1. Thomas L. Porter, Ph.D., CPA Senior Consultant FASB Update & SFAS No. 143 – Asset Retirement Obligations

2. 1 Discussion Agenda Current Standard-setting Bodies About the Financial Accounting Standards Board Recently Issued Pronouncements Recently Issued Exposure Drafts Current FASB Agenda SFAS No. 143 – Asset Retirement Obligations

3. 2 Current Standard–setting Bodies Securities and Exchange Commission – Statements of Positions (SOP) Financial Accounting Standards Board – Statements of Financial Accounting Standards (SFAS) – Emerging Issues Task Force (EITF) Summaries – FASB Staff Positions (FSP)  Replaces Q&A documents and “Staff Announcements” Accounting Standards Executive Committee (AcSEC) – As of November 2002, focus on industry audit and accounting guidance – No more SOPs

4. 3 About the Financial Accounting Standards Board Established in 1973 Independent, non-profit Designation by SEC re-established in 2003 as part of Sarbanes-Oxley Act 7 Board Members – Strict independence requirements – Diverse backgrounds  3 public accounting, 2 preparer, 1 analyst, 1 academic Professional Staff – Research and Major Projects (Main Agenda Projects) – Emerging Issues Task Force

5. 4 About the Financial Accounting Standards Board – Funding Historically: – 2/3 from sale of publications – 1/3 from donations to the Financial Accounting Foundation Currently: – Portion of fees assessed against SEC registrants (per Sarbanes- Oxley Act)

6. 5 About the Financial Accounting Standards Board – Process Issue identification Task Force Research Deliberations Exposure Draft Public Hearings Re-deliberations – Analysis of Comment Letters Statement of Financial Accounting Standard

7. 6 About the Financial Accounting Standards Board – Process Changes FASB Staff Positions (FSP) – Limited “due process” documents Consultation with two (new) advisory councils – User Advisory Council (2003) – Small Business Advisory Council (2004) Enhanced access – Standards and EITF summaries available for free from www.fasb.org www.fasb.org – Free e-mail subscription to Action Alert – Board meetings via free webcast

8. 7 About the Financial Accounting Standards Board – Process Changes (continued) Enhanced codification and simplification – Original Pronouncements to be “as amended” – Current Text to include references to lower level GAAP Proposals to shift form of guidance – Currently:  Not organized by subject, but by standard  Users must consult several sources on one topic – Proposed  Organize, and promulgate, by subject ­Similar to “GAAP Guides”

9. 8 About the Financial Accounting Standards Board – Conceptual Framework Statements of Financial Accounting Concepts – Theoretical foundations for standards – Key concepts:  Benefits > Costs  Decision usefulness – will information make a difference?  Relevance and Reliability  Verifiability  Representational Faithfulness – Define elements of financial statements  Definitions are useful when deliberating standards

10. 9 Recently Issued Pronouncements Statement No. 146 Accounting for Costs Associated with Exit or Disposal Activities Statement No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity

11. 10 Recently Issued Exposure Drafts Fair Value Measurements (Proposed Statement of Financial Accounting Standards) June 23, 2004 (Comment period ends September 7, 2004) Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143 (Proposed Interpretation) June 17, 2004 (Comment period ends August 1, 2004)

12. 11 Current FASB Agenda International Convergence – A constant theme Principles-based Standards – No “bright lines” Purchase Procedures – Non-controlling interests Fair Value Measurements – “Amount at which an asset could be exchanged or a liability settled in a current transactions between knowledgeable, unrelated, willing parties when neither is acting under compulsion.”

13. 12 Current FASB Agenda (continued) Statement 140 Issues – Distinguish secured borrowing from a sale of (financial) assets Revenue Recognition – Currently over 180 transaction-specific and industry-specific guidance documents – When and in what amounts should revenue be recognized? – Liability extinguishment approach Liability and Equity – Accounting for instruments that have characteristics of both liabilities and equity

14. 13 Current FASB Agenda (continued) Share-based Payments – In general, accounting recognizes an expense for services as the services are consumed – If the expense is to be recognized when the payment is made in stock, then how should it be measured?  As the value of services received?  As the value of compensation provided? – If cost is measured as the value of compensation provided, how should it be measured? – What is the appropriate measurement date?

15. 14 SFAS No. 143 Accounting for Asset Retirement Obligations Issued July 2001 Effective for fiscal years beginning after June 15, 2002 Requires recognition of a liability for asset retirement obligations Addition to capitalized cost of asset Liability measured at fair value, when incurred, accreted to present value over time Liability must be a legal obligation

16. 15 SFAS No. 143 Accounting for Asset Retirement Obligations (continued) Proposed Interpretation – “A legal obligation to perform an asset retirement activity that is conditional on a future event is within the scope of Statement 143. … Uncertainty surrounding the timing and method of settlement …should be factored into the measurement of the liability rather than the recognition of the liability.” (Paragraph 3) SFAS No. 143 – “A conditional obligation to perform a retirement activity is within the scope of this Statement. … Uncertainty about whether performance will be required does not defer the recognition of a retirement obligation; rather, that uncertainty is factored into the measurement of the fair value of the liability through assignment of probabilities to cash flows.” (Paragraph A17)

17. Learn More About NERA Contact Thomas L. Porter, Ph.D., CPA Senior Consultant New York, NY +212.345.9455 tom.porter@nera.com Global website www.nera.com The NERA Weekly Stay updated on NERA’s latest thinking— including publications, client and case work and events—with the NERA Weekly. Subscribe to this complimentary newsletter online at www.nera.com/neraweekly. © Copyright 2004 National Economic Research Associates, Inc. All rights reserved.