If the entity has decided to sell an impaired available for sale security, and the entity does not expect the fair value
Yes
No
671
Accounting: DEBT AND EQUITY SECURITIES (12/08) of the security to fully recover prior to the expected time of the sale, has the entity deemed the security other than temporarily impaired in the period in which the decision to sell is made? (Note that the entity must recognize an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.) [FSP FAS 115/124-1.14] 6. If the impairment is determined to be other than temporary, has the entity recognized in earnings an impairment loss equal to the entire difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made? (Note that the measurement of impairment shall not include partial recoveries subsequent to the balance sheet date.) [FSP FAS 115/124-1.15, EITF 99-20.12(b)] 7. In periods subsequent to the recognition of an other-thantemporary impairment loss for debt securities, has the investor accounted for the other-than-temporary impaired debt security as if the debt security had been purchased on the measurement date of the other-than-temporary impairment? (i.e., is the discount or reduced premium recorded for the debt security, based on the new cost basis, being amortized over the remaining life of the debt security in a prospective manner based on the amount and timing of future estimated cash flows.) [FSP 115-1/1241.16] G. EITF ISSUES NOT ADDRESSED ABOVE Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 99-4, Accounting for Stock Received from the Demutualization of a Mutual Insurance Company This Issue requires that stock received from a demutualization should be accounted for at fair value with a gain recognized in income from continuing operations. 98-13, Accounting by an Equity Method Investor for Investee Losses When the Investor Has Loans To and Investments in Other Securities of the Investee This Issue addresses how the equity method of accounting under APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, (when the carrying account of the common stock has been reduced to zero) interacts with the applicable literature relating to investments in other securities of the investee e.g., preferred stock, debt securities, loans, etc. 96-15, Accounting for the Effects of Changes in Foreign
Yes
No
672
Accounting: DEBT AND EQUITY SECURITIES (12/08) Currency Exchange Rates on Foreign-CurrencyDenominated Available-for-Sale Debt Securities This Issue addresses how the change in fair value of foreign-currencydenominated available-for-sale debt securities should be reported. 96-11, Accounting for Forward Contracts and Purchased Options to Acquire Securities Covered by FASB Statement No. 115 This Issue addresses how to account for forward contracts and purchased options with no intrinsic value at acquisition and that are not within the scope of FASB 133 that are entered into to purchase securities that will be accounted for under FASB 115 during the period that the forward or option is outstanding and when the securities are acquired. 96-10, Impact of Certain Transactions on the Held-toMaturity Classification under FASB Statement No. 115 This Issue addresses whether certain transactions involving held-to-maturity securities that are not accounted for as sales, such as wash sales and bond swaps, contradict the entity's stated intent to hold a security to maturity, and therefore, call into question ("taint") the entity's intent to hold other debt securities to maturity. 94-8, Accounting for Conversion of a Loan into a Debt Security in a Debt Restructuring This Issue addresses (1) what the initial cost bases of a debt security of the original debtor received in a restructuring of a loan should be and (2) how the creditor should account for any differences between the creditor's basis in the loan and the fair value of the security at the date of the restructuring. 86-40, Investments in Open-End Mutual Funds That Invest in U.S. Government Securities This Issue addresses what basis a financial institution should use to report its investments in mutual funds. 85-39, Implications of SEC Staff Accounting Bulletin No. 59 on Noncurrent Marketable Equity Securities This Issue addresses the accounting for noncurrent marketable equity securities that experience a decline in market value. [NOTE: See STATUS section of this Issue for the impact of the issuance of FASB 115.] 85-12, Retention of Specialized Accounting for Investments in Consolidation In accordance with specialized industry accounting principles, the separate financial statements of a wholly owned small business investment company (SBIC) subsidiary or a venture capital investment company subsidiary report investments at fair value. The specialized industry accounting principles do not apply to the parent company.
Yes
No
673
Accounting: DEBT AND EQUITY SECURITIES (12/08) This Issue addresses whether the consolidated financial statements should retain the specialized industry accounting principles applicable to the subsidiary or whether the accounting principles applicable to the parent company should be applied to the subsidiary's investments. [NOTE: See STATUS section of this Issue for the impact of the issuance of FASB 115.] D-51, The Applicability of FASB Statement 115 to Desecuritizations of Financial Assets This topic addresses the application of Issue 96-10 to desecuritizations of financial assets classified as held-to-maturity as well as the applicability FASB 115 to other desecuritization transactions.
Yes
No
Disclosure: DEBT AND EQUITY SECURITIES (12/08) A. Financial Statement Presentation 1. Has an entity that presents a classified statement of financial position reported individual trading securities, individual held-to-maturity securities, and individual available-for-sale securities as either current or noncurrent, as appropriate, under the provisions of ARB No. 43, Chapter 3A? [FASB 115.17] 2. If an entity has chosen to elect the fair value option as provided by FASB 159, are the investments in availablefor-sale securities and trading securities that are subsequently measured using another measurement attribute (e.g., at fair value per FASB 159.15) presented either: [FASB 115.17, 159.15] a. In aggregate of fair value and non-fair-value amounts in the same line item in the statement of financial position and parenthetically disclosing the amount measured at fair value included in the aggregate amount? b. As two separate line items to display the fair value and non-fair-value carrying amounts? 3. Has the entity disclosed the following in its statement of cash flows? [FASB 115.18] a. Cash flows from purchases, sales, and maturities of available-for-sale securities and held-to-maturity securities as cash flows from investing activities, reported gross for each security classification?
Yes
No
674
Disclosure: DEBT AND EQUITY SECURITIES (12/08) b. Cash flows from purchases, sales, and maturities of trading securities as cash flows from operating activities? c. If the entity has adopted FASB 159, cash flows from purchases, sales, and maturities of trading securities classified based on the nature and purpose for which the securities were acquired? 4. Did the entity provide a note in its financial statements explaining what portion of each category of securities is reported as cash equivalents in the statement of financial position and the statement of cash flows? [FASB 115 Q&A, #51] 5. If an enterprise recognizes a deferred tax asset relating only to a net unrealized loss on available-for-sale securities and at the same time concludes that it is more likely than not that some or all of that deferred tax asset will not be realized, is the offsetting entry to the valuation allowance reported in other comprehensive income related to the unrealized loss under FASB 115? (The offsetting entry to the valuation allowance also would be reported in the FASB 115 component of other comprehensive income if the enterprise reaches its conclusion on the need for a valuation allowance in a later interim period of the same fiscal year in which the deferred tax asset is initially recognized.) [FASB 115 Q&A, #54] 6. Is an offsetting entry for a valuation allowance reported in the FASB 115 component of other comprehensive income only to the extent the valuation allowance is directly related to the unrealized loss on the available-for-sale securities that arose in the current year? [FASB 115 Q&A, #55] 7. If an enterprise initially decided that no valuation allowance for the deferred tax asset was required at the time an unrealized loss on available for sale securities was recognized but in a subsequent fiscal year decided that it is more likely than not that the deferred tax asset will not be realized, a valuation allowance is required to be recognized. Is the offsetting entry included as an item in determining income from continuing operations and not included in other comprehensive income? [FASB 115 Q&A, #56] 8. If an enterprise recognizes a deferred tax asset relating to a net unrealized loss on available-for-sale securities and at the same time concludes that a valuation allowance is
Yes
No
675
Disclosure: DEBT AND EQUITY SECURITIES (12/08) warranted and in a subsequent fiscal year makes a change in judgment about the level of future years' taxable income such that all or a portion of that valuation allowance is no longer warranted, is the offsetting entry reported as an item in determining income from continuing operations? [NOTE: If, rather than a change in judgment about future years' taxable income, the enterprise generates taxable income in the current year that can utilize the benefit of the deferred tax asset, the elimination (or reduction) of the valuation allowance is allocated to that taxable income. Paragraphs 26 and 35-38 of FASB Statement No. 109, Accounting for Income Taxes, provide additional information.] [FASB 115 Q&A, # 57]. B. Disclosure 1. For securities classified as available-for-sale, has the entity disclosed by major security type as of each date for which a statement of financial position is presented: [FASB 115.19 as amended by 133.534(e)] a. The aggregate fair value? b. The total gains for securities with net gains in accumulated other comprehensive income? c. The total losses for securities with net losses in accumulated other comprehensive income? 2. For securities classified as held-to-maturity, has the entity disclosed, by major security type as of each date for which a statement of financial position is presented: [FASB 115.19 as amended by 133.534(e)] a. The aggregate fair value? b. Gross unrecognized holding gains? c. Gross unrecognized holding losses? d. The net carrying amount? e. The gross gains and losses in accumulated other comprehensive income for any derivatives that hedged the forecasted acquisition of the held-to-maturity securities? 3. If the entity is a financial institution (as defined in footnote 6 to FASB 115.19), has the disclosure required in (1) and (2) above been made for the following major security types (additional types also may be included as appropriate):
Yes
No
676
Disclosure: DEBT AND EQUITY SECURITIES (12/08) a. Equity securities? b. Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies? c. Debt securities issued by states of the United States and political subdivisions of the states? d. Debt securities issued by foreign governments? e. Corporate debt securities? f. Mortgage-backed securities? g. Other debt securities? 4. For the most recent statement of financial position presented, has the entity disclosed for investments in debt securities classified as available-for-sale and separately for debt securities classified as held-to-maturity, by appropriate groupings, information about contractual maturities of those securities? [FASB 115.20] 5. If the entity is a financial institution, has the disclosure of the fair value and the net carrying amount (if different from fair value) of debt securities been based on at least four maturity groups, as follows: [FASB 115.20 (as amended by FASB 133.534(f))] [NOTE: Securities not due at a single maturity date (i.e., mortgage backed securities) may be disclosed separately rather than allocated over several maturity groupings; if allocated, the basis for allocation shall be disclosed.] a. Within one year? b. After one year through five years? c. After five years through ten years? d. After ten years? 6. For each period for which the results of operations are presented, has the entity disclosed: [FASB 115.21 (as amended by FASB 133.534(g))] a. The proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses that have been included in earnings as a result of those sales? b. The basis on which the cost of a security sold or the amount reclassified out of accumulated other comprehensive income into earnings was determined (i.e., specific identification, average cost, or other
Yes
No
677
Disclosure: DEBT AND EQUITY SECURITIES (12/08) method used)? c. The gross gains and gross losses included in earnings from transfers of securities from the available-for-sale category into the trading category? d. The amount of the net unrealized holding gain or loss on available-for-sale securities for the period that has been included in accumulated other comprehensive income and the amount of gains and losses reclassified out of accumulated other comprehensive income into earnings for the period? e. The portion of trading gains and losses for the period that relates to trading securities still held at the reporting date? 7. Has the entity disclosed, for each period for which the results of operations are presented, any sales of or transfers from securities classified as held-to-maturity, the net carrying amount of the sold or transferred security, the net gain or loss in accumulated other comprehensive income for any derivative that hedged the forecasted acquisition of the held-to-maturity security, the related realized or unrealized gain or loss, and the circumstances leading to the decision to sell or transfer the security? [Note: Such sales or transfers should be rare, except for sales and transfers due to the changes in circumstances identified in subparagraphs 8(a)-(f) of FASB 115.] [FASB 115.22 as amended by FASB 133.534(h)] 8. For each category of investments requiring disclosure under FASB 115 or FASB 124 (e.g., equity securities, debt securities issued by the US Treasury, and corporate debt securities) and for cost method investments, has the entity disclosed the following quantitative information in tabular form in its annual financial statements with respect to securities in an unrealized loss position, including those that fall within the scope of EITF 99-20, for which otherthan-temporary impairment has not been recognized [FSP 115-1/124-1.17]: a. The aggregate amount of unrealized losses (i.e., the amount by which cost exceeds fair value)? b. The aggregate related fair value of investments with unrealized losses? 9. Have the disclosures in question 8 above been segregated by those investments that have been in a continuous unrealized loss position for less than 12 months and those
Yes
No
678
Disclosure: DEBT AND EQUITY SECURITIES (12/08) that have been in a continuous loss position for more than 12 months? [FSP 115-1/124-1.17a] 10. In its annual financial statements, for each category of investments requiring disclosure under FASB 115 or FASB 124 (e.g., equity securities, debt securities issued by the US Treasury, and corporate debt securities) and for cost method investments, has the entity provided additional information in narrative form to allow financial statement users to understand the quantitative disclosures and the information the entity considered (both positive and negative) in reaching the conclusion that the impairments are not other-than-temporary? [FSP 1151/124-1.17b] Do the disclosures include the following: a. The nature of the investment(s)? b. The causes of the impairment(s)? c. The number of investment positions that are in an unrealized loss positions? d. The severity and duration of the impairment(s)? e. Other relevant information or evidence considered in reaching the conclusion (e.g., industry analyst reports, sector credit ratings, volatility of the security's fair value, etc.) that the investment is not other than temporarily impaired? 11. For cost method investments, has the entity disclosed the following additional information, if applicable, as of each date for which a statement of financial position is presented in its annual financial statements: [FSP 1151/124-1.18] a. The aggregate carrying amount of all cost method investments? b. The aggregate carrying amount of cost method investments that the entity did not evaluate for impairment? c. The fact that the fair value of a cost method investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment, and (1) The entity determined that it is not practicable to estimate the fair value of the investment (in accordance with paragraphs 14 and 15 of FASB 107), or
