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.

March 16, 2009 Board Meeting

Financial instruments with characteristics of equity. The Board continued to discuss an approach for determining whether a financial instrument should be classified as equity. The Board decided that a perpetual instrument should be classified as equity. A perpetual instrument is defined as one that lacks a settlement requirement and entitles the holder to a portion of the net assets of the entity in liquidation. Instruments that are redeemable at the option of the issuer meet that definition because although the issuer may choose to settle the instrument, it cannot be required to do so.

The Board also decided that puttable and mandatorily redeemable instruments are of the following two types, which should be considered differently in determining classification:

1. An instrument that is puttable or mandatorily redeemable upon death or retirement of the holder would be classified as equity. The term retirement was used broadly to include events such as termination, resignation, or ceasing to be a member in a cooperative or partnership.
    
2. An instrument that is puttable at the option of the holder or mandatorily redeemable if specified dates or events other than death or retirement occur would generally be classified as liabilities.

Some Board members expressed reservations about always classifying all instruments of the second type as liabilities and indicated that they may want to make exceptions when the approach is more fully developed. One example might be an instrument that is puttable or redeemable at fair value or an approximation thereof.

Fair value measurement. The Board discussed the following issues:

Determining when a market for an asset or a liability is not active and determining when a transaction is not distressed. The Board decided to provide additional guidance to help an entity in determining whether a market for an asset is not active and when a price for a transaction is not distressed. The Board meeting handout described the proposed model the Board agreed to.

The Board decided that the changes would be effective for interim and annual periods ending after March 15, 2009. The proposed FSP would be applied prospectively and early adoption would not be permitted.

The Board directed the staff to proceed to a draft of the proposed FSP for vote by written ballot and plans to issue that document for public comment on March 17, 2009, with a comment deadline of April 1, 2009. The Board expects to discuss the comments it receives at its meeting on April 2, 2009.

Other-than-temporary impairments. The Board discussed proposed changes to the guidance for other-than-temporary impairments. Currently, an entity is required to assess whether it has the intent and ability to hold a security to recovery in determining whether an impairment of that security is other than temporary. The proposed FSP would change that guidance as follows:

1. If the entity intends to sell the security or it is more likely than not that it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an other-than-temporary impairment.
    
2. If the entity does not intend to sell the security and it is not likely that the entity will be required to sell the security before recovering its cost basis, only the portion of the impairment loss representing credit losses would be recognized in earnings as an other-than-temporary impairment. The balance of the impairment loss would be recognized as a charge to other comprehensive income.

For securities within the scope of FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, an entity would determine the impairment charge representing credit losses by using its best estimate of the impairment amount arising from an increase in the credit risk associated with the specific instrument. One way of estimating that amount would be to consider the measurement methodology described in FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan.

For a debt security within the scope of 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,” an entity would estimate the amount of the total impairment charge representing the credit losses in accordance with that Issue.

The proposed FSP would result in a new category within other comprehensive income for the portion of the other-than-temporary impairment that is unrelated to credit losses for held-to-maturity securities. The impairment recognized in other comprehensive income would be amortized over the remaining life of the debt security in a prospective manner based on the amount and timing of future estimated cash flows unless there is an indication of additional credit losses. That amortization would be recognized in other comprehensive income with an offset to the asset and would not affect earnings.

The Board decided that the guidance would be effective for interim and annual periods ending after March 15, 2009, and applied prospectively. The Board directed the staff to proceed to a draft of the proposed FSP for vote by written ballot and plans to issue that document for public comment on March 17, 2009, for a comment period of 15 days. The Board expects to discuss the comments it receives at its meeting on April 2, 2009.