FASB issues exposure drafts to support global accounting standards

Strategic Finance, Jan, 2004 by Kathy Williams

LAST MONTH THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) issued four new Exposure Drafts that would improve U.S. generally accepted accounting principles (GAAP) and converge U.S. accounting guidance with existing international accounting standards. Comments on each Exposure Draft are due by April 13, 2004.

The Exposure Drafts are:

* Accounting Changes and Error Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Proposed Statement of Financial Accounting Standards). Voluntary changes in accounting policies would be required to be applied by retrospective application rather than by cumulative effect adjustment as is required now.

* Exchanges of Productive Assets--an amendment of APB Opinion No. 29 (Proposed Statement of Financial Accounting Standards). This proposed Statement would require that exchanges of productive assets be accounted for based on the fair values of the assets involved unless the exchange transaction doesn't have commercial substance.

* Earnings per Share--an amendment of FASB Statement No. 128 (Proposed Statement of Financial Accounting Standards). This proposed Statement would amend the computational guidance in SFAS No. 128 for calculating the number of incremental shares included in diluted shares when applying the Treasury stock method. It also would eliminate the provisions that allow an entity to rebut the presumption that contracts with the option of settling in either cash or stock will be settled in stock. And it would require that shares that will be issued upon conversion of a mandatorily convertible security be included in the weighted-average number of ordinary shares outstanding used in computing basic EPS from the date when conversion becomes mandatory.

* Inventory Costs--an amendment of ARB No. 43, Chapter 4 (Proposed Statement of Financial Accounting Standards). Unusual ("abnormal") amounts of idle capacity and spoilage costs would be excluded from the cost of inventory and expensed as incurred.

The Board said that an additional proposed standard on the classification of liabilities is expected soon.

To download copies of the Exposure Drafts, visit the FASB website at www.fasb.org. For information on how and where to comment on the material, click on download, open each Exposure Draft, and read page 2.