Yes
No
679
Disclosure: DEBT AND EQUITY SECURITIES (12/08) (2) The entity is exempt from estimating fair value under FASB 126? [NOTE: The disclosures required by FSP 115-1/124-1 apply to investments held by a not-for-profit organization only if that organization reports a "performance indicator" as defined in the AICPA Audit and Accounting Guide, Health Care Organizations.]
Yes
No
680
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) [NOTE: Entities registered with the SEC or that are contemplating registering with the SEC should determine compliance with the provisions of SAB Topic 5-CC.] A. Long-Lived Assets to Be Disposed of Other Than by Sale 1. If a long-lived asset is to be disposed of by methods other than by sale (e.g., by abandonment, in an exchange measured based on the recorded amount of the nonmonetary asset relinquished or in a distribution to owners in a spin-off) has that asset been classified as held and used until disposed (i.e., not classified as held for sale)? [FASB 144.27] 2. While the long-lived asset to be disposed of other than by sale was classified as held and used, did the enterprise account for it in accordance with paragraphs 7-26 of FASB 144? [NOTE: Complete the Impairment of LongLived Assets and Assets to Be Disposed Of section of this checklist to make this determination.] [FASB 144.27] 3. If a long-lived asset is to be abandoned or distributed to owners in a spin-off together with other assets (and liabilities) as a group and the disposal group is a component of an entity, have paragraphs 41-44 of FASB 144 been considered with respect to the transaction? (A long-lived asset to be distributed to owners in a spin-off is disposed of when it is distributed.) [FASB 144.27] [NOTE: While the asset is classified as held and used, apply section I08, Impairment.] B. Long-Lived Asset to be Abandoned 1. Has a long-lived asset to be abandoned been recognized as disposed when it ceases to be used? [FASB 144.28] 2. If the entity has committed to a plan to abandon the longlived asset before the end of its previously estimated useful life, have depreciation estimates been revised in accordance with paragraphs 19-22 of FASB 154 (if effective) to reflect the use of the asset over its shortened useful life? [FASB 144.28] [NOTE: Because the continued use of a long-lived asset demonstrates the presence of service potential, only in unusual situations would the fair value of a long-lived asset to be abandoned be zero while it is being used.] 3. Has a long-lived assets that has been temporarily idled not been accounted for as if abandoned? [FASB 144.28]
Yes
No
681
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) C. Long-Lived Asset to be Exchanged for a Similar Productive Long-Lived Asset or to be Distributed To Owners in a Spin-Off 1. Has a long-lived asset to be disposed of in an exchange measured based on the recorded amount of the nonmonetary asset relinquished or to be distributed to owners in a spin-off, been recognized as disposed when it is exchanged or distributed? [FASB 144.29] 2. If the long-lived asset (asset group) to be exchanged or distributed was tested for recoverability while it was classified as held and used, were the estimates of future cash flows based on the use of the asset for its remaining useful life, assuming that the disposal transaction will not occur? [FASB 144.29] 3. If the carrying amount of a long-lived asset (disposal group) exceeds its fair value at the time of exchange or distribution, has an impairment loss been recognized when the asset is disposed of? [FASB 144.29] D. Recognition of Long-Lived Assets to be Disposed Of by Sale 1. If a long-lived asset will be disposed of by sale (or group of assets hereinafter called a disposal group and defined as assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction), has it been classified as held for sale in the period in which all of the following criteria (referred to collectively hereinafter as the "Recognition criteria") are met? [FASB 144.04 and 144.30] a. Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group)? b. The asset (disposal group) is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets (disposal groups)? c. An active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated? d. The sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale, within one
Yes
No
682
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) year, except as permitted in certain instances? [For purposes of this question, probable refers to a future sale that is "likely to occur."] [FASB 144, footnote 18; FASB 5.3(a)] e. The asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value? f. Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn?
Yes
No
2. If a long-lived asset (disposal group) was previously classified as held for sale and the Recognition Criteria are no longer met, has the long-lived asset (disposal group) been reclassified as held and used? [FASB 144.30] 3. If the expected period required to complete the sale of a long-lived asset (disposal group) extends beyond one year due to events or circumstances beyond an entity's control, has the long-lived asset (disposal group) been classified as held for sale only if the Recognition Criteria, except for (d), have been met and one of the following exceptions to (d) applies: [FASB 144.31] a. At the date an entity commits to a plan to sell a longlived asset (disposal group) the entity reasonably expects that others (not a buyer) will impose conditions on the transfer of the asset (group) that will extend the period required to complete the sale and (1) actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment is obtained and (2) a firm purchase commitment is probable within one year? b. An entity obtains a firm purchase commitment and, as a result, a buyer or others unexpectedly impose conditions on the transfer of a long-lived asset (disposal group) previously classified as held for sale that will extend the period required to complete the sale and (1) actions necessary to respond to the conditions have been or will be timely initiated and (2) a favorable resolution of the delaying factors is expected? 4. During the initial one-year period, circumstances arise that previously were considered unlikely and, as a result, a long-lived asset (disposal group) previously classified as held for sale is not sold by the end of that period and (1) during the initial one-year period the entity initiated
683
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) actions necessary to respond to the change in circumstances, (2) the asset (group) is being actively marketed at a price that is reasonable given the change in circumstances, and (3) the Recognition Criteria are met? For purposes of this question, a firm purchase commitment is an agreement with an unrelated party, binding on both parties and usually legally enforceable, that (a) specifies all significant terms, including the price and timing of the transaction, and (b) includes a disincentive for nonperformance that is sufficiently large to make performance probable. [FASB 144, footnote 19] 5. Has a newly-acquired long-lived asset (disposal group) that will be sold rather than held and used been classified as held for sale at the acquisition date only if the one-year requirement (item d. of the Recognition Criteria) is met (except as permitted in question 3, above) and any other Recognition Criteria that are not met at that date are probable of being met within a short period following the acquisition (usually within three months)? [FASB 144.32] 6. If the Recognition Criteria were met after the balance sheet date but before issuance of the financial statements: [FASB 144.33] a. Has the long-lived asset (disposal group) been classified as held and used in the financial statements when issued? b. If the asset (asset group, hereinafter defined as the lowest level for which identifiable cash flows are largely independent of cash flows of other groups of assets and liabilities) was tested for recoverability (on a held-and-used basis) as of the balance sheet date: [FASB 144.04 and 144.33] (1) Did the estimate of future cash flows used in that test consider the likelihood that existed as of the balance sheet date of the future sale of the asset? (2) Was the assessment in (1) above made as of the balance sheet date not revised for a decision to sell the asset after the balance sheet date? (3) Was the impairment loss, if any, equal to the amount by which the carrying amount of the asset (asset group) exceeds its fair value at the balance-sheet date?
Yes
No
684
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) E. Measurement of Long-Lived Assets to Be Disposed of by Sale 1. If a long-lived asset (disposal group) is classified as held for sale, has it been measured at the lower of its carrying amount or fair value less cost to sell? [FASB 144.34] 2. If a newly acquired long-lived asset (disposal group) is classified as held for sale, has it been measured at its fair value less cost to sell at the acquisition date? [FASB 144.34] 3. If a long-lived asset (disposal group) is classified as held for sale, has it not been depreciated (amortized) while classified as held for sale? [FASB 144.34] 4. Have interest and other expenses attributable to liabilities of a disposal group classified as held for sale continued to be accrued? [FASB 144.34] 5. Do costs to sell only include the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made? Direct costs include broker commissions, legal and title transfer fees, and closing costs that must be incurred before legal title can be transferred. Direct costs exclude expected future losses associated with the operations of a long-lived asset (disposal group) while it is classified as held for sale. If the sale is expected to occur beyond one year as permitted in limited situations, the cost to sell shall be discounted. [FASB 144.35] 6. Have the carrying amounts of any assets not covered by FASB 144 (including goodwill) that are included in a disposal group classified as held for sale been adjusted in accordance with other applicable generally accepted accounting principles prior to measuring the fair value less cost to sell of the disposal group? [FASB 144.36] 7. If a long-lived asset (disposal group) has been classified as held for sale: [FASB 144.37] a. Has a loss been recognized for any initial or subsequent write-down to fair value less cost to sell? b. Has a gain been recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell) (subsequent to foreclosure if the asset (asset group) was acquired
Yes
No
685
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) via foreclosure)? [FSP 144-1] c. Has the loss or gain recognized adjusted only the carrying amount of a long-lived asset, whether classified as held for sale individually or as part of a disposal group? d. Has a gain or loss not previously recognized that results from the sale of a long-lived asset (disposal group) been recognized at the date of sale? 8. If the entity is a lender that received a long-lived asset in full satisfaction of a receivable, has the entity measured the long-lived asset received at fair value less cost to sell and not carried over the valuation allowance for the loan collateralized by that long-lived asset as a separate element of the cost basis for purposes of accounting for the long-lived asset under FASB 144 subsequent to foreclosure? [FSP FASB 144-1] F. CHANGES TO A PLAN OF SALE 1. If a long-lived asset (disposal group) has been reclassified as held and used because the entity decides not to sell the long-lived asset (disposal group) or the entity fails to meet the Recognition Criteria, has the long-lived asset been measured individually at the lower of its (a) carrying amount before the asset (disposal group) was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the asset (disposal group) been continuously classified as held and used, or (b) fair value at the date of the subsequent decision not to sell? [FASB 144.38] 2. Has required adjustment to the carrying amount of a longlived asset that is reclassified as held and used been included in income from continuing operations in the period of the decision not to sell? [FASB 144.39] 3. If an individual asset or liability was removed from a disposal group previously classified as held for sale: [FASB 144.40] a. Have the remaining assets and liabilities of the disposal group to be sold been measured as a group, only if the Recognition Criteria with respect to the disposal group are met? b. If the Recognition Criteria for the disposal group have not been met, have the remaining long-lived assets of the group been measured individually at the lower of their carrying amounts or fair values less cost to sell at
Yes
No
686
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) that date and have any long-lived assets that will not be sold been reclassified as held and used? G. Transition 1. If long-lived assets (disposal groups) were classified as held for disposal as a result of disposal activities that were initiated prior to the initial application of FASB 144: [FASB 144.51] a. Do they continue to be accounted for in accordance with FASB 121 and APB 30? b. Have they been reclassified as held and used if the Recognition Criteria have not been met by the end of the fiscal year in which FASB 144 is initially applied? If not, will the segment (1) be abandoned through the liquidation or run-off of operations because the entity is obligated by regulation or contract to provide services after it ceases accepting all new business and (2) be reported as a discontinued operation in accordance with Opinion 30 when FASB 144 is initially applied? [EITF Topic D-104] Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations This Issue relates to how to apply the criterion of paragraph 42 that the operations and cash flows be eliminated from the ongoing operations of the reporting entity (the "ongoing entity"). Specifically, it addresses how an ongoing entity should evaluate whether the operations and cash flows of a disposed component have been or will be eliminated from the ongoing operations of the and the types of continuing involvement that constitute significant continuing involvement in the operations of the disposed component. 87-24, Allocation of Interest to Discontinued Operations This Issue addresses issues related to allocations of certain costs (including interest expense and general corporate overhead) to discontinued operations. D-104, Clarification of Transition Guidance in Paragraph 51 of FASB Statement No. 144 This Issue clarifies the guidance in paragraph 51 of FASB 144 as it applies to a segment that will be abandoned through the liquidation or "run-off" of operations because the entity is obligated by regulation or contract to provide services after it ceases
Yes
No
687
