SUMMARY OF BOARD DECISIONS

Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final standard.

February 25, 2009 Board Meeting

Insurance contracts. The Board began deliberations on the joint project on accounting for insurance contracts by discussing measurement.

The Board agreed to explore an approach where an insurance contract is measured at a current fulfillment value rather than fair value as defined in FASB Statement No. 157, Fair Value Measurements (an exit value). The fulfillment value is currently not a defined measurement approach but would be based on entity-specific inputs that generally would not require consideration of market participant views. The Board discussed the potential components of a fulfillment value but did not come to any conclusions.

The Board agreed that in principle the initial recognition of an insurance contract should not result in the recognition of an accounting profit. However, some Board members acknowledged that future deliberations and decisions (such as the accounting for acquisition costs) may necessitate revisiting whether an accounting profit should be recognized at inception of an insurance contract .

Measurement of liabilities. The Board discussed potential revisions to the scope, guidance, and effective date of proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157.

The Board decided that the final FSP will apply to the fair value measurement of liabilities under FASB Statement No. 157, Fair Value Measurements.

The Board decided that the final FSP will require that practitioners generally use the same approach to valuing a liability under Statement 157 as used for an asset. The exception is that restrictions on the transfer of a liability will not affect the fair value measurement of that liability, whereas restrictions on an asset are considered when determining the fair value of that asset.

The Board agreed that the quoted price for the identical liability when traded as an asset in an active market (that is, the fair value of the asset would be categorized as a Level 1 measurement within the fair value hierarchy) will be the fair value for that liability. However, as with any input into a fair value measurement, an entity would need to determine whether an input (for example, the quoted price for the identical liability when traded as an asset in an active market) should be adjusted for factors specific to the liability and the asset. Some circumstances where an entity should consider whether adjustments are required to the quoted price for the asset to determine the fair value of the liability include:

  1. The quoted price for the asset reflects a distressed sale at the measurement date.
     
  2. The price of the asset includes the effect of a restriction preventing the transfer of the asset.
     
  3. The unit of account for the asset is not the same as the liability (for example the quoted price for the asset includes the effect of a credit enhancement).

In those circumstances, to determine the fair value of the liability, it would be appropriate for practitioners to use

  1. The quoted price of the liability when traded as an asset and adjust that price for factors specific to the asset;
     
  2. An entry price notion that considers the principles of Statement 157; or
     
  3. Another valuation technique, such as a present value technique.

If the resulting fair value measurement of the liability is based on the liability when traded as an asset, the level in the fair value hierarchy into which the fair value measurement of the liability would be categorized would be based on the level into which the asset is categorized.

The Board decided to reexpose the proposed FSP for an additional 30-day period. The proposed guidance would be effective for periods beginning after July 1, 2009.

Amend Statement 162 on GAAP Hierarchy, and approve FASB Accounting Standards Codification. The Board discussed the entire process of creating the Codification, including the overall intent of the Codification, the steps in verifying information in the Codification, and the resolution of particular issues arising during the one-year verification period. The Board discussed certain specific feedback matters received during the verification period relating to Codification content and transition matters.

The Board decided to retain Examples 2 and 3 in Appendix C of FASB Statement No. 47, Disclosure of Long-Term Obligations, in the Codification to provide helpful illustrations for the contracts described. The Board also decided to add an explanatory sentence to those examples to state that the arrangements were not determined to be leases or derivatives.

The Board decided to carry forward the grandfathering provisions in paragraph 7 of FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles, into the Codification. The guidance referenced by the grandfathering provisions in Statement 162 will continue to apply after the Codification is effective; however, the Board decided not to explicitly include that guidance in the Codification itself. Instead, the Codification will include a reference stating that guidance remains authoritative for entities still applying that guidance.

Certain existing accounting standards allow for the continued application of superseded accounting standards for transactions that have an ongoing accounting impact. This superseded guidance has not been included in the Codification. The Board decided to include a statement within the Codification that such guidance is grandfathered as authoritative.

The Board decided that any accounting change resulting from the issuance of the proposed Statement to revise Statement 162 relating to the application of guidance that was previously included in the AICPA Technical Inquiry Service ( TIS) questions and answers for software revenue recognition should be made prospectively for revenue arrangements entered into in fiscal years and interim periods in those fiscal years beginning on or after December 15, 2009. This transition guidance would apply only to nonpublic companies.

The Board decided that, other than the transition provided for AICPA TIS software revenue recognition material, the remainder of the Codification would be effective July 1, 2009. No additional special transition provisions would be provided.

The Board directed the staff to proceed to a draft of a proposed Statement that will revise Statement 162 for vote by written ballot with an exposure period that will end approximately May 1, 2009.

Accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The Board redeliberated significant issues raised in comments received on proposed FSP FAS 141(R)-a, Accounting for Assets and Liabilities Assumed in a Business Combination That Arise from Contingencies.

The Board decided to amend the guidance in FASB Statement No. 141 (revised 2007), Business Combinations, to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would be recognized in accordance with FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. Additionally, the Board decided to remove the subsequent accounting guidance for assets and liabilities arising from contingencies from Statement 141(R). The Board decided that the guidance in FASB Statement No. 141, Business Combinations, should essentially be carried forward without significant revision. However, the Board decided that the word determined in Statement 141 should be replaced with reasonably estimated.

The Board also discussed issues about disclosures, contingent consideration, and extending the guidance in the FSP to other areas in a business combination and decided the following:

  1. The Board decided to amend the disclosure requirements in Statement 141(R) to eliminate the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, the Board decided to require that entities include only the disclosures required by FASB Statement No. 5, Accounting for Contingencies, and that those disclosures be included in the business combination footnote.
     
  2. The Board decided that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination should be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with Statement 141(R).
     
  3. The Board affirmed its decision that contingent consideration be excluded from the scope of the final FSP.

The Board directed the staff to proceed to a draft of a final FSP for vote by written ballot.