Alcoa 2007 Annual Report Download - page 43

cumulative effect adjustment in the opening balance of retained
earnings of $3, representing the reduction in the net book value of
post-production stripping costs of $8, offset by a related deferred
tax liability of $3 and minority interests of $2.
Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements—
an amendment of ARB No. 51,” (SFAS 160). SFAS 160 amends
Accounting Research Bulletin No. 51, “Consolidated Financial
Statements,” to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. This standard defines a noncontrolling interest,
sometimes called a minority interest, as the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. SFAS
160 requires, among other items, that a noncontrolling interest be
included in the consolidated statement of financial position within
equity separate from the parent’s equity; consolidated net income to
be reported at amounts inclusive of both the parent’s and non-
controlling interest’s shares and, separately, the amounts of
consolidated net income attributable to the parent and non-
controlling interest all on the consolidated statement of income; and
if a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be measured at fair value and a
gain or loss be recognized in net income based on such fair value.
SFAS 160 becomes effective for Alcoa on January 1, 2009.
Management is currently evaluating the potential impact of SFAS
160 on the Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations,” (SFAS 141(R)). SFAS 141(R) replaces
SFAS No. 141, “Business Combinations,” (SFAS 141) and retains
the fundamental requirements in SFAS 141, including that the
purchase method be used for all business combinations and for an
acquirer to be identified for each business combination. This
standard defines the acquirer as the entity that obtains control of
one or more businesses in the business combination and estab-
lishes the acquisition date as the date that the acquirer achieves
control instead of the date that the consideration is transferred.
SFAS 141(R) requires an acquirer in a business combination,
including business combinations achieved in stages (step
acquisition), to recognize the assets acquired, liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values of that date, with limited
exceptions. It also requires the recognition of assets acquired and
liabilities assumed arising from certain contractual contingencies
as of the acquisition date, measured at their acquisition-date fair
values. SFAS 141(R) becomes effective for Alcoa for any business
combination with an acquisition date on or after January 1, 2009.
Management is currently evaluating the potential impact of SFAS
141(R) on the Consolidated Financial Statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities—
including an amendment of FASB Statement No. 115,” (SFAS 159).
SFAS 159 permits entities to choose to measure many financial
instruments and certain other assets and liabilities at fair value on
an instrument-by-instrument basis (the fair value option). SFAS
159 becomes effective for Alcoa on January 1, 2008. Management
has determined that the adoption of SFAS 159 will not have a
material impact on the Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements,” (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. The provisions of this standard apply to
other accounting pronouncements that require or permit fair value
measurements. SFAS 157, as it relates to financial assets and
financial liabilities, becomes effective for Alcoa on January 1,
2008. On February 12, 2008, the FASB issued FSP No. FAS 157-
2, “Effective Date of FASB Statement No. 157,” which delays the
effective date of SFAS 157 for all nonfinancial assets and non-
financial liabilities, except those that are recognized or disclosed
at fair value in the financial statements on at least an annual basis,
until January 1, 2009 for calendar year-end entities. Upon adop-
tion, the provisions of SFAS 157 are to be applied prospectively
with limited exceptions. Management has determined that the
adoption of SFAS 157, as it relates to financial assets and finan-
cial liabilities, except for pension plan assets in regards to the
funded status recorded on the Consolidated Balance Sheet, will not
have a material impact on the Consolidated Financial Statements.
Management is currently evaluating the potential impact of SFAS
157, as it relates to pension plan assets, nonfinancial assets and
nonfinancial liabilities, on the Consolidated Financial Statements.
In April 2007, the FASB issued FSP No. FIN 39-1,
“Amendment of FASB Interpretation No. 39,” (FSP FIN 39-1).
FSP FIN 39-1 amends FIN No. 39, “Offsetting of Amounts
Related to Certain Contracts,” by permitting entities that enter
into master netting arrangements as part of their derivative trans-
actions to offset in their financial statements net derivative
positions against the fair value of amounts (or amounts that
approximate fair value) recognized for the right to reclaim cash
collateral or the obligation to return cash collateral under those
arrangements. FSP FIN 39-1 becomes effective for Alcoa on
January 1, 2008. Management has determined that the adoption of
FSP FIN 39-1 will not have a material impact on the Consolidated
Financial Statements.
In March 2007, the EITF issued EITF Issue No. 06-10,
“Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements,” (EITF 06-10). Under the provisions of EITF
06-10, an employer is required to recognize a liability for the
postretirement benefit related to a collateral assignment split-
dollar life insurance arrangement in accordance with either SFAS
No. 106, “Employers’ Accounting for Postretirement Benefits
Other Than Pensions,” or Accounting Principles Board Opinion
No. 12, “Omnibus Opinion—1967,” if the employer has agreed to
maintain a life insurance policy during the employee’s retirement
or provide the employee with a death benefit based on the sub-
stantive arrangement with the employee. The provisions of EITF
06-10 also require an employer to recognize and measure the asset
in a collateral assignment split-dollar life insurance arrangement
based on the nature and substance of the arrangement. EITF
06-10 becomes effective for Alcoa on January 1, 2008. Manage-
ment has determined that the adoption of EITF 06-10 will not have
a material impact on the Consolidated Financial Statements.
In January 2008, the FASB issued Statement 133
Implementation Issue No. E23, “Hedging—General: Issues
Involving the Application of the Shortcut Method under Paragraph
68” (Issue E23). Issue E23 provides guidance on certain practice
issues related to the application of the shortcut method by
amending paragraph 68 of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” with respect to
the conditions that must be met in order to apply the shortcut
method for assessing hedge effectiveness of interest rate swaps.
The provisions of Issue E23 become effective for Alcoa for hedging
arrangements designated on or after January 1, 2008. Additionally,
preexisting hedging arrangements must be assessed on January 1,
2008 to determine whether the provisions of Issue E23 were met
as of the inception of the hedging arrangement. Management has
determined that Issue E23 will not have any impact on its
preexisting hedging arrangements.
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