Accounting: D60 DISPOSAL OF LONG-LIVED ASSETS (12/08) accepting all new business. Disclosure: REPORTING COMPREHENSIVE INCOME (12/08) I. REPORTING AND DISPLAY OF COMPREHENSIVE INCOME 1. Have all components of comprehensive income been reported in the period in which they are recognized? [FASB 130.14] 2. Is a total amount for comprehensive income displayed in the financial statement where the components of other comprehensive income are reported? [FASB 130.14] 3. Has the entity recorded its proportionate share of an equity investee's equity OCI adjustments in its OCI? [FASB 130.121] 4. If the entity loses significant influence over an equity method investee, did the entity offset its proportionate share of the investee's OCI against the carrying value of the investment? To the extent this results in a negative carrying value, the entity should adjust the carrying value of the investment to zero and record the residual balance through earnings. [FSP APB 18-1.4] The guidance in this FSP is effective as of the first reporting period beginning after July 12, 2005. [FSP APB 18-1.5] B. Classifications Within Comprehensive Income 5. If items of other comprehensive income exist in any period presented, has comprehensive income been divided into net income and other comprehensive income? [An enterprise that has no items of other comprehensive income in any period presented is not required to report comprehensive income.] [FASB 130.15] 6. Is net income classified into income from continuing operations, discontinued operations, extraordinary items, and cumulative effects for changes in accounting principle, as applicable? [FASB 130.16]
Yes
No
Yes
No
A. Reporting and Display
688
Disclosure: REPORTING COMPREHENSIVE INCOME (12/08) 7. Are items of other comprehensive income classified based on their nature? Under existing accounting standards, other comprehensive income shall be classified separately into foreign currency items, minimum pension liability adjustments, unrealized gains and losses on certain investments in debt and equity securities, and the effective portion of gains and losses on certain derivative instruments designated and qualifying as a cash flow hedging instrument? [FASB 130.17 and FASB 133.46] 8. Have any other transactions required by generally accepted accounting principles to be recognized in paid-in capital or other similar nonincome equity accounts not been displayed as other comprehensive income? [FASB 130.119] C. Reclassification Adjustments 9. In order to avoid double counting in comprehensive income items that are displayed as part of net income for a period that also had been displayed as part of other comprehensive income in that period or earlier periods, have reclassification adjustments been determined for each classification of other comprehensive income, except minimum pension liability adjustments? [FASB 130.1819] 10. Is the reclassification adjustment for foreign currency translation adjustments limited to translation gains and losses realized upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity? [FASB 130.19] 11. For all classifications of other comprehensive income other than minimum pension liability adjustments, have reclassification adjustments been displayed using one of the following methods? [FASB 130.20] A gross display on the face of the financial statement. If displayed gross, reclassification adjustments are reported separately from other changes in the respective balance; thus, the total change is reported as two amounts on the face of the financial statements. A net display on the face of the financial statement with the gross change disclosed in the notes to the financial statements. If displayed net, reclassification adjustments are combined with other changes in the balance; thus, the total change is reported as a single amount on the face of the financial statements.
Yes
No
689
Disclosure: REPORTING COMPREHENSIVE INCOME (12/08) 12. Because a reclassification adjustment is not to be determined for minimum pension liability adjustments, has a net display been used for that classification? [FASB 130.21] II. ALTERNATIVE FORMATS FOR REPORTING COMPREHENSIVE INCOME 1. Have comprehensive income and its components been displayed in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements? [FASB 130.22] 2. Have the components of other comprehensive income been displayed using one of the following methods? [FASB 130.24] Net of related tax effects Before related tax effects with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. 3. Has the amount of income tax or benefit allocated to each component of other comprehensive income, including reclassification adjustments, been disclosed either on the face of the statement in which those components are displayed or in the notes to the financial statements? [FASB 130.25] III. REPORTING OTHER COMPREHENSIVE INCOME IN THE EQUITY SECTION OF A STATEMENT OF FINANCIAL POSITION 1. Has the total of other comprehensive income for a period been transferred to a component of equity that is displayed separately from retained earnings and additional paid-in capital in a statement of financial position at the end of an accounting period? [FASB 130.26] 2. Has a descriptive title (e.g., accumulated other comprehensive income) been used for that component of equity? [FASB 130.26] 3. Have accumulated balances for each classification in that separate component of equity been disclosed on the face of a statement of financial position, in a statement of changes in equity, or in notes to the financial statements, and do the classifications correspond to classifications used elsewhere in the same set of financial statements for components of other comprehensive income? [FASB
Yes
No
690
Disclosure: REPORTING COMPREHENSIVE INCOME (12/08) 130.26] 4. Is there separate disclosure of the beginning and ending accumulated derivative gain or loss, the related net change associated with current period hedging transactions, and the net amount of any reclassification into earnings? [FASB 133.47] IV. INTERIM PERIOD REPORTING 1. Has a total for comprehensive income been reported in condensed financial statements of interim periods? [FASB 130.27, 135.04] Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) 1. Have the following accounting and reporting requirements for intangible assets been met: a. Have intangible assets acquired either individually or with a group of other assets (but not those acquired in a business combination) been initially recognized and measured based on fair value? [FASB 142.9] b. Have intangible assets acquired in a business combination been initially recognized and measured in accordance with FASB 141 (paragraphs 5-7)? (See B-50, Business Combinations.) [FASB 142.9] [See also EITF 02-17.] c. Have the costs of internally developing, maintaining, or restoring intangible assets (including goodwill) that are not specifically identifiable, have indeterminate lives, or are inherent in a continuing business and related to an enterprise as a whole been expensed as incurred? [FASB 142.10] d. Are intangible assets with finite useful lives (the period over which the asset is expected to contribute directly or indirectly to the future cash flows of that entity) being amortized over their useful lives? [FASB 142.11] e. Are intangible assets with indefinite useful lives (no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life) not being amortized? [FASB 142.11] f. Are intangible assets with unknown finite useful lives being amortized over the best estimate of their useful
Yes
No
Yes
No
691
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) lives? [FASB 142.12] g. Do the methods of amortization reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up? If that pattern cannot be readily determined, has a straight-line amortization method been used? [FASB 142.12] h. Has an intangible asset not been written down or off in the period of acquisition unless it became impaired during that period? [FASB 142.12] i. Is the amount of an intangible asset that is being amortized (if applicable) the amount initially assigned to that asset less any residual value? [NOTE: The residual value of an intangible asset shall be assumed to be zero unless at the end of its useful life to the reporting entity the asset is expected to continue to have a useful life to another entity and (a) the reporting entity has a commitment from a third party to purchase the asset at the end of its useful life or (b) the residual value can be determined by a reference to an exchange transaction in an existing market for that asset and that market is expected to exist at the end of the asset's useful life.] [FASB 142.13] Is the remaining useful life of an intangible asset, including an intangible asset that is not being amortized, being evaluated at each reporting period: (1) If the intangible asset's remaining useful life has changed, is the remaining carrying amount being amortized prospectively over the revised remaining useful life? [FASB 142.14] (2) If the intangible asset is subsequently determined to have an indefinite life, has the asset been tested for impairment in accordance with question 1m (below) and is no longer being amortized? [FASB 142.14] (3) If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, has the asset been tested for impairment in accordance with question 1m (below) and is being amortized prospectively over its remaining useful life? [FASB 142.16] k. Has an intangible asset subject to amortization been reviewed for impairment in accordance with FASB 144, Accounting for the Impairment or Disposal of
Yes
No
j.
692
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) Long-Lived Assets)? [FASB 142.15] l. If impairment is indicated as a result of applying question 1k (above), has the impairment loss been recorded as a component of income from continuing operations and the adjusted carrying amount of the intangible asset is its new accounting basis? [FASB 142.15]
Yes
No
m. Has an intangible asset not subject to amortization been tested for impairment (at least) annually, by comparing the fair value of the intangible asset with its carrying amount? [FASB 142.17] [See also EITF 02-07.] (1) Has an impairment loss been recognized for the excess of the carrying amount over the fair value (if any) and recorded as a component of income from continuing operations (unless recorded as a result of the transitional impairment test discussed in paragraph 53 of FASB 142) and the adjusted carrying amount of the intangible asset is its new accounting basis? [NOTE: For entities that have adopted FASB 157 FASB 157 amends certain aspects of FASB 142, including deleting paragraph 24, F1, and Appendix E as well as amending paragraphs 3, 17, 19, and 23. Entities should follow the guidance in FASB 157 in determining fair value, including Appendix B on present value techniques.] 2. Have the following accounting and reporting requirements for goodwill been met: a. Goodwill is not amortized? [FASB 142.18] b. Goodwill has been tested for impairment at a level of reporting referred to as a reporting unit: [FASB 142.18] (1) Has a component of an operating segment (one level below an operating segment) been designated as a reporting unit if (a) it constitutes a business (refer to EITF 98-3: Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business for the determination of a business) for which discrete financial information is available, (b) segment management regularly reviews the operating results of that component, and (c) two
693
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) or more components of an operating segment have dissimilar economic characteristics? [FASB 142.30] [See also EITF D-101.] (2) If two or more components of an operating segment have similar economic characteristics, have the components been aggregated and deemed a single reporting unit? [FASB 142.30] (3) Has an operating segment been designated a reporting unit if (a) all of its components are similar, (b) none of its components is a reporting unit, or (c) it comprises only a single component? [FASB 142.30] (4) Has the guidance in paragraphs 10-15 of FASB 131 been used to determine the reporting unit where the entity is not required to report segment information? [FASB 142.31] c. For the purpose of testing goodwill for impairment, have acquired assets and assumed liabilities (including corporate assets and liabilities) been assigned to a reporting unit as of the acquisition date if (1) the asset (liability) will be employed in (relates to) the operations of a reporting unit and (2) the asset or liability will be considered in determining the fair value of the reporting unit? [FASB 142.32] [EITF 02-13] d. Is the methodology used to assign the assets or liabilities that meet the criteria in question 2c (above) and pertain to the operations of multiple reporting units (if applicable) reasonable and supportable and applied in a consistent manner? [FASB 142.33] e. For the purpose of testing goodwill acquired in a business combination for impairment, has all goodwill been assigned to one or more reporting units as of the acquisition date, using a reasonable and supportable methodology? [FASB 142.34-.35] f. Is goodwill of a reporting unit tested for impairment (at least) annually, at the same time of the year? Has the goodwill of a reporting unit been tested for impairment between annual tests if an event occurred or circumstance change that would more likely than not reduce the fair value of a reporting unit below its carrying amount (question 2.g(1), below)? Examples of such events include:
Yes
No
694
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) (1) A significant adverse change in legal factors or in the business climate (2) An adverse action or assessment by a regulator (3) Unanticipated competition (4) A loss of key personnel (5) A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of (6) The testing for recoverability under FASB 144 of a significant asset group within a reporting unit (7) Recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit. [FASB 142.26, .28] g. Have the following steps been applied in testing goodwill: (1) (Step 1) Has the entity compared the fair value of the reporting unit to its carrying amount (including goodwill)? [If the fair value of the reporting unit is less than the carrying amount, goodwill may be impaired perform Step 2 (question 2g(2), below). If the fair value of the reporting unit exceeds its carrying amount (including goodwill), the reporting unit is considered not impaired.] [FASB 142.19] [See also EITF 02-13.] (2) (Step 2) If the carrying amount goodwill exceeds the implied fair value of goodwill, has an impairment loss been recognized as the difference between the two amounts, and recorded as a component of income from continuing operations and is the adjusted carrying amount of goodwill its new accounting basis? (See paragraph 21 of FASB 142 to determine the implied fair value of goodwill.) [FASB 142.20] (a) If the implied fair value of goodwill exceeds the carrying amount of goodwill, has no impairment been recorded? [FASB 142.20] [See also EITF 02-13]
Yes
No
695
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) (3) If goodwill and another asset (or asset group) are to be tested for impairment at the same time, has the other asset (or asset group) been tested for impairment in accordance with the provisions of FASB 144 before goodwill? [FASB 142.29] h. Has the fair value of a reporting unit been carried forward from one year to the next only if all of the following conditions are met: (1) The assets and liabilities that make up the reporting unit have not changed significantly since the most recent fair value determination. (2) The most recent fair value determination exceeded the carrying amount of the reporting unit by a substantial margin. (3) Based on recent events and circumstances, the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is remote? [FASB 142.27] i. Has subsidiary goodwill been tested for impairment at the subsidiary level, using the subsidiary's reporting units? [FASB 142.37] If a goodwill impairment loss has been recognized at the subsidiary level, has the goodwill of the reporting unit(s) (at the higher consolidated level) in which the subsidiary's reporting unit with impaired goodwill resides been tested for impairment, if the event that gave rise to the loss at the subsidiary level would more likely than not reduce the fair value of the reporting unit (at the higher consolidated level) below its carrying amount? [FASB 142.37]
Yes
No
j.
k. As a result of applying question 2j (above), (i.e., the goodwill of the higher-level reporting unit is impaired) has a goodwill impairment loss pertaining to goodwill at the higher-level reporting unit been recognized at the consolidated level? [FASB 142.37] l. Has goodwill arising from a business combination with a continuing noncontrolling (minority) interest been tested for impairment using an approach consistent with the approach used to measure the noncontrolling interest at the acquisition date? [FASB 142.38]
m. When a reporting unit has been disposed of in its

