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.

July 23, 2009 FASB/IASB Joint Board Meeting

Technical plan. The Boards discussed the plans for the projects that they are deliberating together. No technical decisions were reached.

Insurance contracts. The Boards discussed which of the two remaining candidate measurement approaches for insurance contracts should be selected:

  1. A measurement approach based on the approach being developed in the IASB’s project to amend IAS 37, Provisions, Contingent Liabilities and Contingent Assets.
  2. A current fulfilment value without an explicit risk margin.
The FASB affirmed tentatively that the objective of the liability measurement is to report a value on the basis of the insurer’s fulfilment of its contractual obligations to its policyholders over time. The IASB did not reach a clear consensus.

The Boards also affirmed tentatively that an insurer should recognize all acquisition costs as an expense when incurred. In addition:
  1. The FASB affirmed tentatively that the insurer should not recognize any revenue (or income) at inception to offset those costs incurred.
  2. The IASB affirmed tentatively that the insurer should, at inception, recognize as revenue the part of the premium that covers acquisition costs (limited for this purpose to the incremental costs of issuing [that is, selling, underwriting, and initiating] an insurance contract and not including other direct costs).

Revenue recognition. The Boards considered a summary of the responses to the Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers. After reviewing those responses, the Boards affirmed the objective of the project to develop a single revenue recognition model for IFRSs and U.S. GAAP that can be applied consistently across various industries and transactions. They agreed to focus on developing the model proposed in the Discussion Paper and clarifying how that model would apply to continuous delivery contracts (for example, some construction contracts). The Boards will then decide whether to exclude any specific industries from the scope of that model.

Leases. At their meetings in May 2009, the Boards discussed lessor accounting and decided tentatively that a lessor should recognize:

  1. An asset for its right to receive rental payments from the lessee
  2. A liability for its performance obligations under the lease.
At this meeting, the Boards discussed how such assets and liabilities should be measured. The Boards made the following tentative decisions:
  1. Initial measurement of the lessor’s right to receive rental payments would follow existing literature for the accounting for financial assets under either IFRSs or U.S. GAAP (IAS 39, Financial Instruments: Recognition and Measurement, for IFRSs and Section 310-10-30 of the FASB Accounting Standards Codification™ for U.S. GAAP).
  2. Initial measurement of the lessor’s right to receive rental payments under U.S. GAAP would be discounted using the interest rate implicit in the lease.
  3. Initial measurement of the lessor’s performance obligation would equal the customer consideration received (that is, on initial measurement the performance obligation would equal the lessor’s receivable).
  4. Subsequent measurement of the lessor’s performance obligation would reflect decreases in the entity’s obligation to permit the lessee to use the leased item over the lease term.
The Boards also discussed subsequent measurement of the lessor’s right to receive rental payments and presentation of the lessor’s assets and liabilities. However, no decisions were reached.

These tentative decisions were reached on the basis of a model that would result in the lessor’s recognizing a performance obligation. However, the Boards asked the staff to provide additional analysis on an accounting model for lessors that would result in partial derecognition of the leased item. Consequently, the Boards will revisit those tentative decisions following discussion of this additional analysis.

In September, the Boards will discuss an analysis of the comment letters received on the leases Discussion Paper.

July 24, 2009 FASB/IASB Joint Board Meeting

Financial instruments with characteristics of equity. The Boards discussed an approach to displaying in the statement of comprehensive income the changes in the fair value of a liability instrument. That approach—the cost of capital approach—would separate the total changes in the fair value of liabilities into:

  1. A line item in profit or loss that is similar to accrued interest but can be computed for many types of liability instruments, including derivative instruments with the issuer’s own equity instruments as their underlyings
  2. The remainder of the change in fair value, which would be reported separately as a residual.
The Boards decided tentatively not to pursue the cost of capital approach.

Financial statement presentation. The Boards considered a summary of the responses to the Discussion Paper, Preliminary Views on Financial Statement Presentation. After reviewing those responses, the Boards affirmed the objective of the project to develop a single presentation model for IFRSs and US GAAP that can be applied consistently across all types of business entities.

The Boards decided tentatively to:

  1. Rewrite the objectives of financial statement presentation as core presentation principles
  2. Explain how the core presentation principles relate to the conceptual framework for financial reporting
  3. Retain cohesiveness as one of the core presentation principles and modify its application so that cohesiveness is not necessarily required at the line-item level
  4. Retain disaggregation as one of the core presentation principles and provide guidance on when an entity may present disaggregated information in the notes to financial statements rather than on the face of those financial statements
  5. Consider liquidity and financial flexibility in the context of the disaggregation principle, rather than as a separate core presentation principle.

The Boards also noted that the FASB had decided tentatively in its recent work on financial instruments to require a single statement of comprehensive income. The IASB plans to consider that issue in September.

Financial instruments—improvements to recognition and measurement.The Boards updated each other on their respective proposed classification and measurement approaches for financial instruments.

The IASB tentatively decided to hold three public roundtables during September in London, New York, and Tokyo to obtain feedback on its Exposure Draft, Financial Instruments: Classification and Measurement. The FASB will participate in these roundtables.

The FASB expects to issue one Exposure Draft that addresses the measurement, classification, and impairment of financial instruments, as well as hedge accounting, by the end of this year or early 2010. The FASB will post to its website a detailed description of its tentative approach to classification and measurement of financial instruments as a way of informing interested constituents and obtaining early input from them. The FASB will continuously update that description as the Board makes additional decisions. The website will also contain a link to the IASB’s Exposure Draft. The FASB will consider input received on its tentative model as well as feedback received on the IASB’s Exposure Draft as it develops its Exposure Draft.
 

Additional Details