696
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) entirety, has the goodwill of that reporting unit been included in the carrying amount to determine the gain or loss on disposal? [FASB 142.39] n. If a portion of a reporting unit that constitutes a business (refer to EITF 98-3: Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business for the determination of a business) has been disposed of, has goodwill associated with that business (if it was integrated into the reporting unit) been based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained? [FASB 142.39] o. As a result of applying question 2n, above, has the goodwill remaining in the portion of the reporting unit to be retained been tested for impairment (using its adjusted carrying amount) in accordance with question 2g, above? [FASB 142.39] p. When an entity reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, has the reassignment of goodwill been affected as stated in question 2c and 2d, above? However, goodwill shall be reassigned to the reporting units affected using a relative fair-value allocation approach similar to that used when a portion of a reporting unit is to be disposed of. [FASB 142.36] 3. For the fiscal year in which FASB 142 is initially applied, have the following transitional accounting, reporting, and disclosure requirements been met: a. As of the first interim period of the fiscal year in which FASB 142 was initially applied, have the following assessments been completed: (1) The useful lives of intangible assets acquired on or prior to June 30, 2001 (previously recognized) have been reassessed and the remaining amortization periods have been adjusted accordingly? (2) Previously recognized intangible assets deemed to have indefinite useful lives have been tested for impairment by the end of the first interim period (see question 1m, above)? (a) Any impairment loss resulting from this
Yes
No
697
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) transitional intangible asset impairment test has been recorded (net of tax) as the effect of a change in accounting principle? [FASB 142.53] b. At the date FASB 142 is initially applied, have all of the requirements in questions 2b-e (above) been met with respect to previously recognized goodwill? [FASB 142.54] c. Has the entity performed step 1 of the (transitional) goodwill impairment test (see question 2g(1), above) within six months from the date FASB 142 was initially applied (beginning of fiscal year)? [FASB 142.55] d. If the carrying amount of the reporting unit (including goodwill) exceeds the fair value of the reporting unit, has the entity completed step two of the (transitional) goodwill impairment test (see question 2g(2), above) as soon as possible, but no later than the end of the year of initial application? [FASB 142.55] e. Has an impairment loss recognized as a result of the transitional impairment test been recognized (net of tax), in the first interim reporting period, as the effect of a change in accounting principle? [FASB 142.55] f. Has the financial information for the interim periods of the fiscal year that precede the period in which the transitional goodwill impairment loss is measured been restated to reflect the aggregate amount of the change in those periods? [FASB 142.55-.56]
Yes
No
g. If events or circumstances indicate that goodwill of a reporting unit might be impaired before completion of the transitional goodwill impairment test, has goodwill been tested for impairment when the impairment indicator arose? [FASB 142.57] h. Has an impairment loss that was not a result of the transitional goodwill impairment test been recorded in income from continuing operations? [FASB 142.57] i. Is the transitional goodwill impairment test not considered the entity's annual goodwill impairment test unless the entity has designated the beginning of its fiscal year as the date for the annual impairment test? [FASB 142.58]
Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable?
698
Accounting: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) EITF 03-9, Determination of the Useful Life of Renewable Intangible Assets under FASB Statement No. 142 This Issue addresses determination of the useful life of renewable intangible assets. 02-17, Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination This Issue addresses certain questions that have arisen regarding certain customer-related intangible assets acquired in a business combination. 02-13, Deferred Income Tax Considerations in Applying the Goodwill Impairment Test in FASB Statement No. 142 This Issue addresses, in the context of recognizing and measuring impairment of goodwill, certain questions that have arisen regarding how an entity should account for differences between the book and tax bases of assets and liabilities (that is, deferred tax balances) in determining (a) a reporting unit's fair value, (b) a reporting unit's carrying amount, and (c) the implied fair value of goodwill. 02-7, Unit of Accounting for Testing Impairment of IndefiniteLived Intangible Assets This Issue addresses what the unit of accounting should be for purposes of testing indefinitelived intangible assets for impairment pursuant to paragraph 17 of FASB 142. D-101, Clarification of Reporting Unit Guidance in Paragraph 30 of FASB Statement No. 142 This Staff Announcement summarizes the FASB staff's understanding of the Board's intent with respect to the determination of whether a component of an operating segment is a reporting unit. Also note that FASB Staff Position Nos. FAS 141-1 and FAS 1421, "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 amended FASB 141 and FASB 142 to conform with the consensus reached in Issue 04-2 (i.e., should be accounted for based on their substance, as certain mineral rights are considered tangible assets). Also note that FASB Staff Position Nos. FAS 141-1 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"" amended FASBs 141 and 142 to conform with the consensus reached in Issue 04-2. That is, use rights should be accounted for based on their substance, as certain mineral rights are considered tangible assets.
Yes
No
699
Disclosure: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) 1. Have the following disclosure requirements for goodwill and other intangible assets been met: a. At a minimum, have all intangible assets (other than goodwill) been aggregated and presented as a separate line item in the statement of financial position? [FASB 142.42] b. Have amortization expense and impairment losses related to question 1a (above) been presented in income statement line items within continuing operations? [FASB 142.42] c. Has the aggregate amount of goodwill been presented as a separate line item in the statement of financial position? [FASB 142.43] d. Has the aggregate amount of goodwill impairment losses been presented as a separate line item in the income statement before the subtotal income from continuing operations or included in discontinued operations (net-of-tax) if associated with a discontinued operation? [FASB 142.43] e. For acquired intangible assets (either individually or with a group of assets), has the following information been disclosed in the period of acquisition: (1) For intangible assets subject to amortization: (a) The total amount assigned and amount assigned to any major intangible asset class? (b) The amount of any significant residual value, in total and by major asset class? (c) The weighted-average amortization period, in total and by major intangible asset class? (2) For intangible assets not subject to amortization, the total amount assigned and amount assigned to any major intangible asset class? (3) The amount of research and development assets acquired and written off in the period and the line item in the income statement in which the amounts written off are aggregated? [FASB 142.44] f. For each period for which a statement of financial position is presented, has the following information been disclosed:
Yes
No
700
Disclosure: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) (1) For intangible assets subject to amortization: (a) The gross carrying amount and accumulated amortization, in total and by major intangible asset class? (b) The aggregate amortization expense for the period? (c) The estimated aggregate amortization expense for each of the five succeeding fiscal years? (2) For intangible assets not subject to amortization, the total carrying amount and carrying amount for each major intangible asset class? (3) The changes in the carrying amount of goodwill during the period including: (a) The aggregate amount of goodwill acquired? (b) The aggregate amount of impairment losses recognized? (c) The amount of goodwill included in the gain or loss on disposal of all or a portion of a reporting unit? (4) For entities that report segment information in accordance with FASB 131, has the above information about goodwill been provided in total and for each reportable segment? (5) Have significant changes in the allocation of goodwill between reportable segments been disclosed? (6) Have the reasons for not allocating all goodwill to a reporting unit by the date the financial statements have been issued been disclosed? [FASB 142.45] g. For each impairment loss recognized related to an intangible asset, has the following information been disclosed in the notes to the financial statements in the period in which the impairment loss was recognized: (1) A description of the impaired intangible asset and the facts and circumstances leading to the impairment? (2) The amount of the impairment loss and method for determining fair value?
Yes
No
701
Disclosure: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) (3) The caption in the income statement in which the impairment loss is aggregated? (4) If applicable, the segment in which the impaired intangible assets is reported under FASB 131? [FASB 142.46] h. For each goodwill impairment loss recognized, has the following information been disclosed in the notes to the financial statements in the period in which the impairment loss was recognized: (1) A description of the facts and circumstances leading to the impairment? (2) The amount of the impairment loss and method of determining the fair value of the associated reporting unit? (3) If a recognized impairment loss is an estimate that has not yet been finalized (i.e., the second step of the goodwill impairment test is not completed before the financial statements are issued and a goodwill impairment loss is probable), has that fact and the reasons therefor and, in subsequent periods, the nature and amount of any significant adjustments made to the initial estimate of the impairment loss been disclosed? [FASB 142. 47] 2. For the fiscal year in which FASB 142 is initially applied, have the following transitional accounting, reporting, and disclosure requirements been met: a. Upon completion of step one of the transitional goodwill impairment test, has the entity disclosed in any interim financial information the reportable segment(s) in which an impairment loss might have to be recognized and the period in which that potential loss will be measured? [FASB 142.60] b. In the period of initial application and thereafter until goodwill and all other intangible assets have been accounted for in accordance with FASB 142, in all periods presented, has the following information been disclosed: (1) Income before extraordinary items and net income for all periods presented, adjusted to exclude amortization expense recognized in those periods, related to goodwill and intangible
Yes
No
702
Disclosure: GOODWILL AND OTHER INTANGIBLE ASSETS (12/08) assets that are no longer being amortized, any deferred credit related to an excess over cost, and equity method goodwill? (2) Adjusted income before extraordinary items and net income reflects any adjustments for changes in amortization periods for intangible assets that will continue to be amortized? (3) A reconciliation of reported net income to adjusted net income? (4) Adjusted earnings-per-share amounts for all periods presented? [FASB 142.61] Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) A. Scope Have the provisions of FASB 146 only been applied to costs associated with an exit activity (includes but is not limited to a restructuring) that does not involve an entity newly acquired in a business combination covered by EITF 95-3, a disposal activity covered by FASB 144, or costs associated with the retirement of a long-lived asset covered by FASB 143? [FASB 146.2] [NOTE: Those costs associated with an exit activity include, but are not limited to, (a) termination benefits provided to current employees that are involuntarily terminated under the terms of a benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract ("one-time termination benefits"), (b) costs to terminate a contract that is not a capital lease, and (c) costs to consolidate facilities or relocate employees.] [FASB 146.2] B. Recognition and MeasurementGeneral 1. Has a liability for a cost associated with an exit or disposal activity been recognized and measured initially at its fair value in the period in which the liability is incurred, except as indicated in question C.4 below for a liability for one-time termination benefits that is incurred over time? [FASB 146.3]
Yes
No
Yes
No
703
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) 2. In the unusual circumstance in which fair value cannot be reasonably estimated, has the liability been recognized initially in the period in which fair value can be reasonably estimated? [FASB 146.3] 3. If a liability for a cost associated with an exit or disposal activity is determined to have been incurred, has the definition of a liability been met in accordance with FASB Concepts Statement 6? [FASB 146.4] 4. Has the fair value of the liability been determined as the amount at which that liability could be settled in a current transaction between willing parties, that is, other than in a forced or liquidation transaction? [FASB 146.5] [NOTE: For a liability, fair value represents the amount that a willing third party of comparable credit standing would demand and could expect to receive to assume all of the duties, uncertainties, and risks inherent in the transferor's obligation, including a profit element or risk premium. A present value technique often is the best available valuation technique with which to estimate the fair value of a liability. An expected present value technique, in which multiple cash flow scenarios that reflect the range of possible outcomes and a risk-free rate adjusted for the entity's credit standing, often will be the appropriate valuation technique if a liability for a cost associated with an exit or disposal activity has uncertainties in both the amount and timing of estimated cash flows.] [FASB 146.A2, A4] 4a. For entities that have adopted FASB 157 [NOTE: FASB 157 amends FASB 146 to remove paragraphs 5, A4 and A5 (as well as footnotes 13-16). In addition, FASB 157 amends paragraph A2 of FASB 146, which, as amended, states: "The objective of initial measurement of a liability for a cost associated with an exit or disposal activity is fair value (paragraph 3). A present value technique is often the best available valuation technique with which to estimate the fair value of a liability for a cost associated with an exit or disposal activity. For a liability that has uncertainities both in timing and amount, an expected present value technique generally will be the appropriate technique."] Has the entity appropriately considered paragraph A2 of FASB 146 and FASB 157 (including Appendix B on the
Yes
No
704
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) use of present value techniques) in determining fair value? [FASB 146.A2 and FASB 157] 5. In periods subsequent to initial measurement, have changes to the liability been measured using the creditadjusted risk-free rate that was used to measure the liability initially? [FASB 146.6] 6. Has the cumulative effect of a change to the liability resulting from a revision to either the timing or the amount of estimated cash flows been recognized as an adjustment to the liability in the period of change? [FASB 146.6] 7. Have changes to the liability due to the passage of time been recognized as an increase in the carrying amount of the liability and as an expense (e.g., accretion expense and not interest expense)? [FASB 146.6] 8. If an event or circumstance occurred that discharged or removed the entity's responsibility to settle a liability for a cost associated with an exit or disposal activity recognized in a prior period, has the liability been reversed? [FASB 146.19] C. One-Time Termination Benefits 1. In applying the provisions of FASB 146 to one-time termination benefits, has the entity determined that those benefits were provided to current employees that were involuntarily terminated under the terms of a one-time benefit arrangement, which is an arrangement established by a plan of termination that applies for a specified termination event or for a specified future period? [FASB 146.8] [NOTE: Absent evidence to the contrary, an ongoing benefit arrangement (not one-time termination benefits) is presumed to exist if an entity has a past practice of providing similar termination benefits. [FASB 146.8] However, in order to be considered an enhancement to an ongoing benefit arrangement, the additional termination benefits must represent a revision to the ongoing arrangement that is not limited to a specified termination event or a specified future period.] [FSP FASB 146-1] 2. If the entity has determined that a one-time benefit arrangement exists, has the entity determined the "communication date" as the date the plan of termination
Yes
No
705
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) meets all of the following criteria and has been communicated to employees (the "communication date")? [FASB 146.8] a. Management, having the authority to approve the action, commits to a plan of termination. b. The plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date. c. The plan establishes the terms of the benefit arrangement, including the benefits that employees will receive upon termination (including but not limited to cash payments), in sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are involuntarily terminated. d. Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. 2. If employees are not required to render service until they are terminated in order to receive the termination benefits (i.e., employees are entitled to receive the termination benefits regardless of when they leave), or if employees will not be retained to render service beyond the minimum retention period, has a liability for the termination benefits been recognized and measured at its fair value at the communication date determined in question 2 above? [FASB 146.10] [NOTE: The minimum retention period should not exceed the legal notification period (the notification period that an entity is required to provide to employees in advance of a specified termination event as a result of an existing law, statute, or contract), or in the absence of a legal notification requirement, 60 days.] [FASB 146.9] 4. If employees are required to render service until they are terminated in order to receive the termination benefits and will be retained to render service beyond the minimum retention period, has a liability for the termination benefit been measured initially at the communication date based on the fair value of the liability as of the termination date, and has that liability been recognized ratably over the future service period? [FASB 146.11]
Yes
No
706
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) 5. Has a change in the liability measured in question 4 above resulting from a revision to either the timing or the amount of estimated cash flows over the future service period been measured using the credit-adjusted risk-free rate that was used to measure the liability initially, and has the cumulative effect of that change been recognized as an adjustment to the liability in the period of the change? [FASB 146.11] 6. If a plan of termination changes and employees that were expected to be terminated within the minimum retention period are retained to render service beyond that period, has a liability previously recognized at the communication date been adjusted to the amount that would have been recognized if the provisions of questions 4 and 5 above had been applied in all periods subsequent to the communication date, and has the cumulative effect of that change been recognized as an adjustment to the liability in the period of the change? [FASB 146.12] 7. If a plan of termination that meets the criteria in questions 1 and 2 above includes both involuntary termination benefits and termination benefits offered for a short period of time in exchange for employees' voluntary termination of service, has a liability for the involuntary termination benefits been recognized in accordance with FASB 146, and has a liability for the incremental voluntary termination benefits (the excess of the voluntary termination benefit amount over the involuntary termination benefit amount) been recognized in accordance with FASB 88 (i.e., when the employees accept the offer and the amount can be reasonably estimated)? [FASB 146.13] D. Contract Termination Costs 1. Has a liability for costs to terminate a contract before the end of its term been recognized and measured at its fair value when the entity terminates the contract in accordance with the contract terms (e.g., when the entity gives written notice to the counterparty within the notification period specified by the contract or has otherwise negotiated a termination with the counterparty)? [FASB 146.15] 2. Has a liability for costs that will continue to be incurred under a contract for its remaining term without economic
Yes
No
707
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) benefit to the entity been recognized and measured at its fair value at the "cease-use date," which is the date the entity ceases using the right conveyed by the contract (e.g., the right to use a leased property or to receive future goods or services)? [FASB 146.16] 3. If the contract is an operating lease, has the fair value of the liability at the cease-use date been determined based on the remaining lease rentals (adjusted for the effects of any prepaid or deferred items recognized under the lease), reduced by estimated sublease rentals that could be reasonably obtained for the property, even if the entity does not intend to enter into a sublease? [FASB 146.16] 4. Have the remaining lease rentals determined in question 3 above not been reduced to an amount less than zero? [FASB 146.16] E. Other Associated Costs 1. Has a liability for other costs associated with an exit or disposal activity (including, but not limited to, costs to consolidate or close facilities and relocate employees) been recognized and measured at its fair value in the period in which the liability is incurred (generally, when goods or services associated with the activity are received)? [FASB 146.17] 2. Has a liability not been recognized before it is incurred, even if the costs are incremental to other operating costs and will be incurred as a direct result of a plan? [FASB 146.17]
Yes
No
708
Accounting: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) Has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 00-26, Recognition by a Seller of Losses on Firmly Committed Executory Contracts This Issue addresses (1) when a seller or service provider, under a firmly committed executory contract that requires the seller to deliver goods or services to the counterparty in the future for specified consideration should recognize a loss under the contract; and (2) if a loss should be recorded, how the loss should be measured. 99-14, Recognition by a Purchaser of Losses on Firmly Committed Executory Contracts At the inception of a firmly committed executory contract, the "buyer" expects that the benefit it will receive over the term of the contract from the rights conveyed by the contract (e.g., the right to use a leased asset, to use a trade name, or to future advertising) will equal or exceed its cost over the term of the contract (the consideration paid or to be paid to the counterparty under the contract). This Issue addresses when, if ever, a purchaser under a firmly committed executory contract should recognize an impairment of its remaining contractual right asset under the contract and how that impairment loss should be measured if the purchaser will continue to use the asset or service to be received under the contract.
Yes
No
709
Disclosure: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) [NOTE: Entities registered with the SEC or that are contemplating registering with the SEC should ensure compliance with the provisions of SAB Topic 5-P.] A. Reporting 1. Has the cumulative effect of a change to the liability associated with an exit or disposal activity resulting from a revision to either the timing or the amount of estimated cash flows been reported in the same line item(s) in the income statement (statement of activities) used when the related costs were recognized initially, with changes due to the passage of time recognized as an expense such as accretion expense (not interest expense)? [FASB 146.6] 2. Have costs associated with an exit or disposal activity that does not involve a discontinued operation been included in income from continuing operations before income taxes in the income statement of a business enterprise and in income from continuing operations in the statement of activities of a not-for-profit organization? [FASB 146.18] 3. If a subtotal such as "income from operations" is presented, does that amount include the costs associated with an exit or disposal activity that does not involve a discontinued operation? [FASB 146.18] [NOTE: Costs associated with an exit or disposal activity that involves a discontinued operation should be included in the results of discontinued operations.] 4. If an event or circumstance occurred that discharged or removed the entity's responsibility to settle a liability for a cost associated with an exit or disposal activity recognized in a prior period, have the costs related to the liability been reversed through the same line item(s) in the income statement (statement of activities) used when those costs were recognized initially? [FASB 146.19] 5. Have the inventory markdowns associated with an exit plan or a restructuring activity been classified in the income statement as a component of cost of goods sold? [EITF 96-9] B. Disclosure Has the following information been disclosed in the notes to financial statements that include the period in which an exit or disposal activity is initiated and any subsequent
Yes
No
710
Disclosure: COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (12/08) L32 LIABILITIES: EXIT OR DISPOSAL COSTS (12/08) period until the activity is completed? [FASB 146.20] 1. A description of the exit or disposal activity, including the facts and circumstances leading to the expected activity and the expected completion date? 2. For each major type of cost associated with the activity (e.g., one-time termination benefits, contract termination costs, and other associated costs): a. The total amount expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date? b. A reconciliation of the beginning and ending liability balances showing separately the changes during the period attributable to costs incurred and charged to expense, costs paid or otherwise settled, and any adjustments to the liability with an explanation of the reason(s) therefore? 3. The line item(s) in the income statement or the statement of activities in which the costs in 2 above are aggregated including any accretion expense if material? 4. For each reportable segment, the total amount of costs expected to be incurred in connection with the activity, the amount incurred in the period, and the cumulative amount incurred to date, net of any adjustments to the liability with an explanation of the reason(s) therefore? 5. If a liability for a cost associated with the activity is not recognized because fair value cannot be reasonably estimated, that fact and the reasons therefore?
Yes
No
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) Br5 Broadcasting Industry (FASB 63, FASB 139) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 87-10, Revenue Recognition by Television "Barter" Syndicators A television producer or distributor (the
Yes
No
711
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) "barter" syndicator) licenses television programming to a local television station in return for a fee and a specified amount of local advertising time. If the sale were for only a fee, it would qualify for revenue recognition when all the criteria of paragraph 6 of FASB 53 are satisfied. In the part-fee, partadvertising-time scenario, the syndicator contracts to sell the advertising time on local stations to a third-party national advertiser. The Issue is when the syndicator should recognize revenue for the advertising time. [NOTE: See STATUS section of Issue 87-10.] Bt7 Banking and Thrift Industries (Accounting and Audit Guide-Banks and Savings Institutions, 2004; APB 23; SOP 90-3 and 03-3; FASB 72, 91, 104, 109, 114, 115, 133, 141, 142, and 147; FSP EITF 85-24-1; FIN 9 and FTB 85-1) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 97-3, Accounting for Fees and Costs Associated with Loan Syndications and Loan Participations after the Issuance of FASB Statement No. 125 This Issue addresses (1) whether the provisions of FASB 125 apply to loan participations, even if those participations are deemed to be "in-substance syndications"; (2) whether to change the guidance in Issue 8817 for loan syndications deemed to be "in-substance participations." 93-1, Accounting for Individual Credit Card Acquisitions An enterprise (credit card issuer) may acquire credit card accounts by paying an amount to a third party. The credit card accounts are acquired individually ("one-at-a-time") by paying an amount for each approved credit card agreement. The issue is whether an enterprise should account for these transactions as (1) purchases of individual credit card or other relationships (hereinafter referred to as purchases) under Opinion 17 and Issue 88-20 or (2) originations/acquisitions of credit card accounts (hereinafter referred to as originations or self-originations) under FASB 91 and Issue 92-5. 92-5, Amortization Period for Net Deferred Credit Card Origination Costs Enterprises issue credit cards, debit cards, bank charge cards, and other similar cards (collectively, credit cards) with a variety of terms. An issuer may charge an origination fee in connection with the issuance of a credit card and periodic renewal fees for the continued extension of credit card privileges. In connection with the issuance of a credit
Yes
No
712
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) card, an issuer may incur certain credit card origination costs that qualify as direct loan origination costs pursuant to FASB 91. The Issue is over what period qualifying deferred credit card origination costs should be amortized. This Issue addresses the amortization of deferred origination costs of credit cards with fees, without fees, or when the fees have been waived for a limited period of time. [NOTE: See STATUS section of Issue 92-5.] 89-3, Balance Sheet Presentation of Savings Accounts in Financial Statements of Credit Unions The AICPA credit union Guide requires that savings accounts (also referred to as members' share accounts) be reported in the statement of financial condition as a liability. The Issues are (1) whether a credit union is in compliance with the requirements of the Guide if a statement of financial condition is presented in which it is not unequivocal on the face of the statement that savings accounts are a liability and (2) if the answer to issue 1 is no, whether EITF Issue 89-3, Exhibits 89-3A, 89-3B, and 89-3C each present examples in which it is unequivocal on the face of the statement of financial condition that savings accounts are a liability. 88-25, Ongoing Accounting and Reporting for a Newly Created Liquidating Bank A bank with a substantial amount of nonperforming assets may transfer some or all of those assets to a newly created bank whose stock will be distributed to existing shareholders or to new investors. The newly created bank will be a liquidating bank; that is, it will manage the assets it receives and collect cash from loan repayments or dispositions of assets. The Issues are (1) whether the ongoing financial statements of the liquidating bank should be presented on a historical cost, fair value, or lower-of-cost-or-market value basis of accounting; (2) if the ongoing financial statements are presented on a fair value basis, whether the liquidating bank should continue to use the initial valuation method to determine reported asset and liability values in subsequent reporting periods; and (3) if the ongoing financial statements are presented on a fair value basis, whether the financial statements should recognize all unrealized changes in value or only negative unrealized changes in value. [NOTE: See STATUS section of Issue 8825.] 88-19, FSLIC-Assisted Acquisitions of Thrifts A savings institution (Thrift) is acquired pursuant to an assistance agreement (Agreement) between the acquiror and the Federal Savings and Loan Insurance Corporation (FSLIC). Under the
Yes
No
713
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) Agreement, the acquiror may receive a note receivable from the FSLIC, which typically equals the amount by which the fair value of the Thrift's liabilities exceeds the fair value of its assets. Several issues are addressed in this Issue including: (1) how the acquiror should account for a tax-sharing arrangement with the FSLIC, and (2) how the acquiror should account for contingency losses. [NOTE: See STATUS section of Issue 88-19.] 87-22, Prepayments to the Secondary Reserve of the FSLIC The issues are (1) what is the appropriate period in which the loss from the impairment of the secondary reserve of the FSLIC should be recognized by member institutions and (2) how the charge should be classified in the financial statements of the member institutions. [NOTE: See STATUS section of Issue 87-22.] 86-21, Application of the AICPA Notice to Practitioners regarding Acquisition, Development, and Construction Arrangements to Acquisition of an Operating Property Loans granted to acquire operating properties sometimes grant the lender a right to participate in expected residual profit from the sale or refinancing of the property. The expected residual profit may take the form of a percentage of the appreciation of the property determined at the maturity of the loan. The issues are (1) whether the third Notice, which deals with acquisition, development, and construction (ADC) financing, applies as well to acquisition of operating properties and (2) if so, how the guidance should be applied. [NOTE: See STATUS section of Issue 86-21.] 85-44, Differences between Loan Loss Allowances for GAAP and RAP Regulatory authorities in the banking and savings and loan industries have mandated that institutions establish loan loss allowances for regulatory accounting principles (RAP) that may be in excess of amounts recorded by the institution in preparing its financial statements under generally accepted accounting principles (GAAP). The issue is whether an institution can record different loan loss allowances under the two methods and, if so, under what circumstances. 85-42, Amortization of Goodwill Resulting from Recording Time Savings Deposits at Fair Values In an acquisition of a financial institution accounted for as a purchase, the acquired enterprise has time savings deposits that bear interest rates in excess of rates prevailing at the acquisition date. In determining the fair value of the liabilities assumed, a premium is assigned to the time savings deposits. The issue is
Yes
No
714
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) how to determine the appropriate period and method for amortizing the FASB 72 goodwill. [NOTE: This consensus has been partially nullified by FASB 142. See STATUS section of Issue 85-42.] 85-41, Accounting for Savings and Loan Associations under FSLIC Management Consignment Program The Federal Savings and Loan Insurance Corporation (FSLIC) has instituted the Management Consignment Program (MCP) to manage troubled thrift institutions taken over by the FSLIC. Under the MCP, the financial institution is closed and substantially all the assets and liabilities of the former institution are transferred to a newly chartered federal mutual association. The issue is what the appropriate basis of accounting for the newly chartered institution should be at the date of its creation and on an ongoing basis. [NOTE: See STATUS section of Issue 85-41.] 85-31, Comptroller of the Currency's Rule on Deferred Tax Debits The Comptroller of the Currency's Banking Circular 202, Accounting for Net Deferred Tax Charges, issued July 2, 1985, limits the net deferred tax debits that can be carried on a bank's statement of condition for regulatory purposes to the amount that would be recoverable by carryback of net operating losses. The issue is whether the Comptroller of the Currency's rule on deferred tax debits should affect present practice regarding the assessment of tax allocation debits under generally accepted accounting principles (GAAP). [NOTE: See STATUS section of Issue 85-31.] 85-24, Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge Distributors of mutual funds that do not have a front-end sales charge receive fees that are designed to compensate them for the distribution of fund shares. The fees are sometimes received over a specified future period. The issue is whether the fees that are expected to be received over a specified future period should (1) be accrued at present value and recognized at the time of the distribution, along with all costs of performance (the income accrual method) or (2) be recognized when received, along with the amortization of deferred incremental direct costs and the expensing of indirect costs when incurred (the cost deferral method, which is the existing accounting practice). [NOTE: See STATUS section of Issue 85-24.] 85-8, Amortization of Thrift Intangibles The issue is whether the unidentifiable intangible assets acquired should be amortized in accordance with FASB 72 or whether the unidentifiable intangible assets in excess of the discount on
Yes
No
715
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) long-term interest-bearing assets should be amortized as prescribed under APB Opinion 17. [NOTE: This consensus has been partially nullified by FASB 142. See STATUS section of Issue 85-8.] 84-20, GNMA Dollar Rolls The Issue involves whether GNMA Dollar Rolls and similar instruments should be accounted for as financings or as separate sales and repurchases and if considered separate sales and repurchases, how changes in the value of the underlying security should be recognized (that is, whether the underlying security should be marked to market). [NOTE: See STATUS section of Issue 84-20.] 84-9, Deposit Float of Banks The issues are (1) whether banks should be permitted to change their accounting to recognize assets and liabilities relating to customer deposits of checks only after funds have been collected from the drawee bank and (2) whether a change in the method of accounting for customer deposits would constitute an "accounting change" under Opinion 20. 84-4, Acquisition, Development and Construction Loans Financial institutions sometimes enter into acquisition, development, and construction loans (ADC loans) in which they have virtually the same risks and potential rewards as those of owners or joint venturers. The issues are (1) the circumstances under which the arrangement should be accounted for as a loan, as an investment, or as an interest in a joint venture; and (2) how an institution should account for the sale of part of the arrangement, either the loan portion or the equity kicker, if the other portion is retained. [NOTE: See STATUS section of Issue 84-4.] D-78, Accounting for Supervisory Goodwill Litigation Awards or Settlements This Issue involves whether the proceeds from a settlement with the federal government be accounted for in accordance with paragraph 9 of FASB 72. [NOTE: See Subsequent Developments section within EITF D-78.] D-57, Accounting Issues Relating to the Deposit Insurance Funds Act of 1996 Federal Savings and Loan Insurance Corporation (FSLIC) This Issue addresses the accounting for institutions that are exempt from paying the special assessment because those institutions are considered "weak institutions," as defined in the Act. [NOTE: See Subsequent Developments section within EITF D-57.] D-47, Accounting for the Refund of Bank Insurance Fund (BIF) and Savings Association Insurance Fund Premiums
Yes
No
716
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) (SAIF) The Banking and Savings Institutions Committee of the AICPA asked the FASB staff to address the appropriate accounting for the refund of BIF premiums and the potential special assessment on the insured deposits of SAIF member institutions. [NOTE: See Subsequent Developments section within EITF D-47.] D-39, Questions Related to the Implementation of FASB Statement No. 115 The scope of this announcement is a series of questions and answers to illustrate key elements of FASB 115 relevant to a number of the implementation questions involve potential differences between a contract's form and its substance. Ca4 Cable Television Industry (FASB 51, 131, 142, and 144) Co2 Computer Software to Be Sold, Leased, or Otherwise Marketed (FASB 2 and 86) Co4, 5 Construction-Type Contracts, Government Contracts (Audit and Accounting Guides-Federal Government Contractors, 2003 and Construction Contractors, 2003; ARB 43, Ch. 11; ARB 45; FASB 111; SOP 81-1) De4 Development Stage Enterprises (APB 18; FASB 7, 95 and 154; FIN 7; SOP 98-5) Fi4 Finance Companies (Audit and Accounting Guide, 2004; FASB 91, 111 and 115; SOP 01-6) Fr3 Franchising: Accounting by Franchisors (FASB 45 and 141) In6 Insurance Industry (Audit and Accounting GuideProperty and Liability Insurance Companies, 2003; Audit and Accounting Guide-Life and Health Insurance Companies, 2003; SOPs 92-5, 94-5, 95-1, 97-3, 98-7, 00-3, 01-6 and 05-1 if early adopted; FASB 5, 60, 91, 97, 109, 113, 114, 115, 120, 121, 124, 133, 135, 140, 144; and 163. FSP FAS 97-1; FIN 40) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 99-4, Accounting for Stock Received from the Demutualization of a Mutual Insurance Company The issue is how the receipt of stock from a demutualization should be accounted for.
Yes
No
717
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) 93-6, Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises The issues are (1) to the extent that the ceding enterprise has an obligation to make payments to the reinsurer that would not have been required absent experience to date under the contract (e.g., payments that would not have been required if losses had not been experienced), whether the ceding enterprise should recognize a liability and the assuming enterprise should recognize an asset, (2) to the extent that a ceding enterprise would be entitled to receive a payment from the reinsurer based on experience to date under the contract (e.g., the ceding enterprise would receive a payment if no future losses occur), whether the ceding enterprise should recognize an asset and the assuming enterprise should recognize a liability, and (3) how to account for changes in coverage based on past experience under the contract. [NOTE: See STATUS section of Issue 92-9.] 92-9, Accounting for the Present Value of Future Profits Resulting from the Acquisition of a Life Insurance Company A company acquires a life insurance company in a transaction accounted for as a purchase under Opinion 16. In connection with the acquisition, the acquirer recognizes an asset for the present value of future profits (PVP), representing the present value of estimated net cash flows embedded in the existing contracts acquired. The asset may relate to traditional life insurance contracts covered by FASB 60 or other long-duration contracts covered by FASB 97. The issues are (1) whether accrual of interest on the unamortized PVP balance is appropriate; (2) what the discount rate should be for measuring amortization of PVP; (3) how changes in estimates of future gross profits that are the basis for amortization of PVP should be reflected; and (4) how impairment of the PVP asset should be periodically assessed. [NOTE: See STATUS section of Issue 92-9.] D-54, Accounting by the Purchaser for a Seller's Guarantee of the Adequacy of Liabilities for Losses and Loss Adjustment Expenses of an Insurance Enterprise Acquired in a Purchase Business Combination The scope of this announcement is limited to the accounting by a purchaser for reserve guarantees relating to the adequacy of liabilities existing at the acquisition date of a business combination, whether or not they are identified, for short-duration insurance contracts of an insurance enterprise when provided by a seller in a business combination accounted for as a purchase in accordance with the provisions of APB Opinion 16. This
Yes
No
718
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) announcement should not be applied to a business combination accounted for as a pooling of interests or to other transactions that are not within the scope of APB Opinion 16, such as spinoffs or initial public offerings. [NOTE: See Subsequent Developments section within Issue D-54 under "Business Combinations."] D-35, FASB Staff Views on Issue No. 93-6, "Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises" The FASB staff has developed a series of questions and answers to illustrate its views on Issue No. 93-6, Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises. The staff believes its views, which were provided to the Task Force to facilitate the discussion of Issue 93-6, are consistent with the consensus. These questions and answers are included in this appendix at the request of the EITF Task Force. [NOTE: See Subsequent Developments section within Issue D-35.] D-34, Accounting for Reinsurance: Questions and Answers about FASB Statement No. 113 The scope of this announcement is a series of questions and answers to illustrate key elements of FASB 113 relevant to a number of the implementation questions involve potential differences between a contract's form and its substance. In8 Investment Companies (Audit and Accounting Guide, 2003; FSP AAG INV-1 and SOP 94-4-1, SOPs 93-1, 93-4, 95-2, 00-3, 01-1, and FASB 102) FSP FIN 46R-7 clarifies the applicability of FIN 46R to the accounting for investments by entities that apply the accounting guidance in the AICPA Audit and Accounting Guide, Investment Companies (the "Guide"). FIN 46R provides an indefinite deferral for investment companies not subject to SEC Regulation S-X, Rule 6-03(c)(1) but that account for investments under the Guide. On June 11, 2007, the AICPA issued SOP 07-1, which provides guidance on determining whether an entity is within the scope of the Guide. SOP 07-1- For Investment Companies clarifies which entities are within the scope of the AICPA Audit and Accounting Guide, Investment Companies (the "Guide"). The SOP also addresses when companies that own or have significant stakes in investment companies should retain in their financial statements the specialized industry accounting under the Guide. A proposed FASB Staff Position (FSP) has been released for exposure and would delay the effective date
Yes
No
719
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) of SOP 07-1. This proposed FSP would (1) delay indefinitely the effective date of the SOP and (2) prohibit adoption of the SOP for an entity that has not early adopted the SOP before issuance of the final FSP. An entity that early adopts SOP 071 before the issuance of the final FSP would be permitted but not required to continue to apply the provisions of the SOP. An entity that did not early adopt SOP 07-1 would not be permitted to adopt the SOP. In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? D-76, Accounting by Advisors for Offering Costs Paid on Behalf of Funds, When the Advisor Does Not Receive Both 12b-1 Fees and Contingent Deferred Sales Charges This Issue addresses how an advisor should account for offering costs paid to distribute shares of a fund when that advisor does not receive both distribution fees, pursuant to a plan under Rule 12b-1 of the Investment Company Act of 1940 (12b-1 fees), and contingent deferred sales charges (CDSC fees). [NOTE: See Subsequent Developments section within Issue D-76.] D-74, Issues Concerning the Scope of the AICPA Guide on Investment Companies This Issue pertains to the scope of the AICPA Guide on Investment Companies. [NOTE: See Subsequent Developments section within Issue D-74.] D-11, Impact of Stock Market Decline The Issues are (1) whether companies should disclose, in financial statements to be issued after the recent stock market decline, the effects of any significant losses occurring after the balance sheet date and any significant capital reductions or infusions resulting from the stock market decline and (2) whether the losses disclosed should relate to all trading losses realized from the market downturn or only to the losses for the assets owned as of the balance sheet date. Mo4 Mortgage Banking Activities (FASB 65, 91, 114, 115, 124, 125, 133, 134, 140 and 156 ; FTB 87-3; SOP 97-1 and 03-3) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 95-5, Determination of What Risks and Rewards, If Any, Can Be Retained and Whether Any Unresolved Contingencies May Exist in a Sale of Mortgage Loan Servicing Rights The
Yes
No
720
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) issue is whether the inclusion of any provision that results in the seller's retention of specified risks (1) precludes recognition of a sale at the date title passes or (2) allows recognition of a sale at that date if (a) the seller can reasonably estimate, and records a liability for, the costs related to protection provisions, or (b) the sales agreement provides for substantially all risks and rewards to irrevocably pass to the buyer, and the seller can reasonably estimate, and records a liability for, the minor protection provisions. 90-21, Balance Sheet Treatment of a Sale of Mortgage Servicing Rights with a Subservicing Agreement This Issue addresses whether the transaction described in Issue 87-34 should be accounted for as a financing or as a sale with the gain deferred. [NOTE: See STATUS section of Issue 90-21.] 87-34, Sale of Mortgage Servicing Rights with a Subservicing Agreement The Issue is whether the transfer of the mortgage servicing rights and the simultaneous agreement to provide subservicing should be reported by the transferor as a sale or a financing and, if reported as a sale, how the gain should be recognized. [NOTE: See STATUS section of Issue 87-34.] 85-13, Sale of Mortgage Service Rights on Mortgages Owned by Others The Issues are whether a gain should be recorded on the sale of the mortgage service rights when the sale is for a participation in the future interest income stream and, if a gain is recognized, how that gain should be measured. [NOTE: See STATUS section of Issue 85-13.] 84-19, Mortgage Loan Payment Modifications The borrower and lender enter into an agreement whereby the borrower increases his mortgage payments for a specified period, at the conclusion of which the lender forgives a portion of the remaining principal on the loan. The borrower may terminate the arrangement at any time but receives no principal reduction if he makes less than 12 consecutive increased payments. The issue is how the lender should account for the portion of principal that may be forgiven. D-10, Required Use of Interest Method in Recognizing Interest Income This Issue addresses whether a method of recognizing interest income, other than the interest method, such as the rule of 78s, sum of the years' digits, and straightline methods, is permissible even though their results may materially differ from the interest method because FASB 91 does not address interest. D-4, Argentine Government Guarantee of U.S. Dollar-
Yes
No
721
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) Denominated Loans to the Argentine Private Sector Upon payment by Argentine private-sector borrowers to the Argentine Central Bank of the local currency equivalent of the U.S. dollar principal repayment requirement, U.S. banks (i.e., the creditors) must accept U.S. dollar-denominated 10-year notes from the Argentine government in satisfaction of or as guarantee for the private-sector borrowers' obligations. This Issue addresses whether the transaction between the U.S. bank (creditor) and the Argentine Central Bank calls for accounting recognition. D-2, Applicability of FASB Statement No. 65 to Savings and Loan Associations This Issue deals with whether institutions are marking their mortgage portfolios to the lower of cost or market, as is required by FASB 65. [NOTE: See Subsequent Developments within Issue D-2.] Mo8 Motion Picture Industry (FASB 139; SOP 00-2) No5 Not-for-Profit Organizations (Audit and Accounting Guide-Health Care Organizations, 2003; Audit and Accounting Guide-Not-for-Profit Organizations, 2004; SOPs 94-3 and 98-2, and 02-2; FASB 93, 116, 117, 124, 133, 136, and 144; FSP SOP 94-3-1; and AAG HCO-1; FSPs FAS 115-1/124-1 and 126-1) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? D-49, Classifying Net Appreciation on Investments of a Donor-Restricted Endowment Fund This Issue addresses whether legal limitations that require that the governing board act to appropriate net appreciation for expenditure under a statutorily prescribed standard of ordinary business care and prudence extend a donor restriction to the net appreciation on investments of a donor-restricted endowment fund. In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 90-15, Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions This Issue addresses when a lessee is required to consolidate a special-purpose entity lessor (that is not within the scope of Interpretation 46(R) or a variable-interest entity) when all of the conditions specified in 90-15 are met. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual
Yes
No
722
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) Property This Issue deals with questions about (1) what constitutes a collaborative arrangement, (2) how the parties should present costs incurred and revenue generated on sales to third parties in their respective income statements, and (3) how the parties should present cost-sharing payments, profitsharing payments, or both (i.e., any payments between the parties) in their respective income statements. Oi5 Oil and Gas Producing Activities and Mining Activities (FASB 19, including FSP FAS 19-1, FASB 25, 69, 95, 109, 131, 144 and 153; FSPs 141/142-1, 142-2, and 126-1; FIN 33 and 36; Audit and Accounting Guide, 2007; S-X, Rule 4-10 (as supplemented by SAB Topic 12 and FRR Section 406), SEC letters sent to oil and gas registrants dated 2/24/2004 and 2/11/2005, and 2411ASNG) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 04-6, Accounting for Stripping Costs Incurred During Production in the Mining Industry This Issue applies to mining entities that are not within the scope of FASB 19 and provides guidance on how to account for "stripping costs" in the production phase. The Task Force reached a consensus that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. The Task Force noted that the consensus does not address the accounting for stripping costs incurred during the pre-production phase of a mine. 04-4, Allocation of Goodwill to Reporting Units for a Mining Enterprise This Issue deals with whether an entity in the mining industry should assign goodwill to a reporting unit that consists of an individual operating mine. [NOTE: See STATUS section of Issue 04-4.] 04-3, Mining Assets: Impairment and Business Combinations This Issue applies to mining entities other than oil- and gas-producing entities that are within the scope of FASB 19. 04-2, Whether Mineral Rights are Tangible or Intangible Assets Mining entities generally did not change their practice of accounting for mineral rights as tangible assets upon adoption of FASBs 141 and 142. That is, they believe that mineral rights are tangible assets. However, others believe that mineral rights are intangible assets. Because of those differing views, an issue has arisen in practice as to
Yes
No
723
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) whether mineral rights are tangible or intangible assets. 00-1, Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures This Issue addresses whether there are circumstances in which proportionate gross presentation is appropriate under the equity method of accounting for an investment in an entity. For example, proportionate gross presentation can be applied to extractive industries (e.g., oil and gas exploration and production industries). 90-22, Accounting for Gas-Balancing Arrangements This Issue addresses accounting for "gas-balancing" arrangements. Pe5 Pension Funds-Defined Benefit Pension Plans (FASB 35, 102, 110 and 135; SOPs 92-6, 94-4, 94-6, 95-1, 992, 99-3 and 01-2) Re1, 2 Real Estate Industry (FASB 13, 34, 66, 67, 91, 98, 114, 140, 144, and 152; FIN 43; Audit and Accounting Guide-Real Estate Appraisal Information, 1987; SOPs 75-2, 78-9, 92-1, 97-1, and 04-2). In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 07-6, Accounting for the Sale of Real Estate When the Agreement Includes a Buy-Sell Clause The Issue addresses whether a buy-sell clause represents a prohibited form of continuing involvement (e.g., an option to reacquire the real estate) under FASB 66 that precludes partial sale-and-profit recognition upon transfer of the real estate to the venture by the selling investor. 06-8, Applicability of the Assessment of a Buyer's Continuing Investment under FASB Statement No. 66 for Sales of Condominiums This Issue addresses whether in a sale of an individual condominium unit, an entity needs to evaluate the adequacy of the buyer's continuing investment pursuant to paragraph 12 of FASB 66 to recognize profit under the percentage-of-completion method. The Task Force reached a tentative conclusion that this Issue should be effective for the first annual reporting period beginning after March 15, 2007. Earlier application is permitted as of the beginning of a fiscal year. 05-3, Accounting for Rental Costs Incurred during the Construction Period This Issue addresses whether an entity may capitalize rental costs that are incurred during the
Yes
No
724
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) construction period and, if so, the types of rental costs that are capitalizable. This Issue does not address rental costs other than those associated with building and ground operating leases. 98-8, Accounting for Transfers of Investments That Are in Substance Real Estate The issue is whether the sale or transfer of an investment in the form of a financial asset that is in substance real estate should be accounted for in accordance with FASB 66 or FASB 125. 97-11, Accounting for Internal Costs Relating to Real Estate Property Acquisitions The Issue is whether internal preacquisition costs may be capitalized as part of the cost of a real estate property acquisition. 95-7, Implementation Issues Related to the Treatment of Minority Interests in Certain Real Estate Investment Trusts The Issues are (1) how the operating partnership's income (losses) and distributions should be allocated between the minority and majority interests in the REIT's consolidated financial statements if the minority interest balance at formation of the REIT is less than zero based on the minority interest's proportionate share of the operating partnership's net deficit; (2) for purposes of applying any conclusion reached on the issue above, whether the interim period allocation of the operating partnership's income (losses) and distributions should be based on discrete interim period results, year-todate results, or expected results for the entire year; (3) how the REIT should account for any subsequent acquisitions of the sponsor's minority interest in the operating partnership for either cash or shares of the REIT. 95-6, Accounting by a Real Estate Investment Trust for an Investment in a Service Corporation The Issues are (1) whether a service company is an independent third party, as that term is used in FASB 91 for purposes of determining the amount of costs to be capitalized by the REIT for leasing services; (2) how a REIT should account for its investment in an SC (cost method, equity method, or consolidation) when substantially all of the economic benefits generated by the SC are for the benefit of the REIT. [NOTE: This consensus has been partially nullified by Interpretation 46 and FIN 46(R). See STATUS section of Issue 95-6.] 94-2, Treatment of Minority Interests in Certain Real Estate Investment Trusts The Issue is how, and at what amount, the sponsor's interest in the operating partnership should be reported in the REIT's consolidated financial statements.
Yes
No
725
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) [NOTE: See STATUS section of Issue 94-2.] 94-1, Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects The Issue is how an entity that invests in a qualified affordable housing project through a limited partnership should account for its investment. [NOTE: See STATUS section of Issue 94-1.] 91-10, Accounting for Special Assessments and Tax Increment Financing Entities (TIFEs) The Issue is whether a company should recognize an obligation for a special assessment or the Tax Increment Financing Entity (TIFE) debt. [NOTE: See STATUS section of Issue 94-1.] 91-2, Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse Mortgage The Issue is whether FASB 15 is applicable to a situation where the purchase of real property is financed with nonrecourse debt and the borrower decides to transfer the property to the lender in full satisfaction of its obligation under the note. [NOTE: See STATUS section of FASB 91-2.] 90-20, Impact of an Uncollateralized Irrevocable Letter of Credit on a Real Estate Sale-Leaseback Transaction The Issue is whether having an uncollateralized, irrevocable letter of credit is a form of continuing involvement that precludes sale-leaseback accounting under FASB 98. 89-14, Valuation of Repossessed Real Estate The Issue is the amount at which the foreclosed property should be recorded. [NOTE: This consensus has been partially nullified by FASB 144. See STATUS section of Issue 89-14.] 88-24, Effect of Various Forms of Financing under FASB Statement No. 66 The issue is how profit should be recognized under FASB 66 when a real estate sales transaction involves various forms of financing. 88-12, Transfer of Ownership Interest as Part of Down Payment under FASB Statement No. 66 The issues are (1) whether the buyer's ownership interest in a purchased property that is pledged as security for a note should be included as part of the buyer's initial investment in determining whether profit may be recognized under the full accrual method; and (2) if so, in other situations in which a note is collateralized by assets other than the purchased property (for example, other real estate properties or marketable securities), whether those assets should be included as part of the buyer's initial investment in determining whether profit may be recognized under the full accrual method.
Yes
No
726
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) 87-9, Profit Recognition on Sales of Real Estate with Insured Mortgages or Surety Bonds The Issues are: (1) whether a financial instrument (such as a surety bond) may be considered equivalent to an irrevocable letter of credit in determining whether it is appropriate to recognize income under the full accrual method if (a) the seller's rights of collection, (b) the surety's obligation for payment, and (c) the surety's recourse to the buyer under the instrument in the event of default are the same as for an irrevocable letter of credit; and (2) whether government or private mortgage insurance covering a part of the mortgage balance should be considered equivalent to an irrevocable letter of credit and included as part of the buyer's initial and continuing investment in determining whether it is appropriate to recognize profit under the full accrual method. [NOTE: See STATUS section of Issue 87-9.] 86-7, Recognition by Homebuilders of Profit from Sales of Land and Related Construction Contracts The issue is how the homebuilder should recognize earnings from the contract related to the lot sale and the construction of the house. Should the homebuilder use percentage-of-completion accounting under ARB 45 for the construction phase of the house regardless of title transfer on the lot or apply FASB 66 and recognize no profit on either the lot or the construction phase of the house until title passes? 86-6, Antispeculation Clauses in Real Estate Sales Contracts The Issue is whether FASB 66 precludes the seller from accounting for the transaction as a sale when an antispeculation clause exists. 85-27, Recognition of Receipts from Made-Up Rental Shortfalls A real estate developer sells a recently constructed office building to a public real estate "blind pool" syndication. Because the property is not yet fully occupied, the general partner of the syndication negotiates a master leaseback agreement with the seller at the date of the sale. Under the terms of the agreement, the syndication pays a fee to the seller and the seller leases the vacant space at a market rate, at the sale date, for a two-year period. The issue is how the syndication should account for the fee it pays the seller and the rent it receives from the seller. (The seller's accounting is not addressed.) 84-17, Profit Recognition on Sales of Real Estate with Graduated Payment Mortgages or Insured Mortgages For sales of real estate financed by graduated payment mortgages
Yes
No
727
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) that involve initial negative amortization of principal or by mortgages that are partially or fully insured, how should the profit recognition criteria in FASB 66 be applied? [NOTE: See STATUS section of Issue 84-17.] Re4 Record and Music Industry (FASB 50) Re6 Regulated Operations (FASB 71, 87, 90, 92, 98, 101, 106, 109, 135, 142, and 144; FTB 87-2; FIN 40) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? 97-4, Deregulation of the Pricing of Electricity Issues Related to the Application of FASB 71 and FASB 101 The issues are (1) when an enterprise should stop applying FASB 71 to the separable portion of its business whose product or service pricing is being deregulated once legislation is passed or a rate order is issued (whichever is necessary to effect change in the jurisdiction) that has the effect (either immediately or at some point in the future) of deregulating the rates charged to customers; (2) how an enterprise should evaluate whether to continue to recognize all or some portion of the regulatory assets and regulatory liabilities, respectively, that (a) originated from the separable portion of the business whose pricing is being deregulated and (b) exist at the date FASB 101 is applied; and (3) how an enterprise should evaluate whether to establish additional regulatory assets and regulatory liabilities related to expenses and obligations, respectively, that will originate from the separable portion of the business whose pricing is being deregulated but that will arise subsequent to applying FASB 101. [NOTE: See Status section of Issue 97-4.] 92-7, Accounting by Rate-Regulated Utilities for the Effects of Certain Alternative Revenue Programs Traditionally, regulated utilities whose rates are determined based on cost of service invoice their customers by applying approved base rates (designed to recover the utility's allowable costs including a return on shareholders' investment) to usage. Some regulators of utilities have also authorized the use of additional, alternative revenue programs. The major alternative revenue programs currently used are Type A and Type B. Type A programs adjust billings for the effects of weather abnormalities or broad external factors or to compensate the utility for demand-side management initiatives; Type B programs provide for additional billings (incentive awards) if the utility achieves certain objectives,
Yes
No
728
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) such as reducing costs, reaching specified milestones, or demonstratively improving customer service. The Issues are: (1) what the appropriate accounting should be for alternative revenue programs; and (2) whether the accounting for Type A and Type B programs should be the same. D-21, Phase-in Plans When Two Plants Are Completed at Different Times But Share Common Facilities The Issue is whether deferral of depreciation and continued capitalization of interest on one-half of the coal handling equipment, transmission facilities, and administrative building is a phasein plan under FASB Statement No. 92, Regulated Enterprises-Accounting for Phase-in Plans. D-5, Extraordinary Treatment Related to Abandoned Nuclear Power Plants This Issue highlights the following: In December 1986, the FASB issued Statement No. 90, Regulated Enterprises Accounting for Abandonments and Disallowances of Plant Costs, which implies that extraordinary treatment of losses from abandonments of nuclear power plants is precluded. Paragraph 10 of FASB 90 indicates that, in retroactively applying that Statement to prior years' abandonments, the financial statements should disclose the effect of the restatement on income before extraordinary items, net income, and related per-share amounts for each period presented. Ti7 Title Plant (FASB 61 and 144 ) Others Airlines (Audit Guide, 2004; SOPs 88-1, 98-5) In September 2006, the FASB issued Staff Position ("FSP") No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. This guidance is applicable to entities in all industries. The FSP is effective for the first fiscal year beginning after December 15, 2006. Earlier adoption is permitted as of the beginning of an entity's fiscal year. Agricultural Producers and Agricultural Cooperatives (Audit and Accounting Guide, 2004; SOP 85-3) Casinos (Audit and Accounting Guide, 2001; SOP 98-5)
Yes
No
729
Accounting: SPECIALIZED ACCOUNTING AND INDUSTRY MATTERS (12/08) Common Interest Realty Associations (Audit and Accounting Guide, 2004) Credit Unions (Audit and Accounting Guide Depositories and Lending Institutions Banks and Savings Institutions, Credit Unions, Finance Companies and Mortgage Companies, 2004; FASB 115) Employee Stock Ownership Plans (SOP 76-3; SOP 93-6) Educational Organizations Colleges and Universities (Notfor-Profit Organization Audit and Accounting Guide, 2004; SOP 98-2; FASB 93, 116, 117, and 124) Employee Benefit Plans (Audit and Accounting Guide, 2004; SOPs 92-6, 94-4, 99-2, 99-3, and 01-2) Health Care Industry: Health Care Organizations (Audit and Accounting Guide, 2004; FASB 93, 111, 116, 117, 124, and 136; SOP 98-2; FSP FAS 126-1) In addition to the guidance above, has the entity complied with the following Issues discussed by the Emerging Issues Task Force, when applicable? D-89, Accounting for Costs of Future Medicare Compliance Audits This Issue addresses the accounting for the costs of the future Medicare compliance audits required as a result of settlement agreements with the U.S. government; specifically, whether the commitment to incur the costs of future Medicare compliance audits may be accrued as a liability (equal to the present value of the estimated costs of the audits) when the settlement is agreed to. Personal Financial Statements (Audit and Accounting Guide, 1983; SOP 82-1) Prospective Financial Statements (Audit and Accounting Guide, 1986) Software: Revenue Recognition and Computer Software Developed or Obtained for Internal Use (SOPs 97-2, 98-4, 981, and 98-9) State and Local Governmental Units (Audit and Accounting Guide, 2004; SOP 98-2) Stockbrokerage Industry (Audit and Accounting GuideBrokers and Dealers in Securities, 2004; SOP 90-3)
Yes
No
730
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in more than 140 countries. With access to the deep intellectual capital of approximately 150,000 people worldwide, Deloitte delivers services in four professional areas, audit, tax, consulting and financial advisory services, and serves more than 80 percent of the world's largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte", "Deloitte & Touche", "Deloitte Touche Tohmatsu" or other related names. In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation's leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the U.S. member firm's Web site at www.deloitte.com/us.
Copyright 2009 Deloitte Development LLC. All rights reserved
Member of Deloitte Touche Tohmatsu
731

GAAP Checklist

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

GAAP Checklist

Uploaded by

Copyright:

Available Formats

U.S.

Generally Accepted Accounting Principles Compliance Checklist

Audit Tax Consulting Financial Advisory

Company Name: Prepared By: Reviewed By:

Period: Date: Date:

Table of Contents (linked)

consistently? [FIN 39.10]

against amounts recognized as accrued payables? [FIN 39.08]

39.10, 10A, 10B as amended/added by FSP No. FIN 39-1]

Public companies only:

Disclosure: F39 FINANCIAL INSTRUMENTS: TRANSFERS (12/08)

Accounting: G80 GUARANTEES (12/08)

Disclosure: G80 GUARANTEES (12/08)

SECTION I UPON ADOPTION OF FASB 158

SECTION II POST-ADOPTION OF FASB 158 RECOGNITION PROVISIONS

SECTION III PRE-ADOPTION OF FASB 158'S RECOGNITION PROVISIONS

SECTION I UPON ADOPTION OF FASB 158

Accounting: TROUBLED DEBT RESTRUCTURINGS (12/08) D22 ACCOUNTING BY DEBTORS (12/08)

3. If the total future cash payments (including amounts

Accounting: SOFTWARE REVENUE RECOGNITION AND DEVELOPMENT COSTS (12/08) applications.

AND If FASB 158s recognition provisions have been adopted Section II

SECTION I UPON ADOPTION OF FASB 158

(1) An employer's past practice of maintaining a

(2) An employer's communication of its intent to

21. If the entity has a defined contribution plan(s): a.

A. Reporting and Display

m. When a reporting unit has been disposed of in its

Copyright 2009 Deloitte Development LLC. All rights reserved

Member of Deloitte Touche Tohmatsu

You might also like